-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, sVCPvZ+gSvNU6tQ1nwYczUPhmZw0NohaQYX6sIvTrcO51mqKAdjrsGXRHPX/cGno I4m/02UV5Blz2aIm3NE+DQ== 0000719241-94-000019.txt : 19940804 0000719241-94-000019.hdr.sgml : 19940804 ACCESSION NUMBER: 0000719241-94-000019 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSECO INC CENTRAL INDEX KEY: 0000719241 STANDARD INDUSTRIAL CLASSIFICATION: 6311 IRS NUMBER: 351468632 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09250 FILM NUMBER: 94519623 BUSINESS ADDRESS: STREET 1: 11825 N PENNSYLVANIA ST CITY: CARMEL STATE: IN ZIP: 46032 BUSINESS PHONE: 3175736100 FORMER COMPANY: FORMER CONFORMED NAME: SECURITY NATIONAL OF INDIANA CORP DATE OF NAME CHANGE: 19840207 10-K 1 CONSECO, INC. 1993 FORM 10-K 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, 1993 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the transition period from to Commission file number: 0-11164 CONSECO, INC. Indiana No. 35-1468632 ---------------------- ------------------------------ State of Incorporation IRS Employer Identification No. 11825 N. Pennsylvania Street Carmel, Indiana 46032 (317) 573-6100 -------------------------------------- --------- Address of principal executive offices Telephone Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, No Par Value New York Stock Exchange, Inc. 8-1/8% Senior Notes due 2003 New York Stock Exchange, Inc. $3.25 Series D Cumulative Convertible New York Stock Exchange, Inc. Preferred Stock Securities registered pursuant to Section 12(g) of the Act: Common Stock, No 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 period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Aggregate market value of common stock held by nonaffiliates (computed as of March 7, 1994): $1,320,947,980 Shares of common stock outstanding as of March 7, 1994: 26,171,939 DOCUMENTS INCORPORATED BY REFERENCE: The Registrant's definitive proxy statement for the annual meeting of shareholders to be held June 7, 1994 is incorporated by reference into Part III of this Report. 2 PART I ------ ITEM 1. BUSINESS OF CONSECO. Background Conseco, Inc. ("Conseco" or the "Company") is a specialized financial services holding company which primarily makes controlling strategic investments in insurance companies and related businesses, manages the operations of those businesses to increase their value, provides services to acquired companies and other businesses, and seeks to realize the increase in value that its management brings to such companies through sale or restructuring. The insurance companies in which Conseco has made investments develop, market, issue and administer primarily annuity, individual health insurance and life insurance products. Conseco provides administrative, data processing and investment management services to affiliated and nonaffiliated companies. The Company's operating strategy is to consolidate and streamline the administrative functions of the acquired companies, to improve their investment yields through active asset management by a centralized investment operation and to eliminate their unprofitable products and distribution channels. Conseco was organized in 1979 as an Indiana corporation and commenced operations in 1982. Its executive offices are located at 11825 N. Pennsylvania Street, Carmel, Indiana 46032, and its telephone number is (317) 573-6100. Conseco's earnings result from three different activities: (i) the operations of life insurance companies; (ii) services provided to affiliates and nonaffiliates for fees; and (iii) the acquisition and restructuring of life insurance companies, currently through Conseco Capital Partners II, L.P ("CCP II"). Major ownership interests of insurance companies include: (i) Bankers Life Holding Corporation ("BLH") and its subsidiaries; (ii) Western National Corporation ("WNC") and its subsidiary, Western National Life Insurance Company ("Western National"), both of which were wholly owned until WNC's initial public offering ("IPO") completed February 15, 1994; (iii) CCP Insurance, Inc. and its subsidiaries ("CCP"), in which Conseco has a 40 percent ownership interest and which is accounted for under the equity method and (iv) wholly owned life insurance subsidiaries, Bankers National Life Insurance Company ("Bankers National"), National Fidelity Life Insurance Company ("National Fidelity") and Lincoln American Life Insurance Company ("Lincoln American"). During 1990, Conseco formed Conseco Capital Partners, L.P. (the "Partnership"), which raised and invested $99.5 million of capital. Of this amount approximately half was provided by the Company and the balance by other investors. A wholly owned subsidiary of Conseco was the sole general partner of the Partnership. The Partnership was the Company's vehicle for effecting acquisitions of the following insurance companies: Great American Reserve Insurance Company ("Great American Reserve") in June 1990, Jefferson National Life Insurance Company ("Jefferson National") in November 1990, Beneficial Standard Life Insurance Company ("Beneficial Standard") in March 1991 and Bankers Life and Casualty Company ("Bankers Life") in November 1992. In July 1992, CCP, a holding company organized for the Partnership's first three acquisitions, completed an IPO of 8.0 million common shares, generating net proceeds to CCP of $111.2 million. Great American Reserve, Jefferson National and Beneficial Standard are collectively referred to herein as the "CCP Companies." On March 25, 1993, BLH, a holding company organized for Bankers Life, completed an IPO of 19.6 million common shares at $22 per share. BLH and Bankers Life are collectively referred to herein as "Bankers." On February 15, 1994, WNC completed an IPO of 37,202,500 shares, which included 2,300,000 shares sold by WNC and 34,902,500 shares sold by Conseco. After this IPO, Conseco continues to own 40 percent of the outstanding common stock of WNC. In addition, Conseco sold 150,000 shares to the President of WNC at the initial public offering price, less underwriting discounts and commissions. Net pretax proceeds to Conseco from the sale of WNC shares and related transactions totaled $537.9 million. WNC and Western National are collectively referred to herein as "Western." Effective January 1, 1994, Western is included in Conseco's financial statements on the equity method. The IPO and related transactions are further described in Note 16 to the consolidated financial statements. On February 2, 1994, Conseco announced the closing of the formation of CCP II, a partnership which will invest in acquisitions of specialized annuity, life and accident and health insurance companies and related businesses. As of January 31, 1994, 36 investors had committed a total of $624 million of capital to the new partnership in a private placement (see "Acquisitions and Restructuring"). As used herein the terms "Conseco" or the "Company" refer to Conseco, Inc. and its consolidated subsidiaries, unless the context otherwise requires. 3 INVESTMENTS IN LIFE INSURANCE COMPANIES The following describes Conseco's major ownership interests in life insurance companies and the business of these companies. BANKERS Bankers, which had total assets of approximately $4 billion at December 31, 1993, markets health and life insurance and annuity products primarily to senior citizens through over 200 branch offices and approximately 3,300 career agents. Most of Bankers' agents sell only Bankers' policies. Approximately 56 percent of the $1,464.7 million of direct premiums collected by Bankers in 1993 were from the sale of individual health insurance, principally Medicare supplement and long-term care policies. Bankers believes that its success in the individual health insurance market is attributable in large part to its career agency force, which permits one-on-one contacts with potential policyholders and builds loyalty to Bankers among existing policyholders. Its efficient and highly automated claims processing system is designed to complement its personalized marketing strategy by stressing prompt payment of claims and rapid responses to policyholder inquiries. Conseco owns 30.4 million common shares of BLH, or 56 percent of its outstanding common shares. At December 31, 1993, the BLH shares owned by Conseco had a net carrying value of $518.8 million, a fair value of approximately $652.8 million and a cost of $313.1 million. WESTERN Western, which had total assets of $8.4 billion at December 31, 1993, develops, markets and issues annuity products through niche distribution channels. Approximately 98 percent of the $563.0 million of direct premiums collected in 1993 were from the sale of annuity products. Western National markets single premium deferred annuities ("SPDAs") to the savings and retirement markets through financial institutions (principally banks and thrifts), flexible premium deferred annuities ("FPDAs") to the tax-qualified retirement market and single premium immediate annuities ("SPIAs") primarily to the structured settlement market. Western National was a wholly owned subsidiary of Conseco from its acquisition in 1987 to the completion of the initial public offering of WNC, Western National's parent, on February 15, 1994. After the offering Conseco continues to own 40 percent of the common stock of WNC. The sale of common stock of WNC and related transactions generated net pretax proceeds to Conseco of $537.9 million, which were used to repay a $200 million senior unsecured loan and for other general corporate purposes. Conseco will record, in the first quarter of 1994, a one-time, after-tax gain of approximately $43 million as a result of the IPO and related transactions. CCP CCP, which had $5.3 billion of assets at December 31, 1993, is a specialized insurance holding company whose subsidiaries market, issue and administer annuity, life and employee benefit-related insurance products through diversified cost-effective distribution channels. These channels consist of educator market specialists who sell tax-qualified annuities and certain employee benefit-related insurance products primarily to school teachers and administrators, professional independent producers who sell various annuity and life insurance products aimed primarily at the retirement market and financial institutions that sell SPDAs to their depositors through employee agents. Approximately 74 percent of the $451.0 million of total premiums collected in 1993 were from the sale of annuity products. Conseco owns 11.6 million shares of CCP, or 40 percent of CCP's common shares outstanding. At December 31, 1993, the CCP shares owned by Conseco had a net carrying value of approximately $244.3 million, a fair value of approximately $322.1 million and a cost of $102.8 million. 4 CONSECO'S WHOLLY OWNED INSURANCE SUBSIDIARIES Conseco's wholly owned insurance subsidiaries (excluding Western) had total assets of approximately $1.0 billion at December 31, 1993. They have profitable in-force blocks of many different annuity and life products, but do not currently actively market their products. Total premiums collected by these companies during 1993 were $148.2 million, including $61.8 million of premium from guaranteed investment contracts and deposit funds maintained by subsidiaries of the Company. SERVICES PROVIDED TO AFFILIATES AND NONAFFILIATES FOR FEES Various combinations of services, including investment management, mortgage origination and servicing, policy administration, data processing, product marketing and executive management services, are provided to all affiliates and to unaffiliated clients. In addition, subsidiaries of Conseco earn fees by: (i) providing marketing services to financial institutions related to the distribution of insurance and investment products and (ii) distributing property and casualty insurance products through independent agencies. Total fees from affiliates and nonaffiliates were $49.0 million, $30.2 million and $22.4 million in 1993, 1992 and 1991, respectively. To the extent these services are provided to entities that are included in the financial statements on a consolidated basis, the intercompany fees are eliminated in consolidation. Growth in this activity results from new clients (both affiliated and others) and from increases in the fee-producing activities conducted for such clients. ACQUISITIONS AND RESTRUCTURING Conseco believes that the consolidation of the U.S. life insurance industry will continue, and Conseco intends to participate in this process. Conseco believes that, under appropriate circumstances, it is more advantageous to acquire companies with large books of in-force life and health insurance and annuities than to produce new business because initial underwriting costs have already been incurred and mature business is generally less likely to terminate, making more predictable profit analysis possible. Since Conseco commenced operations in 1982, it has acquired 11 life insurance companies, the first seven as wholly owned subsidiaries and the last four through the first partnership. Recent acquisition activity is described in Notes 1 and 2 to the consolidated financial statements. All acquisitions have been accounted for as purchases. Therefore, activities of acquired companies have been included in the results of operations commencing with the date of purchase. Of the first seven companies acquired by Conseco, three were subsequently sold and four remained as wholly owned subsidiaries at December 31, 1993. One of the four (Western National) was partially disposed of in February 1994 when Conseco sold 60 percent of its interest in a public offering as described in Note 16 to the consolidated financial statements. The first three companies acquired in the first partnership are now wholly owned subsidiaries of CCP, in which Conseco holds a 40 percent interest. The final acquisition of the first partnership is now a wholly owned subsidiary of BLH, in which Conseco holds a 56 percent interest. 5 Following is a summary of the major acquisitions by Conseco and the Partnership since 1982:
Purchase Price Including Fees Year Company Acquired and Costs Acquired By ---- ---------------- --------- ----------- (Dollars in millions) 1982 Security National Life Insurance Company $ 1.3 Conseco 1983 Consolidated National Life Insurance Company 4.2 Conseco 1985 Lincoln American 25.0 Conseco 1986 Lincoln Income Life Insurance Company 32.3 Conseco 1986 Bankers National 117.6 Conseco 1987 Western National 261.7 Conseco 1989 National Fidelity 68.4 Conseco 1990 Great American Reserve 135.0 Partnership 1990 Jefferson National 171.0 Partnership 1991 Beneficial Standard 141.1 Partnership 1992 Bankers Life 600.0 Partnership
On February 2, 1994, Conseco announced the closing of the formation of CCP II, a partnership which will invest in acquisitions of specialized annuity, life and accident and health insurance companies and related businesses. As of January 31, 1994, 36 investors had committed a total of $624 million of capital to the new partnership in a private placement. Commitments to the new partnership include $100 million from Conseco, $25 million from Bankers, $25 million from CCP, $50 million from Western and $36 million from the executive officers and directors of Conseco and its affiliates. A subsidiary of Conseco is the sole managing general partner of CCP II. OPERATIONS Conseco reduces operating expenses by centralizing, standardizing and more efficiently performing many functions common to most life insurance companies, such as underwriting and policy administration, accounting and financial reporting, marketing, regulatory compliance, actuarial services and asset management. Conseco's centralized management techniques resulted in significant employee reductions and expense savings in the nine insurance companies acquired between 1985 and 1992. The ratio of aggregate operating expenses (excluding commissions) to premiums collected for these nine companies was reduced from 11 percent for the last year prior to acquisition to 7.4 percent for the second full year (or in Bankers' case, the first full year) following acquisition. The ratio of such expenses to total assets of these companies decreased from 3.4 percent to 1.9 percent in the same periods. The administration of Bankers' individual health insurance, unlike that of life insurance or annuities, involves a high volume of claims processing, multiple contacts with policyholders and generally higher operational costs. In 1993, Bankers processed more than four million policyholder claims. Bankers has developed an efficient and highly automated policyholder administration operation to minimize the costs of such large volume processing and deliver a high level of service to its policyholders. Bankers' state-of-the-art processing techniques stress prompt payment of claims. In most cases, Bankers mails its policyholders' checks within a week of receiving a claim. Bankers believes that its efficiency and promptness in processing policyholder claims have been a major reason for its strong reputation for service and the above average persistency of its Medicare supplement products. Conseco (through certain of its wholly owned subsidiaries) provides Bankers certain investment advisory, executive consulting, data processing, accounting, legal, mortgage loan servicing and origination, and other services. During 1993, Bankers implemented several measures to enhance efficiency and reduce operating costs, including relocating its office space, which previously was scattered in 27 separate buildings totaling approximately 750,000 square feet in three separate locations in the Chicago area. The 6 scattering of Bankers' employees resulted in logistical complexities, difficult communications and control and additional operating costs. In the fourth quarter of 1993, Bankers relocated to approximately 300,000 square feet of office space on two floors of a single facility in downtown Chicago pursuant to a 15-year lease agreement. Bankers entered into a 10-year lease for approximately 100,000 square feet of warehouse space in a facility also located in Chicago. Prior to WNC's IPO, Western had no full-time employees, and all of Western's daily operations were handled by Conseco pursuant to agreements between Western and Conseco. After the completion of the IPO, Western employs approximately 150 people, including certain former Conseco employees who work at the Western Annuity Center in Amarillo, Texas. To maintain operational efficiencies, Western will continue to contract with Conseco and its subsidiaries for investment advisory, data processing, mortgage loan servicing and origination and other services. INVESTMENTS Conseco Capital Management, Inc. ("CCM"), a registered investment adviser wholly owned by Conseco, manages the investment portfolios of Conseco's wholly owned subsidiaries, Western, CCP, Bankers and other nonaffiliated clients. CCM had approximately $19 billion of assets at fair value under management at December 31, 1993, of which $15.9 billion were assets of affiliated companies and $3.1 billion were assets of nonaffiliated companies. CCM's investment philosophy is to maintain a largely investment grade fixed-income portfolio, provide adequate liquidity for expected liability durations and other requirements and maximize total return through active investment management. Investment activities are an integral part of the Company's business; investment income is a significant component of the Company's total revenues. Profitability is significantly affected by spreads between interest yields on investments and rates credited on insurance liabilities. Substantially all credited rates on single premium deferred annuities and flexible premium deferred annuities may be changed annually. As of December 31, 1993, the average yield on the Company's investment portfolio was 8.2 percent and the average interest rate credited on the Company's total liability portfolio was 6.5 percent. The Company balances the duration of its invested assets with the expected duration of benefit payments arising from insurance liabilities. At December 31, 1993, the adjusted modified duration of fixed maturities, trading securities and short-term investments was 5.7 years. For information regarding the composition and diversification of the investment portfolio of Conseco's subsidiaries, see Management's Discussion and Analysis - "Investments" and Note 3 to the consolidated financial statements. COMPETITION The life insurance industry is highly competitive and consists of a large number of insurance companies, some of which have substantially greater financial resources, broader and more diversified product lines and larger staffs than those of Conseco and its investees. Competition also is encountered from the expanding number of banks, securities brokerage firms and other financial intermediaries which market insurance products and offer competing products, such as savings accounts and securities. Additionally, when Conseco's acquisition partnerships bid on companies they wish to acquire, they typically are in competition with other entities. A significant portion of Western National's annuity sales currently is made through banks and thrifts, which are presently precluded by state and federal regulation from issuing insurance directly. Some federal regulatory agencies, members of Congress and representatives of the banking industry have advocated legislative and regulatory changes to broaden the ability of banks to participate in the direct sale and underwriting of insurance products. If such changes were to occur, Western National could be faced with increased competition in its markets or the loss of certain marketing relationships. 7 Financial institutions, school districts, marketing companies, agents who market insurance products and policyholders use the ratings of an insurer as one factor in determining which insurer's annuity to market or purchase. Bankers Life, Western National and the principal insurance subsidiaries of CCP are rated "A (Excellent)" by A.M. Best. Ratings for the industry currently range from "A++ (Superior)" to "C- (Fair)". Publications of A.M. Best indicate that the "A" rating is assigned to those companies that, in A.M. Best's opinion, have achieved excellent overall performance when compared to the norms of the insurance industry and that generally have demonstrated a strong ability to meet their respective policyholder and other contractual obligations. In evaluating a company's financial and operating performance, A.M. Best reviews the company's profitability, leverage and liquidity as well as the company's book of business, the adequacy and soundness of its reinsurance, the quality and estimated market value of its assets, the adequacy of its reserves and the experience and competency of its management. A.M. Best's ratings are based upon factors relevant to policyholders, agents, insurance brokers and intermediaries. In addition, Western National and Bankers Life have claims paying ability ratings of AA- from Duff & Phelps Credit Rating Company ("Duff & Phelps") and the three CCP Companies have claims paying ability ratings of A+ from Duff & Phelps. Duff & Phelps' claims paying ability ratings range from "AAA (Highest claims paying ability)" to "DD (Company is under an order of liquidation)." The AA- rating represents "Very high claims paying ability" and the A+ rating represents "High claims paying ability." At present, Western National also has a claims paying rating of A+ from Standard & Poor's Corporation and a financial strength rating of Baa2 from Moody's Investor Service, Inc. Generally, rating agencies base their ratings on information furnished to them by the issuer and on investigations, studies and assumptions by the rating agencies. There is no assurance that any particular rating will continue for any given period of time or that it will not be changed or withdrawn entirely if, in the judgement of the rating agency, circumstances so warrant. In the individual health insurance business, insurance companies compete primarily on the basis of marketing, service and price. The standardized policy features for Medicare supplement products mandated by the Omnibus Budget Reconciliation Act of 1984 and the National Association of Insurance Commissioners increase the comparability of such policies and may intensify competition based on factors other than product features. See "Investments in Life Insurance Companies - Bankers" and "Regulation." The Company believes that the insurance companies it invests in are able to compete effectively because they: (i) emphasize specialized distribution channels where the ability to respond rapidly to changing customer needs yields a competitive edge; (ii) are experienced in establishing and cultivating relationships with the unique distribution networks and the independent marketing companies operating in these specialized markets; (iii) can offer competitive premium rates as a result of their lower-than-average operating costs and increased investment yields achieved by applying active investment portfolio management techniques; and (iv) have reliable policyholder administrative services supported by customized data processing systems. UNDERWRITING Under current regulations, insurance companies are prohibited from underwriting Medicare supplement policies for certain first time purchasers. Under these rules, if a person applies for insurance within six months of becoming eligible for Medicare by reason of age, the person may not be rejected due to medical conditions. For other prospective policyholders, such as senior citizens who are transferring to Bankers' products, the underwriting procedures are relatively limited. Long-term care and comprehensive major medical products generally require detailed underwriting procedures designed to assess and quantify the insurance risks before such policies are issued to individuals and groups. Certain health and life insurance products require medical examinations of applicants (including blood and urine tests, where permitted). These requirements are graduated according to the applicant's age and may vary by policy type. The Company also relies on medical records and each potential policyholder's written application for insurance products, which is generally prepared under the supervision of a trained agent. The Company uses information from the application and, in some cases, inspection reports, physician statements 8 or medical examinations to determine whether a policy should be issued as applied for, issued with reduced coverage under a health rider or rejected. Group accident and health policies are underwritten based on the characteristics of the group and its past claim experience. Underwriting with respect to SPDAs and FPDAs is minimal. The Company carefully examines specific information on structured settlement annuitants to develop specific schedules of payments to injured persons, frequently pursuant to legal judgements or insurance settlements. Agents obtain detailed medical information about an annuitant, including test results and medical history. Such information is evaluated by the medical director who provides a life expectancy which is equated to an age higher than the current age of the annuitant. The price of the annuity is developed using the "higher" age and a mortality table, taking into consideration the Company's expectations about current and future investment performance. Substantially all the life insurance policies issued by the Company's subsidiaries are underwritten individually, although standardized underwriting procedures have been adopted for certain coverages. After initial processing, each file is reviewed and the information needed to make an underwriting decision (such as medical examinations, doctors' statements and special medical tests) is obtained. After the information is collected and reviewed, the Company either issues the policy as applied for, issues the policy with an extra premium charge because of unfavorable factors, or rejects the application. REINSURANCE Consistent with the general practice of the life insurance industry, the Company's subsidiaries reinsure portions of the coverage provided by their insurance products with other insurance companies under agreements of indemnity reinsurance. The Company's subsidiaries also assume reinsurance from other insurers. Reinsurance assumed is accounted for in the same manner as direct business. Indemnity reinsurance agreements are intended to limit a life insurer's maximum loss on a large or unusually hazardous risk or to obtain a greater diversification of risk. Indemnity reinsurance does not discharge the original insurer's primary liability to the insured, but it is the practice of insurers (subject to certain limitations of state insurance statutes) to account for risks which have been reinsured with other approved companies, to the extent of the reinsurance, as though they are not risks for which the original insurer is liable. The Company's reinsured business is ceded to numerous reinsurers; the amount of business ceded to any one reinsurer is not material. The policy risk retention limit of Conseco's subsidiaries on the life of one individual does not exceed $.8 million as of December 31, 1993. Reinsurance ceded by Conseco's subsidiaries represented 8 percent of gross combined life insurance in force at December 31, 1993. Reinsurance assumed by Conseco's subsidiaries represented .5 percent of net combined life insurance in force at December 31, 1993. The Company also has ceded policy liabilities under assumption reinsurance agreements where all obligations under the insurance contracts have been ceded to another company. Accordingly, the insurance liabilities related to such policies are not reported in the balance sheet. The Company believes the assuming companies are able to honor all contractual commitments under the assumption reinsurance agreements, based on the Company's periodic reviews of their financial statements, insurance industry reports and reports filed with state insurance departments. At December 31, 1993 and 1992, reinsurance receivables with carrying values of $398.5 million and $420.0 million, respectively, were associated with annuity business ceded to an unaffiliated company and retroceded on substantially identical terms to an ICH affiliate. Bankers provides administrative, data processing and general management services related to the reinsured business in exchange for annual fees based on a percentage of reinsured reserves. Additionally, Bankers is entitled to experience refunds based on the investment performance of assets supporting the annuity reserves. 9 During the first quarter of 1993, Bankers recaptured certain participating life insurance policies (having assets approximately equal to insurance liabilities of $182.0 million) that had previously been ceded to an affiliate of ICH, from whom Bankers was acquired in 1992. Recapture fees of $15.5 million were capitalized as a component of cost of policies purchased. In a few instances, Bankers has reinsured blocks of insurance to an unrelated insurer to provide funds for enhancing surplus and for other purposes. Under these surplus relief arrangements, statutorily determined profits on the reinsured business are accelerated through the reinsurer's payment of ceding commissions representing the present value of profits on the business over the reinsurance period. At December 31, 1993, Bankers Life's statutory capital and surplus included approximately $2.9 million of benefits from this financial reinsurance. No benefit was recognized under generally accepted accounting principles ("GAAP"). EMPLOYEES As of March 7, 1994, Conseco had approximately 3,140 employees, including approximately 1,600 home office employees and 450 branch office employees of Bankers. None of the Company's employees are covered by a collective bargaining agreement. Conseco believes that it has excellent relations with its employees. Approximately 150 employees formerly employed by Conseco became employees of WNC after the initial public offering of WNC's common stock on February 15, 1994. GOVERNMENTAL REGULATION General Life insurance companies are subject to regulation and supervision by the states in which they transact business. The laws of the various states establish supervisory agencies with broad administrative and supervisory powers related to granting and revoking licenses to transact business, regulating trade practices, establishing guaranty associations, licensing agents, approving policy forms, filing premium rates on certain business, setting reserve requirements, determining the form and content of required financial statements, determining the reasonableness and adequacy of capital and surplus and prescribing the maximum concentrations of certain classes of investments. Most states also have enacted legislation which regulates insurance holding company systems, including acquisitions, extraordinary dividends, the terms of surplus debentures, the terms of affiliated transactions, and other related matters. Currently, the Company and its insurance subsidiaries are registered as a holding company system pursuant to such legislation in Texas, Missouri, Tennessee, California and Illinois and routinely report to other jurisdictions. Although the federal government does not directly regulate the business of insurance, federal legislation and administrative policies in several areas, including pension regulation, age and sex discrimination, financial services regulation and federal taxation, can significantly affect the insurance business. Recently, increased scrutiny has been placed upon the insurance regulatory framework and a number of state legislatures have considered or enacted legislative proposals that alter, and in many cases increase, state authority to regulate insurance companies and holding company systems. In addition, legislation has been introduced in Congress which could result in the federal government assuming some role in the regulation of the insurance industry. The National Association of Insurance Commissioners ("NAIC"), an association of state regulators and their staffs, attempts to coordinate the state regulatory process and continually re-examines existing laws and regulations and their application to insurance companies. Recently, this re-examination has focused on insurance company investment and solvency issues and has resulted in new interpretations of certain existing laws, the development of certain new laws and the implementation of certain non-statutory guidelines. The NAIC has formed committees and appointed advisory groups to study and formulate regulatory proposals on such diverse issues as the use of surplus debentures, accounting for reinsurance transactions and the adoption of risk-based capital ("RBC") rules. In addition, in connection with its accreditation of states to conduct periodic company examinations, the NAIC has encouraged states to adopt model NAIC laws on specific topics, such as holding company regulations and the definition of extraordinary dividends. It is not possible to predict the future impact of changing state and federal regulation on the operations of the Company. The NAIC adopted RBC requirements, effective December 31, 1993, to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks associated with: (i) asset quality; (ii) mortality and morbidity; (iii) asset and liability matching; and (iv) other business factors. The RBC formula is designed as an early warning tool to help state regulators identify possible weakly capitalized companies for the purpose of initiating regulatory action. In addition, the formula defines a new minimum capital standard which supplements the prevailing system of low, fixed minimum capital and surplus requirements on a state-by-state basis. 10 The new RBC requirements provide for four different levels of regulatory attention depending on the ratio of the company's total adjusted capital (defined as the total of its statutory capital, surplus and asset valuation reserve and 50 percent of apportioned dividends) to its RBC. The "Company Action Level" is triggered if a company's total adjusted capital is less than 100 percent but greater than or equal to 75 percent of its RBC, or if total adjusted capital is less than 125 percent of RBC and a negative trend has occurred. The trend test calculates the greater of any decrease in the margin (i.e., the amount in dollars by which a company's total adjusted capital exceeds its RBC) between the current year and the prior year and between the current year and the average of the past three years, and assumes that the decrease could occur again in the coming year. If a similar decrease in the margin in the coming year would result in an RBC of less than 95 percent, then the Company Action Level would be triggered. At the Company Action Level, a company must submit a comprehensive plan to the regulatory authority which discusses proposed corrective actions to improve its capital position. The "Regulatory Action Level" is triggered if a company's total adjusted capital is less than 75 percent but greater than or equal to 50 percent of its RBC. At the Regulatory Action Level, the regulatory authority will perform a special examination of the company and issue an order specifying corrective actions that must be followed. The "Authorized Control Level" is triggered if a company's total adjusted capital is less than 50 percent but greater than or equal to 35 percent of its RBC, and the regulatory authority may take any action it deems necessary, including placing the company under regulatory control. The "Mandatory Control Level" is triggered if a company's total adjusted capital is less than 35 percent of its RBC, and the regulatory authority is mandated to place the company under its control. Calculations using the NAIC formula at December 31, 1993, indicated that the ratios of the total adjusted capital to RBC for all of Conseco's primary subsidiaries and investees were greater than twice the Company Action Level. Texas recently adopted its own RBC requirements, the stated purpose of which is to require a minimum level of capital and surplus to absorb the financial, underwriting, and investment risks assumed by an insurer. Under Texas' RBC regulations, Western National and Bankers National, as Texas-domiciled companies, must maintain a minimum level of capital and surplus determined by a calculation formula contained in the Texas Regulations. Additionally, two insurance subsidiaries of CCP are domiciled in Texas. Texas' RBC requirements differ from those adopted by the NAIC in two principal respects: (i) the elements used to determine minimum RBC levels in the respective calculation formulas differ and (ii) the Texas Regulations do not contain "Action Levels" (like those adopted by the NAIC) prescribing certain corrective actions if RBC threshold levels are not met. However, the Commissioner of the Texas Insurance Department does have the power to take similar corrective actions if a company does not maintain the required minimum level of capital and surplus. Under the Texas Regulations, an insurer has met RBC requirements if its admitted assets exceed its liabilities by at least 3 percent. At December 31, 1993, the admitted assets of each of the Conseco subsidiaries and CCP subsidiaries domiciled in Texas exceeded liabilities by more than twice the required 3 percent level. Most states 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. The nature and extent of such legislation and regulations vary from state to state. Most states, however, require administrative approval of the acquisition of 10 percent or more of the outstanding shares of an insurance company incorporated in the state or the acquisition of 10 percent or more of the outstanding stock of an insurance holding company whose insurance subsidiary is incorporated in the state. The acquisition of 10 percent 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 many states, an insurance authority may find that "control" in fact does not exist in circumstances in which a person owns or controls either a lesser or a greater amount of securities. As part of their routine regulatory oversight process, insurance departments approximately once every three years conduct periodic detailed examinations ("Triennial Examinations") of the books, records and accounts of insurance companies-domiciled in their states. Such Triennial Examinations are 11 generally conducted in cooperation with the departments of two or three other states under guidelines promulgated by the NAIC. The Company expects Western National and Bankers to each receive a Triennial Examination in 1994. Health Care Federal and state regulations have had, and are expected to continue to have, the effect of increasing the regulation of Medicare supplement plans in all states. Recent NAIC rules: (i) require minimum loss ratios of at least 75 percent for group policies and 65 percent for individual policies; (ii) create 10 standardized benefit plans to promote comparability; (iii) guarantee renewability of policies; (iv) prohibit insurers from underwriting for health conditions or claims experience policy applications from persons who first become eligible for Medicare by reason of age; and (v) impose restrictions on commissions payable to agents. The NAIC rules also require insurance companies to file annual requests for premium increases, rather than relying on automatic escalation provisions. As of November 1, 1993, all states have adopted the NAIC rules. Numerous proposals have been introduced in Congress and the state legislatures aimed at reforming the current health care system. Proposals have included, among other things: (i) modifications to the existing employer-based insurance system; (ii) a quasi-regulated system of "managed competition" among health plans; and (iii) a single payer, public program. Changes in health care policy could significantly affect Bankers' business. For example, federal comprehensive major medical or long-term care programs, if proposed and implemented, could partially or fully replace some of Bankers' current products. However, the institution of such programs also could create new marketplace opportunities for supplemental insurance similar to Bankers' Medicare supplement policies. Some reform proposals also could: (i) standardize major medical or long-term care coverages; (ii) impose mandated or targeted loss ratios or rate regulation; (iii) require the use of community rating or other means that limit the ability of insurers to differentiate among risks; or (iv) mandate utilization review or other managed care concepts to determine what benefits would be paid by insurers. If adopted, these or other proposals could increase the level of competition among health insurers. In addition, changes could be made in Medicare that could necessitate revisions in Bankers' Medicare supplement products. Other potential initiatives, designed to tax insurance premiums or shift medical care costs from government to private insurers, could have an adverse effect on Bankers' business, although such taxes and costs might be offset in whole or in part by increasing premiums. Depending on their form, proposals designed to reduce health care costs could reduce benefits payable by Bankers. Bankers is unable to predict what changes to the country's health care system will be enacted, and if enacted, their scope and effect on Bankers' business. However, Bankers continues to believe that the opportunity for its products will grow under any realistic and affordable health care reform scenario. FEDERAL INCOME TAXATION The Omnibus Budget Reconciliation Act of 1993 (the "Act") was enacted on August 10, 1993. The most significant provision of the Act affecting the Company was the increase in the corporate income tax rate to 35 percent from 34 percent, effective for taxable income reported for the year 1993. As a result of the increase in the tax rate, the Company recognized additional tax expense of $8.9 million, consisting of: (i) $5.6 million related to income in 1993; (ii) $1.9 million related to a one-time adjustment to accumulated deferred taxes relating to prior years' income; and (iii) $1.4 million related to unrealized appreciation of securities at the date the new law was enacted. In addition, the equity in earnings of CCP was reduced by approximately $1.6 million as a result of the Company's share of the additional tax expense recorded by CCP related to the increase in the tax rate. The impact of other provisions of the Act was not material. The annuity and life insurance products marketed and issued by Conseco's subsidiaries generally provide the policyholder with an income tax advantage, as compared to other saving investments such as certificates of deposit and bonds, in that income taxation on the increase in value of the product is deferred until receipt by the policyholder. With other savings investments, the increase in value is taxed as earned. Life insurance benefits which accrue 12 prior to the death of the policyholder and annuity benefits are generally not taxable until paid, and life insurance death benefits are generally exempt from income tax. Also, benefits received on immediate annuities (other than structured settlements) are recognized as taxable income ratably as opposed to the economic accrual methods, which tend to accelerate taxable income into earlier years and which are required for other investments. The tax advantage for annuities and life insurance is provided in the Internal Revenue Code ("IRC"), and is generally followed in all states and other United States taxing jurisdictions. Accordingly, it is subject to change by Congress and the legislatures of the respective taxing jurisdictions. Conseco's insurance company subsidiaries are taxed as life insurance companies under the IRC. During 1990, the taxation of life insurance companies was changed to require a portion of the expenses incurred in selling insurance products to be deducted over a period of years, as opposed to immediate deduction in the year incurred. This change, although not affecting tax expense on the Company's financial statements because it affects only the timing of the deductions, does have the effect of increasing the Company's tax for statutory accounting purposes. This, in turn, reduces statutory surplus and, accordingly, decreases the amount of cash dividends that may be paid by the life insurance subsidiaries. For 1993, the increase in the Company's current tax due to this change was $25.5 million. The Company had regular tax loss carryforwards at December 31, 1993, of approximately $94.9 million, portions of which begin expiring in 1999. ITEM 2. PROPERTIES. The Company's principal operations are located on a 150-acre corporate campus in Carmel, Indiana, immediately north of Indianapolis. These facilities contain approximately 416,000 square feet of space in seven buildings which contain Conseco's executive offices and certain administrative operations of its subsidiaries. These facilities include significant capacity for future growth. Bankers currently leases 300,000 square feet of executive office and administration space in a single facility in downtown Chicago under a 15-year lease agreement. Bankers also leases approximately 100,000 square feet of warehouse space in a second Chicago facility under a 10-year lease agreement. Bankers leases approximately 208 sales offices totaling approximately 340,000 square feet. All of the sales office leases are short-term in length, with remaining lease terms ranging from one to five years. ITEM 3. LEGAL PROCEEDINGS. From time to time, Conseco and its subsidiaries are involved in lawsuits which are primarily related to their operations. Most of these lawsuits involve claims under insurance policies or other contracts of the Company. Even though Conseco may be contesting the validity or extent of its liability in response to such lawsuits, the Company has established reserves in its consolidated financial statements which approximate its estimated potential liability or cost of defense. Accordingly, none of the lawsuits currently pending, either individually or in the aggregate, is expected to have a material adverse effect on the Company's consolidated financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 13 OPTIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Officer Positions with Conseco, Principal Name and Age(a) Since Occupation and Business Experience (b) - - ---------------- ----- -------------------------------------- Stephen C. Hilbert, 48 1979 Since 1979, Chairman of the Board and Chief Executive Officer, since 1988, President, and from 1979 to 1986, Secretary of Conseco. Ngaire E. Cuneo, 43 1992 Since 1992, Executive Vice President of Corporate Development; from 1986 to 1992, Senior Vice President and Corporate Officer of General Electric Capital Corporation. Rollin M. Dick, 62 1986 Since 1986, Executive Vice President, Chief Financial Officer and Director, and from 1988 to 1989, Treasurer, of Conseco. Donald F. Gongaware, 58 1985 Since 1985, Executive Vice President and Director and, since 1989, Chief Operations Officer of Conseco. Lawrence W. Inlow, 43 1986 Since 1986, Executive or Senior Vice President, Secretary and General Counsel of Conseco. Walter T. Kirkbride, 47 1987 Since 1987, Executive Vice President and Chief Investment Officer of Conseco. ___________________ (a) The executive officers serve as such at the discretion of the Board of Directors and are elected at the annual meeting of the Board. (b) Business experience is given for at least the last five years.
14 PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION The common stock of Conseco (trading symbol "CNC") has been listed for trading on the New York Stock Exchange (the "NYSE") since 1986. The following table sets forth the quarterly dividends paid per share and the ranges of high and low sales prices per share on the NYSE for the last two fiscal years, based upon information supplied by the NYSE. All applicable share and per share data in this Form 10-K have been adjusted for the two-for-one stock splits distributed on July 1, 1991 and April 1, 1992.
Period Market Price Dividend ------ ------------ High Low Paid ---- --- ---- 1992: First Quarter $41-1/2 $30-5/8 $0.020 Second Quarter 36-1/4 20-5/8 0.020 Third Quarter 32-1/2 24-1/4 0.020 Fourth Quarter 47-3/8 29-1/4 0.020 1993: First Quarter 73-5/8 45-3/8 0.025 Second Quarter 67-3/8 44-5/8 0.025 Third Quarter 75-1/4 57-3/4 0.025 Fourth Quarter 75-3/4 53-1/2 0.125
As of March 7, 1994, there were approximately 14,700 holders of record of the outstanding shares of common stock, including individual participants in securities position listings. DIVIDENDS In October 1988, the Company's Board of Directors adopted a policy of paying regular quarterly cash dividends on its common stock. The first such dividend was $.0125 per share. Subsequent dividends, which were increased to $.015 per share effective with the dividend paid October 1, 1990, to $.02 per share effective with the dividend paid October 1, 1991, to $.025 per share effective with the dividend paid January 4, 1993, and to $.125 per share effective with the dividend paid October 1, 1993, have been paid on the first business day of each calendar quarter, after review by the Board of Directors of the Company's interim operating results. The Company's general policy continues to be to retain most of its earnings. Retained earnings have been used to finance the growth and development of the Company's business through acquisitions or otherwise and to finance the repurchase of its common stock on those occasions when the Company has believed that the use of funds for stock repurchases would not interfere with other cash needs and that its shares were undervalued in the market. In February 1993 the Company issued $287.5 million liquidation value Series D Cumulative Convertible Preferred Stock ("Preferred Stock"), on which dividends ($3.25 per share) are cumulative from the date of original issue and are payable quarterly, commencing April 15, 1993. The terms of the Preferred Stock prohibit the payment of cash dividends on capital stock ranking junior to the Preferred Stock if the Company is not current in its dividend payments on the Preferred Stock. During 1993, the Company paid dividends of $13.5 million on the Preferred Stock and is current on its payments. The principal operating subsidiaries of Conseco are life insurance companies organized under state laws and subject to regulation by state insurance departments. These laws and regulations limit the ability of insurance subsidiaries to make cash dividends, loans or advances to a holding company such as Conseco. However, these laws generally permit the payment, without prior approval, of annual dividends which in the aggregate do not exceed the greater of (or in some states the lesser of): (i) the subsidiary's prior year net gain from operations; or (ii) 10 percent of surplus at the prior year-end, both computed on the statutory basis of accounting prescribed for insurance companies. 15 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (a).
Years Ended December 31, ----------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- (Amounts in millions, except per share amounts) OPERATING DATA Premiums collected $2,140.1 $1,464.9 $1,648.7 $1,361.4 $937.9 Insurance policy income 1,293.8 378.7 280.8 152.8 198.9 Investment activity: Net investment income 896.2 888.6 921.4 581.7 417.7 Net trading income 93.1 35.9 50.7 6.0 14.3 Net realized gains 149.5 124.3 123.3 4.5 22.9 Total revenues 2,636.0 1,523.9 1,391.8 753.3 662.7 Income before income taxes, minority interest and extraordinary charge 610.2 330.0 223.2 65.3 70.2 Earnings excluding realized investment gains and extraordinary charge(b) 301.9 162.7 84.0 39.0 32.1 Extraordinary charge on extinguishment of debt, net of tax 11.9 5.3 5.0 - - Net income 297.0 169.5 116.0 41.7 47.2 Preferred dividends 20.6 5.5 6.8 5.6 8.3 Earnings applicable to common stock 276.4 164.0 109.2 36.1 38.9 PER SHARE DATA Net income, primary $ 9.45 $ 5.43 $ 4.10 $1.37 $1.75 Net income, fully diluted 8.77 5.40 4.02 1.36 1.26 Earnings excluding realized investment gains and extraordinary charge(b) 8.92 5.18 2.89 1.25 .81 Dividends declared per common share .30 .085 .070 .055 .05 Book value per common share outstanding 33.78 21.86 15.44 5.83 4.30 Shares outstanding at year-end 25.3 24.9 24.7 20.6 25.2 Average fully diluted shares outstanding 33.5 29.6 25.4 25.4 33.1 BALANCE SHEET DATA Total assets $13,749.3 $11,772.7 $11,832.4 $8,371.1 $5,267.1 Long-term debt for which Conseco is directly liable 413.0 163.2 177.6 268.9 300.3 Notes payable of BLH, not direct obligations of Conseco(c) 290.3 392.0 - - - Notes payable related to CCP Companies, not direct obligations of Conseco - - 319.3 258.1 - Shareholders' equity 1,142.6 594.3 431.6 180.2 158.3 (a) For periods beginning with their acquisitions and ending June 30, 1992, the financial statements of the CCP Companies were consolidated with the financial statements of Conseco. With the completion of the initial public offering by CCP, the Company no longer had unilateral control to direct all of CCP's activities and therefore, no longer consolidates the financial statements of the CCP Companies with the financial statements of Conseco. As of November 1, 1992, the Company began to include in its financial statements the newly acquired Partnership subsidiary, Bankers. Comparison of consolidated financial information in the above table is significantly affected by the various Partnership acquisitions and the deconsolidation of the CCP Companies effective July 1, 1992. Refer to the notes to consolidated financial statements included elsewhere herein for a description of business combinations. (b) Represents net income excluding net realized gains and extraordinary charge, less applicable expenses, amortization, changes in future policy benefits, taxes and minority interest. (c) Represents notes issued by BLH in connection with the acquisition of Bankers Life.
16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion highlights the material factors affecting the results of operations and the significant changes in balance sheet items. This discussion should be read in conjunction with the accompanying consolidated financial statements, the notes thereto and the financial statistics appearing elsewhere herein. The comparison of 1993, 1992 and 1991 balances in the consolidated financial statements is largely affected by the transactions described in Note 1 "Significant Accounting Policies - Basis of Presentation" and Note 2 "Acquisitions" to the consolidated financial statements. RESULTS OF OPERATIONS Conseco's earnings result from three different activities: - The operations of life insurance companies; - Services provided to affiliates and nonaffiliates for fees; and - The acquisition and restructuring of life insurance companies, currently conducted through CCP II. Operations of Life Insurance Companies Life insurance companies are included in Conseco's financial statements on a consolidated basis if they are unilaterally controlled by Conseco (i.e., companies that are wholly owned by Conseco, companies that are over 50 percent but less than 100 percent owned by Conseco, and companies that are over 50 percent owned by a partnership in which Conseco is the sole general partner). Life insurance companies are included in Conseco's financial statements on an equity basis if not so controlled (i.e., companies in which Conseco has a significant interest but does not have unilateral control). Refer to Notes 1 and 2 of the consolidated financial statements for a description of changes during the last three years in the composition of the companies included in Conseco's consolidated financial statements. Growth in this activity results from: (i) the acquisition of new companies; (ii) changes in Conseco's ownership interest in the companies; and (iii) changes in the profitability of such companies related to premiums received, investment results, product profitability, expense levels and other factors. Services Provided for Fees Various combinations of services, including investment management, mortgage origination and servicing, policy administration, data processing, product marketing and executive management services, are provided to all affiliates and other unaffiliated clients. In addition, subsidiaries of Conseco earn fees by: (i) providing marketing services to financial institutions related to the distribution of insurance and investment products and (ii) distributing property and casualty insurance products through independent agencies. Growth in this activity results from new clients (both affiliated and others) and from increases in the fee-producing activities conducted for such clients. Acquisition and Restructuring of Life Insurance Companies Since Conseco commenced operations in 1982, it has acquired 11 life insurance companies, the first seven as wholly owned subsidiaries and the last four through the first partnership. Recent acquisition activity is described in Notes 1 and 2 to the consolidated financial statements. All acquisitions have been accounted for as purchases. Therefore, activities of acquired companies have been included in the results of operations commencing with the date of purchase. 17 Of the first seven companies acquired as wholly owned subsidiaries by Conseco, three were subsequently sold and four remained as wholly owned subsidiaries at December 31, 1993. One of the four (Western National) was partially disposed of in February 1994 when Conseco sold 60 percent of its interest in a public offering as described in Note 16 to the consolidated financial statements. The first three companies acquired in the first partnership are now wholly owned subsidiaries of CCP, in which Conseco holds a 40 percent interest. The final acquisition of the first partnership is now a wholly owned subsidiary of BLH, in which Conseco holds a 56 percent interest. Future acquisitions will be accomplished through CCP II, in which a subsidiary of Conseco is the sole managing general partner. CCP II was formed in early 1994 with commitments from 36 partners for $624 million of capital for the purpose of completing acquisitions of insurance companies, building value within such acquired companies and realizing such increased value for the investing partners. Commitments to the new partnership include $100 million from Conseco, $25 million from Bankers, $25 million from CCP, $50 million from Western and $36 million from executive officers and directors of Conseco and its affiliates. Activities of companies acquired through the first partnership are recorded in the segment related to operations of life insurance companies. Conseco also provides services to those companies resulting in increased income in the fee for service segment. Earnings are reflected in the acquisition and restructuring segment when Conseco, as general partner, earns incentive compensation related to the level of total returns to the partners in excess of prescribed targets, and when restructuring gains are realized from the sale of portions of the acquired entities. 18 Analysis of Net Income and Fully Diluted Earnings Per Share The following table shows the sources of Conseco's net income (after tax and minority interest) for the three years ended December 31, 1993, disaggregated into the three earnings activities described in the preceding section:
For the years ended December 31, -------------------------------- 1993 1992 1991 ---- ---- ---- (Dollars in millions) Operations of life insurance companies: Bankers: Operating earnings before trading income $ 36.9 $ 4.8 $ - Net trading income 6.9 .7 - Net realized gains (losses) 2.9 (.1) - Extraordinary charge (3.1) - - ------ ------ ------ Net income 43.6 5.4 - ------ ------ ------ Western: Operating earnings before trading income 93.4 80.6 56.8 Net trading income 32.1 16.5 15.7 Net realized gains 4.5 5.1 25.0 ------ ------ ------ Net income 130.0 102.2 97.5 ------ ------ ------ CCP: Operating earnings before trading income 34.6 23.2 10.9 Net trading income - 1.6 5.3 Net realized gains - 3.0 8.6 Extraordinary charge - (3.9) - ------ ------ ------ Net income 34.6 23.9 24.8 ------ ------ ------ Wholly owned life companies excluding Western: Operating earnings before trading income 27.5 18.6 14.0 Net trading income 8.6 1.6 1.5 Net realized gains (losses) (1.3) 4.1 3.4 ------ ------ ------ Net income 34.8 24.3 18.9 ------ ------ ------ Life Re net income - 10.6 8.6 ------ ------ ------ Total from operations of life insurance companies: Operating earnings before trading income 192.4 137.8 90.3 Net trading income 47.6 20.4 22.5 Net realized gains 6.1 12.1 37.0 Extraordinary charge (3.1) (3.9) - ------ ------ ------ Net income 243.0 166.4 149.8 ------ ------ ------ Services provided for fees - net income 14.3 14.5 11.2 ------ ------ ------ Acquisition and restructuring of life insurance companies: Incentive earnings allocation 22.3 3.6 - Sale of stock 61.0 19.7 - ------ ------ ------ Net income 83.3 23.3 - ------ ------ ------ (continued on next page)
19 (continued from previous page)
For the years ended December 31, -------------------------------- 1993 1992 1991 ---- ---- ---- (Dollars in millions) Corporate and other: Operating expenses, net of revenues (15.1) (11.1) (7.3) Interest expense (19.9) (22.2) (32.7) Net trading loss (.7) - - Net realized gains .9 - - Extraordinary charge (8.8) (1.4) (5.0) ------ ------ ------ Net loss (43.6) (34.7) (45.0) ------ ------ ------ Consolidated earnings: Operating earnings before trading income 255.0 142.3 61.5 Net trading income 46.9 20.4 22.5 Net realized gains 7.0 12.1 37.0 Extraordinary charge (11.9) (5.3) (5.0) ------ ------ ------ Net income $297.0 $169.5 $116.0 ====== ====== ======
20 The disaggregated earnings summarized in the preceding schedule resulted in fully diluted earnings per share as follows:
For the years ended December 31, -------------------------------- 1993 1992 1991 ---- ---- ---- (Dollars in millions) Operations of life insurance companies: Bankers: Operating earnings before trading income $1.10 $ .16 $ - Net trading income .21 .02 - Net realized gains .08 - - Extraordinary charge (.09) - - ------ ------ ------ Net income 1.30 .18 - ------ ------ ------ Western: Operating earnings before trading income 2.74 2.59 2.07 Net trading income .93 .53 .56 Net realized gains .13 .16 .91 ------ ------ ------ Net income 3.80 3.28 3.54 ------ ------ ------ CCP: Operating earnings before trading income 1.03 .75 .36 Net trading income - .05 .18 Net realized gains - .09 .29 Extraordinary charge - (.11) - ------ ------ ------ Net income 1.03 .78 .83 ------ ------ ------ Wholly owned life companies excluding Western: Operating earnings before trading income .81 .59 .50 Net trading income .25 .06 .06 Net realized gains (.04) .13 .13 ------ ------ ------ Net income 1.02 .78 .69 ------ ------ ------ Life Re net income - .26 .21 ------ ------ ------ Total from operations of life insurance companies: Operating earnings before trading income 5.68 4.35 3.14 Net trading income 1.39 .66 .80 Net realized gains .17 .38 1.33 Extraordinary charge (.09) (.11) - ------ ------ ------ Net income 7.15 5.28 5.27 ------ ------ ------ Services provided for fees - net income .42 .47 .41 ------ ------ ------ Acquisition and restructuring of life insurance companies: Incentive earnings allocation .66 .12 - Sale of stock 1.83 .66 - ------ ------ ------ Net income 2.49 .78 - ------ ------ ------
(continued on next page) 21 (continued from previous page)
For the years ended December 31, -------------------------------- 1993 1992 1991 ---- ---- ---- (Dollars in millions) Corporate and other: Operating expenses (.45) (.33) (.17) Interest expense (.59) (.75) (1.29) Net trading loss (.02) - - Net realized gains .03 - - Extraordinary charge (.26) (.05) (.20) ----- ----- ----- Net loss (1.29) (1.13) (1.66) ----- ----- ----- Consolidated earnings: Operating earnings before trading income 7.55 4.52 2.09 Net trading income 1.37 .66 .80 Net realized gains .20 .38 1.33 Extraordinary charge (.35) (.16) (.20) ----- ----- ----- Net income $8.77 $5.40 $4.02 ===== ===== =====
22 The following table further analyzes the changes in fully diluted earnings per share in 1993 compared to 1992 and in 1992 compared to 1991 to identify the increases (decreases) related to changes in income and the decreases related to changes in the number of shares outstanding.
1993 1992 Compared to Compared to 1992 1991 ---- ---- Fully diluted earnings per share: Current year $8.77 $5.40 Prior year 5.40 4.02 ----- ----- Net increase $3.37 $1.38 ----- ----- ----- ----- Increase (decrease) related to changes in income: Operations of life insurance companies Bankers $1.32 $ .21 Western 1.09 .28 CCP .41 .08 Wholly owned life insurance companies, excluding Western .44 .22 Life Re (.26) .09 ----- ----- Increase from operations of life insurance companies 3.00 .88 Services provided for fees .02 .14 Acquisition and restructuring of life insurance companies 2.07 .91 Corporate and other (.34) .34 Less effect of increase in federal income tax rate (.23) - ----- ----- Total related to changes in income 4.52 2.27 Decrease related to issuances and repurchases of common or common equivalent shares (1.15) (.89) ----- ----- Net increase $3.37 $1.38 ===== =====
23 Additional Discussion of Consolidated Statement of Operations for the Three Years Ended December 31, 1993: The following tables and narratives summarize amounts reported in the consolidated statement of operations for the three years ended December 31, 1993, disaggregated as previously described for Conseco's three earnings activities. Many of the changes which occurred in the consolidated statement of operations resulted from: (i) acquisitions of new affiliates; (ii) restructurings that changed Conseco's percentage ownership in the affiliate; and (iii) changes in control of the affiliates that affected the determination of whether the affiliate was to be included in Conseco's statement of operations under the consolidation or the equity method of accounting. Operations of life insurance companies: Bankers:
As Included in Prior to Conseco's Consolidated Conseco's Financial Statements Acquisition -------------------- ----------- For the period For the from acquisition Ten months year ended through ended December 31, December 31, October 31, 1993 1992 1992 ---- ---- ---- (Dollars in millions) Revenues: Insurance policy income $1,200.7 $191.5 $ 944.1 Investment activity: Net investment income 174.7 21.1 105.2 Net trading income 31.5 2.4 - Net realized gains (losses) 43.6 7.0 (33.6) Total revenues 1,450.5 222.5 1,013.8 Benefits and expenses: Insurance policy benefits and change in future policy benefits 864.3 120.1 720.3 Interest expense on annuities and financial products 36.5 5.3 23.8 Interest expense on long-term debt 36.0 7.4 - Amortization related to operations 116.9 25.6 79.4 Amortization related to realized gains 30.5 - - Other operating costs and expenses 154.3 26.9 138.5 Income from continuing operations before taxes, minority interest and extraordinary charge 208.1 37.2 51.8 Income tax expense 80.2 14.9 5.9 Income from continuing operations before minority interest 127.9 22.3 45.9 Minority interest 78.2 14.4 - Extraordinary charge (net of minority interest of $4.8 million) (3.1) - - Income from continuing operations 46.6 7.9 45.9 Earnings from discontinued operations - - 16.6 Net income 46.6 7.9 62.5 Less preferred stock dividends 3.0 2.5 - Earnings applicable to common stock 43.6 5.4 62.5 Summarized by component, all net of applicable expenses, taxes and minority interest: Operating earnings, excluding trading income 36.9 4.8 73.7 Net trading income 6.9 .7 - Net realized gain (loss) 2.9 (.1) (22.2) Extraordinary charge on extinguishment of debt (3.1) - - Earnings from discontinued operations - - 11.0 Net income 43.6 5.4 62.5
24 General. Conseco's 1992 earnings reflected a 44 percent ownership interest in BLH from November 1, 1992, the date Bankers was acquired by the Partnership. In March 1993, BLH completed an IPO of its common stock, thus reducing Conseco's ownership to 31 percent. On September 30, 1993, Conseco acquired 13.3 million additional common shares of BLH, increasing its ownership interest to 56 percent. While all activities of Bankers are included in Conseco's financial statements on a consolidated basis for all periods after November 1, 1992, the minority interest adjustment removes from Conseco's net income the portion applicable to other owners so that net income reflects only Conseco's applicable ownership interest (i.e., 44 percent during 1992 and the first quarter of 1993, 31 percent during the second and third quarters of 1993 and 56 percent during the fourth quarter of 1993). To enhance comparability, the amounts for the ten months ended October 31, 1992, (which was prior to the Partnership's acquisition of Bankers) are separately presented. At December 31, 1993, the BLH shares owned by Conseco had a net carrying value of approximately $518.8 million, a market value of approximately $652.8 million and a cost of $313.1 million. Insurance policy income. Insurance policy income increased $65.1 million, or 5.7 percent, in 1993 over total insurance policy income in 1992. Bankers' insurance policy income was comprised primarily of individual health premiums, which increased as a result of new business, improved persistency and rate increases. Net investment income. Net investment income increased $48.4 million, or 38 percent, in 1993 over total net investment income in 1992. The increase was due to the growth of invested assets as a result of (i) the recurring operations, (ii) the recapture in 1993 of a reinsurance treaty with related assets totaling $182 million and (iii) the capital transactions in connection with BLH's IPO, as discussed in the accompanying notes to the consolidated financial statements, partially offset by lower yields on the investment portfolio. In addition, during 1993 fixed maturity investments were redeemed prior to their scheduled maturity dates, resulting in additional investment income of approximately $.8 million. Net trading income. Net trading income (after applicable expenses, minority interest and taxes) increased $6.2 million in 1993 compared to total 1992. Bankers' trading activities commenced in November 1992, after its acquisition by the Partnership. Net realized gains. Bankers sold approximately $2.2 billion of fixed maturity investments in 1993, realizing gains (after applicable expenses, amortization, minority interest and taxes) of $2.9 million. For the ten month period ended October 31, 1992, realized investment losses included writedowns primarily related to Bankers' mortgage-backed security portfolio of derivative collateralized mortgage obligations, which portfolio was transferred to a trust later acquired by ICH or sold to ICH prior to the acquisition of Bankers by the Partnership. Net realized gains relate to securities sold in response to changes in the investment environment which created opportunities to enhance the risk profile of the investment portfolio by replacing existing securities with alternative securities without adversely affecting the quality of the portfolio or the matching of expected maturities of assets and liabilities. The sales of these securities at a gain followed by reinvestment of the proceeds at lower yields may, absent other management action, tend to decrease future investment yields. The Company believes, however, that the decreases in future investment yields that may result from these sales will not have a significant effect on future net income because: (i) additional amortization of the cost of policies purchased and the cost of policies produced was recognized to reflect reduced future yields (see the following paragraph); (ii) interest rates credited to some products were reduced, diminishing the effect of the yield decrease on the investment earnings spread; and (iii) the investment portfolio increased as a result of reinvesting the realized gains. The realization of investment gains affects the timing of the amortization of cost of policies purchased and cost of policies produced. As a result of net realized gains from the sales of fixed maturity investments in 1993, amortization of cost of policies purchased and cost of policies produced was increased by $21.0 million and $9.5 million, respectively. 25 Insurance policy benefits. Total insurance policy benefits (including change in future policy benefits) increased $23.9 million, or 2.8 percent, in 1993 over the total amount in 1992. The increase related primarily to an increase in premiums with mortality and morbidity features written by Bankers. Purchase accounting adjustments were made to insurance liabilities in conjunction with the acquisitions of Bankers made by the Partnership in November 1992 and Conseco in September 1993 (as described in Note 2 to the consolidated financial statements). The impact of these adjustments was that insurance policy benefits (and change in future policy benefits) in 1993 were lower than the amounts which would have been recorded had the accounting basis of insurance liabilities been the same as in 1992. Such decline somewhat offsets the increases described above. Loss ratios did not change significantly. Interest expense on long-term debt. Interest expense on long-term debt increased $28.6 million in 1993 compared to the total amount in 1992. This interest relates to debt incurred to finance the acquisition of Bankers by the Partnership effective October 31, 1992. Therefore, interest expense was incurred for a full year in 1993 compared to two months in 1992. Other operating costs and expenses. Other operating costs and expenses decreased $11.1 million, or 6.7 percent, in 1993 compared to the total amount in 1992 as a result of cost reductions realized subsequent to the acquisition of Bankers. Extraordinary charge. In 1993 Bankers retired all of its junior notes, prepaid a portion of its senior term loan and repurchased $20 million of its Series B Senior Subordinated Notes, resulting in a net extraordinary charge of $7.9 million, of which Conseco's share was $3.1 million. Western:
For the years ended December 31, -------------------------------- 1993 1992 1991 ---- ---- ---- (Dollars in millions) Revenues: Insurance policy income $ 21.8 $ 48.0 $ 43.9 Investment activity: Net investment income 610.1 507.8 450.7 Net trading income 49.6 25.0 23.8 Net realized gains 92.7 72.4 62.2 Total revenues 774.2 653.2 580.6 Benefits and expenses: Insurance policy benefits and change in future policy benefits 121.2 130.2 125.9 Interest expense on annuities and financial products 333.1 267.1 249.5 Amortization related to operations 16.5 16.3 11.3 Amortization and change in future policy benefits related to realized gains 84.3 64.6 24.3 Other operating costs and expenses 8.4 12.1 14.2 Income before taxes 204.5 156.8 149.0 Income tax expense 74.5 54.6 51.5 Net income 130.0 102.2 97.5 Summarized by component, all net of applicable expenses and taxes: Operating earnings, excluding trading income 93.4 80.6 56.8 Net trading income 32.1 16.5 15.7 Net realized gains 4.5 5.1 25.0 Net income 130.0 102.2 97.5
26 General. Western's increased operating earnings principally reflected the slightly widened spread between investment yields and policy crediting rates on an increasing base of invested assets during the periods presented. The increase in invested assets in 1993 was affected by: (i) the recapture of reinsurance from subsidiaries of Conseco on March 31, 1993, resulting in an increase of $1.3 billion in insurance liabilities and invested assets; and (ii) the recapture of reinsurance from a nonaffiliated company on June 30, 1993, resulting in an increase of $156.5 million in insurance liabilities and invested assets. Insurance policy income. Insurance policy income related primarily to premiums from products with mortality and morbidity features. Declines from 1992 to 1993 have resulted from decreased emphasis on generating new premiums from such products. Net investment income. Net investment income has increased over the last three years because of the overall growth of invested assets resulting from operations and the reinsurance recaptures described above, partially offset by lower yields on the investment portfolio. In addition, during 1993, 1992 and 1991, fixed maturity investments were redeemed prior to their scheduled maturity dates, resulting in additional investment income of approximately $18.0 million, $12.8 million and $3.5 million, respectively. Net trading income. The increases in net trading income (after applicable expenses and taxes) in 1993 over the prior two years were primarily due to more favorable market conditions for trading activities. Net realized gains. Net realized gains (after applicable expenses, amortization, change in future policy benefits and taxes) often fluctuate from year to year. Western sold fixed maturity investments of $3.6 billion, $2.4 billion and $2.9 billion in 1993, 1992 and 1991, respectively. The effect of sales of fixed maturities on the amortization of cost of policies purchased and cost of policies produced is discussed above under "Bankers." As a result of the net realized gains from the sales of fixed maturity investments in 1993, 1992, and 1991, amortization of the cost of polices purchased was increased by $14.0 million, $42.1 million and $13.1 million, respectively and amortization of the cost of policies produced was increased by $33.2 million, $22.5 million and $11.2 million, respectively. In addition, the realization of investment gains affected the timing of additions to insurance liabilities, resulting in an increase of $37.1 million in 1993. Insurance policy benefits. Total insurance policy benefits (including change in future policy benefits), which relate solely to policies with mortality and morbidity features, fluctuated very little over the last three years, due to decreased emphasis on generating new premiums from such products. Interest expense on annuities and financial products. Interest expense on annuities and financial products has increased over the last three years as a result of increased annuity deposits, offset by reduced interest rates credited on these products. The average rate credited on all insurance liabilities was 6.4 percent, 7.6 percent and 8.1 percent at December 31, 1993, 1992 and 1991, respectively. The decline in credited rates over this period resulted from the lower interest rate environment. The 1993 increase in this expense was largely affected by the reinsurance recapture by Western as discussed under "General" above. Other operating costs and expenses. The decreases in other operating costs and expenses in 1993 from 1992 and in 1992 from 1991 were primarily due to reduced guaranty fund assessments. The decrease in 1993 also reflected decreased commissions on renewal premiums. 27 CCP: Prior to July 1, 1992, Conseco exercised unilateral control over CCP; therefore, the accounts of CCP were included in the consolidated financial statements of Conseco. After CCP's IPO, Conseco no longer had unilateral control over CCP and included CCP's results in its financial statements on the equity, rather than the consolidation, method. The financial information below summarizes the amounts included in Conseco's consolidated financial statements and the total accounts of CCP for the three-year period.
For the years ended December 31, --------------------------------------------------------------------- 1993 1992 1991 --------------------------------------------------------------------- (Dollars in millions) Included in Included in Included in Total Conseco's Total Conseco's Total Conseco's CCP Accounts CCP Accounts CCP Accounts --- --------- --- -------- --- -------- Revenues: Insurance policy income $127.8 $ - $139.5 $ 67.1 $161.9 $161.9 Investment activity: Net investment income 412.9 - 380.4 187.0 318.1 318.1 Net trading income 24.3 - 15.6 5.0 17.4 17.4 Net realized gains 55.8 - 63.5 22.7 41.7 41.7 Equity in earnings of CCP - 37.4 - 15.8 - - Equity in earnings of Bankers 1.2 - .7 - - - Gain on sale of stock by Bankers 10.5 - - - - - Total revenues 632.5 37.4 599.7 297.6 539.1 539.1 Benefits and expenses: Insurance policy benefits and change in future policy benefits 77.0 - 77.1 34.6 94.7 94.7 Interest expense on annuities and financial products 243.5 - 251.1 124.5 217.1 217.1 Interest expense on long-term debt 16.1 - 26.1 17.9 39.0 39.0 Interest expense on short-term investment borrowings 4.4 - 2.3 1.6 5.9 5.9 Amortization related to operations 29.4 - 23.2 13.4 24.5 24.5 Amortization and change in future policy benefits related to realized gains 36.4 - 45.9 13.7 18.0 18.0 Other operating costs and expenses 52.2 - 55.1 27.2 54.0 54.0 Income before taxes, minority interest and extraordinary charge 173.5 37.4 118.9 64.7 85.9 85.9 Income tax expense 65.9 2.8 42.0 18.6 30.1 33.5 Income before minority interest and extraordinary charge 107.6 34.6 76.9 46.1 55.8 52.4 Minority interest - - - 16.2 - 24.0 Extraordinary charge - - (8.8) (3.9) - - Net income 107.6 34.6 68.1 26.0 55.8 28.4 Less preferred stock dividends - - 3.8 2.1 5.0 3.6 Earnings applicable to common stock 107.6 34.6 64.3 23.9 50.8 24.8 Summarized by component, all net of applicable expenses, taxes and minority interest: Operating earnings, excluding trading income 81.1 34.6 55.4 23.2 28.6 10.9 Net trading income 15.8 - 10.1 1.6 11.5 5.3 Net realized gains 10.7 - 11.4 3.0 15.7 8.6 Extraordinary charge - - (8.8) (3.9) - - Net income 107.6 34.6 68.1 23.9 55.8 24.8
CCP's earnings during the three years ended December 31, 1993, were affected by: (i) a widened spread between investment yields and policy crediting rates on an increasing base of invested assets; (ii) the reduced interest expense resulting from the reduction in CCP's long-term debt through scheduled and unscheduled principal payments and lower interest rates; (iii) the purchase of Beneficial Standard in March 1991; and (iv) the investment of the net proceeds (after prepayment of certain debt) from CCP's IPO in July 1992 and its second public offering in September 1993. Conseco's equity in the earnings of CCP during the three years ended December 31, 1993, was affected by these factors and changes in Conseco's ownership interest in CCP resulting from CCP's IPO and other transactions described in Note 4 to the consolidated financial statements. In addition, in 1992, Conseco's equity in the earnings of CCP included a $3.9 million extraordinary charge related to CCP's prepayment of debt. At December 31, 1993, Conseco owned 40 percent of the common stock of CCP. Such shares owned by Conseco had a net carrying value of $244.3 million, a fair value of approximately $322.1 million and a total cost to Conseco of $102.8 million. 28 CCP was a partner in the Partnership's investment in Bankers. In conjunction with BLH's IPO, CCP's investment in the Partnership was exchanged for approximately 2.8 percent of the common stock of BLH. Through the date of the IPO, CCP had recognized equity in earnings of Bankers of $1.2 million and $.7 million in 1993 and 1992, respectively. A gain on the sale of stock by BLH of $10.5 million was recognized at the time of the exchange. After the IPO, CCP's investment in BLH is carried at fair value, with any unrealized gain or loss, net of income tax, included directly in shareholders' equity. Conseco's direct ownership in BLH and its indirect ownership through CCP represent a controlling interest. Accordingly, Conseco's investment in BLH is accounted for using the consolidation method. Conseco's ownership interest in Bankers through CCP is included in the "Bankers" segment. Conseco's ownership interest in the gain recognized by CCP in conjunction with the IPO is included in the "Acquisitions and Restructuring" segment. Wholly owned insurance subsidiaries of Conseco, excluding Western:
For the years ended December 31, -------------------------------- 1993 1992 1991 ---- ---- ---- (Dollars in millions) Revenues: Insurance policy income $ 72.3 $ 81.4 $ 79.6 Investment activity: Net investment income 110.2 181.3 162.5 Net trading income 13.4 3.2 12.7 Net realized gains 11.5 22.2 21.4 Total revenues 207.4 288.1 276.2 Benefits and expenses: Insurance policy benefits and change in future policy benefits 82.3 90.0 92.9 Interest expense on annuities and financial products 38.9 109.9 110.1 Amortization related to operations 7.6 16.2 15.4 Amortization related to realized gains 11.5 15.1 8.1 Other operating costs and expenses 12.0 18.2 15.9 Income before taxes 55.0 38.1 29.5 Income tax expense 20.2 13.8 10.6 Net income 34.8 24.3 18.9 Summarized by component, all net of applicable expenses and taxes: Operating earnings, excluding trading income 27.5 18.6 14.0 Net trading income 8.6 1.6 1.5 Net realized gains (losses) (1.3) 4.1 3.4 Net income 34.8 24.3 18.9
Insurance policy income. Insurance policy income related primarily to premiums from products with mortality and morbidity features and the recent declines have resulted from decreased emphasis on generating new premiums from such products. 29 Net investment income. Net investment income decreased from 1992 to 1993 because of the recapture of reinsurance by Western from Conseco's other wholly owned life insurance subsidiaries on March 31, 1993, which resulted in a decrease of $1.3 billion in insurance liabilities and invested assets. Net investment income increased from 1991 to 1992 as a result of the overall growth of invested assets resulting from operations. In addition, during 1993, 1992 and 1991 fixed maturity investments were redeemed prior to their scheduled maturity dates, resulting in additional investment income of approximately $3.7 million, $7.5 million and $.4 million, respectively. Net trading income. The increase in net trading income (after applicable expenses and taxes) in 1993 over the prior two years was primarily due to more favorable market conditions for trading activities. Net realized gains. Net realized gains (after applicable expense, amortization and taxes) often fluctuate from year to year. Fixed maturity investments of $.6 billion, $.9 billion and $.6 billion were sold in 1993, 1992 and 1991, respectively. The effect of sales of fixed maturities on the amortization of cost of policies purchased and cost of policies produced is discussed above under "Bankers." As a result of the net realized gains from the sales of fixed maturity investments by Conseco's other wholly owned life insurance subsidiaries in 1993, 1992 and 1991, amortization of the cost of policies purchased was increased by $11.0 million, $7.9 million and $2.4 millon, respectively, and amortization of the cost of policies produced was increased by $.5 million and $7.2 million and $5.7 million, respectively. Insurance policy benefits. Total insurance policy benefits (including change in future policy benefits) which relate solely to policies with mortality and morbidity features have fluctuated over the last three years due to the decreased emphasis on generating new premiums from such products. Interest expense on annuities and financial products. Interest expense on annuities and financial products decreased from 1992 to 1993 as a result of the reinsurance recapture by Western National. Such expense increased from 1991 to 1992 as a result of increased annuity deposits, offset by reduced rates credited on these products. The average rate credited on all insurance liabilities was approximately 7.0 percent at December 31, 1993 and 1992, and approximately 7.9 percent at December 31, 1991. Amortization related to operations. Amortization related to operations decreased in 1993 from 1992 as a result of the recapture of reinsurance, which was previously discussed. Other operating costs and expenses. The decrease in other operating costs and expenses in 1993 from 1992 was primarily due to the reinsurance recapture by Western National, which was previously discussed. The increase in other operating costs and expenses in 1992 from 1991 was due to several factors including increased guaranty fund assessments and compensation costs. Life Re:
For the years ended December 31, -------------------------------- 1993 1992 1991 ---- ---- ---- (Dollars in millions) Equity in earnings of Life Re $ - $11.3 $9.3 Income tax expense - .7 .7 Net income attributable to investment in Life Re - 10.6 8.6
Conseco's ownership interest in Life Re was sold in November 1992, thereby terminating this source of income. 30 Services Provided for Fees:
For the years ended December 31, -------------------------------- 1993 1992 1991 ---- ---- ---- (Dollars in millions) Revenue: Investment management $34.1 $25.0 $19.1 Commissions 9.4 1.7 1.4 Administrative services, net of directly related expenses 5.5 3.5 1.9 Total revenue 49.0 30.2 22.4 Less intercompany eliminations (22.5) (17.3) (17.0) Revenues reported 26.5 12.9 5.4 Net income attributable to: Investment management 14.7 12.3 10.2 Commissions (4.0) (.1) (.3) Administrative services 3.6 2.3 1.3 Net income 14.3 14.5 11.2
Conseco's fee revenues include: (i) fees for investment management and mortgage origination and servicing; (ii) commissions earned for insurance and investment product marketing and distribution; and (iii) administrative fees for policy administration, data processing, product marketing and executive management services. To the extent these services are provided to entities that are included in the financial statements on a consolidated basis, the intercompany fees are eliminated in consolidation. In March 1993, Conseco acquired Marketing Distribution Systems Consulting Group, Inc. and Subsidiaries ("Bankmark"), an insurance marketing company which develops relationships with financial institutions to provide insurance and investment products to their customers. Through Bankmark, financial institutions can offer products from several insurance companies, including Western National. After its acquisition by Conseco, Bankmark began a formal program to actively expand its business by developing relationships with a few large money-center banks to assist them in distributing retail insurance products to their customers. As a result of the costs incurred in conjunction with Bankmark's expansion efforts, Bankmark incurred a net loss of approximately $3.7 million during the period from its acquisition through December 31, 1993. Growth in total fees during the last three years was the result of new clients (both affiliated and others) and from growth in fee-producing activities provided to such clients. Commission revenues of Bankmark, subsequent to its acquisition in March 1993, totaled $7.4 million. Acquisitions and Restructuring of Life Insurance Companies:
For the years ended December 31, -------------------------------- 1993 1992 ---- ---- (Dollars in millions) Incentive earnings allocation $ 36.6 $ 9.3 Gain on sale of stock 101.5 45.6 Total revenues 138.1 54.9 Income tax expense 54.8 31.6 Net income 83.3 23.3
31 The incentive earnings allocations were earned when total returns realized by the other partners in the first partnership exceeded prescribed targets. Such amounts were recorded: (i) in 1992 based on the returns resulting from the value of the CCP shares distributed to the partners; and (ii) in 1993, based on the value of BLH shares so distributed. Income from the sale of stock in 1992 resulted from Conseco's sale of its ownership in Life Re and from Conseco's share of the gain realized from the public sale of shares by CCP. The 1993 gain related to the public sale of shares by BLH. Corporate and other:
For the years ended December 31, -------------------------------- 1993 1992 1991 ---- ---- ---- (Dollars in millions) Net investment income $12.4 $ 8.4 $10.0 Total revenues 14.1 9.3 10.9 Interest expense on long-term debt 30.6 33.7 49.5 Other operating costs and expenses 35.9 26.2 22.5 Income tax benefit 17.6 17.3 21.1 Expenses before extraordinary charge 34.8 33.3 40.0 Extraordinary charge on extinguishment of debt 8.8 1.4 5.0 Net loss 43.6 34.7 45.0
These operations include financing costs for debt on which Conseco is directly liable and the costs associated with the holding company operations. The 32 percent decline in interest expense on long term debt from 1991 to 1992 was attributable to declines in long-term debt through scheduled and unscheduled principal payments. Interest expense for 1993 reflected: (i) the decline in long-term debt through scheduled and unscheduled principal payments; (ii) the refinancing of 12.75 percent senior subordinated notes through the issuance of 8.125 percent senior notes; and (iii) the $200 million senior secured loan used to acquire additional shares of Bankers in September 1993 (such debt was repaid in February 1994 with a portion of the proceeds from the IPO of WNC). Other operating costs and expenses increased over the last three years principally as the result of compensation expense based on the Company's increased earnings. SALES Insurance policy income shown in the Company's consolidated statement of operations in accordance with generally accepted accounting principles consists of premiums received for policies which have life contingencies or morbidity features. For annuity and universal life contracts without such features, premiums collected are not reported as revenues, but rather are reported as deposits to insurance liabilities. Revenues for products recognized as deposits to insurance liabilities are recognized over time in the form of investment income and surrender or other charges. 32 Premiums collected by Bankers. Total premiums collected in 1993 were $1,464.7 million, of which $264.0 million were recorded as deposits to policy liability accounts. This compares to $1,368.9 million collected and $233.3 million recorded as deposits to policy liability accounts in 1992. Bankers amounts in 1992, which are used as a basis of comparison in this discussion, include periods prior to Conseco's acquisition of Bankers in November 1992. Collected premiums by type are provided in the following table for 1993 and 1992:
For the years ended December 31, -------------- 1993 1992 ---- ---- (Dollars in millions) Individual health: Medicare supplement $ 565.5 $ 524.9 Long-term care 114.9 103.5 Other 142.4 160.5 -------- -------- Total individual health 822.8 788.9 Annuities 239.1 187.0 Individual life and other 93.1 93.0 Group 309.7 300.0 -------- -------- Total $1,464.7 $1,368.9 ======== ========
Total collected premiums of Medicare supplement policies accounted for 39 percent of total collected premiums in 1993 and 38 percent in 1992. During the fourth quarter of 1992, Bankers assumed a block of Medicare supplement policies from an unrelated insurer. Collected premiums in 1993 and 1992 included $16.9 million and $19.4 million, respectively, related to the assumed policies. Bankers' new strategy of pricing Medicare supplement policies on an attained age basis (which produces lower first year premiums which then increase annually) and an increase in the proportion of policies sold with lesser benefits caused annualized new business premiums from such new sales to decrease to $79.6 million in 1993 compared to $83.0 million in 1992. However, even with the new pricing strategy, Bankers' 1993 annualized new business premiums were up 7.1 percent over 1992 sales of $74.3 million. Long-term care plans accounted for 7.8 percent of total collected premiums in 1993 and 7.6 percent in 1992. The increase was due to growth in new business and a larger base of renewal premiums. Annualized new business premiums were $21.5 million in 1993 and $18.1 million 1992. Annuity premiums collected increased 28 percent in 1993 over 1992. Virtually all of this increase related to sales of single premium deferred annuities. The increase occurred because of an increased marketing emphasis placed on annuity sales. Collected premiums for other individual health products decreased 11 percent in 1993 compared to 1992, as anticipated, due to steps taken previously to improve the profitability of the comprehensive major medical product included in this category. Premiums collected by Western. Total premiums collected were $563.0 million, $840.7 million and $1,267.5 million in 1993, 1992 and 1991, respectively. The decline in total premiums collected was principally due to decreased annuities sold through financial institutions reflecting: (i) increased competition from other carriers (including those with higher ratings); (ii) consumer purchases of alternative investments, such as variable annuities and mutual funds, during these periods of low interest rates; and (iii) Western's focus on maintaining profitability levels on single premium deferred annuities. Western's principal emphasis is to generate profits through adequate pricing of its insurance products and maintaining appropriate investment spreads throughout the life of the policies sold. The operating income of Western is primarily a function of its investment spread, total invested assets and operating expenses. Accordingly, a change in premiums collected in a single period does not directly cause income to change, although continued increases or decreases in premiums may affect the rate of growth of total assets on which investment spread is earned. 33 During 1993, Western entered into marketing agreements with several large financial institutions who are expected to issue Western annuities in 1994. Premiums collected by Conseco's wholly owned subsidiaries excluding Western. Total premiums collected were $148.2 million, $82.6 million and $86.6 million in 1993, 1992 and 1991, respectively. During 1993, the Company collected $61.8 million of premiums from guaranteed investment contracts and deposit funds for qualified retirement plans maintained by a subsidiary of the Company. INVESTMENTS The Company's investment strategy is to maintain a predominately investment-grade fixed-income portfolio, provide adequate liquidity for expected liability durations and other requirements and maximize total return through active investment management. At December 31, 1993, the Company had invested assets of approximately $11.7 billion. These assets were primarily actively managed fixed maturities, credit-tenant loans, policy loans, trading account securities, investment in CCP and short-term investments. The following table shows Conseco's investment performance during the last three years, including subsidiaries and Partnership companies from the date each was acquired and including the CCP Companies until the date of deconsolidation.
Years Ended December 31, ------------------------ 1993 1992 1991 ---- ---- ---- (Dollars in millions) Weighted average invested assets (excluding investment in CCP) $10,977.5 $9,524.5 $9,654.7 Net investment income 896.2 888.6 921.4 Percent earned 8.2% 9.3% 9.5%
A general decline in interest rates has reduced investment yields over the past three years. Investment income is a significant component of the Company's total revenues, but profitability is determined by spreads between interest rates earned and rates credited on annuity contracts. At December 31, 1993, the average yield on the Company's investment portfolio was 8.2 percent and the average interest rate credited on the Company's total liability portfolio was 6.5 percent. Actively Managed Fixed Maturities Conseco's actively managed fixed maturity portfolio at December 31, 1993, was comprised primarily of debt securities of the U.S. government, public utilities and other corporations and mortgage-backed securities. Investments in mortgage-backed securities included collateralized mortgage obligations ("CMO's") and mortgage-backed pass-through securities. At December 31, 1993, the Company's fixed maturity portfolio (including securities actively managed and held to maturity) had net unrealized gains of $295.7 million (equal to approximately 3.0 percent of the portfolio's carrying value), consisting of $384.3 million of unrealized gains and $88.6 million of unrealized losses. Estimated fair values for fixed maturity investments were determined based on estimates from nationally recognized pricing services, broker-dealer market makers and internally developed methods. As discussed in the notes to the consolidated financial statements, when the carrying values of actively managed fixed maturity investments are adjusted for changes in fair value, cost of polices purchased, cost of policies produced and insurance liabilities are also adjusted to reflect the change in amortization that would be needed had those fixed maturity investments actually been sold at their fair values and the proceeds reinvested at current interest rates. Investments in fixed maturities that were rated below investment-grade as determined by nationally recognized statistical rating organizations (or, if not rated by such firms, with ratings below Class 2 assigned by the National Association of Insurance Commissioners) were 5.1 percent of total invested assets and 6.1 percent of total fixed maturity investments at December 31, 1993. The Company currently plans to maintain approximately the present percentage of its portfolio in fixed maturities that are rated below 34 investment-grade. Investments in below investment-grade corporate debt securities generally have greater risks than other corporate debt investments. Risk of loss upon default by the borrower is greater with below investment-grade corporate debt securities because these securities generally are unsecured and often are subordinated to other creditors of the issuers, and because the issuers usually have high levels of indebtedness and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than are investment-grade issuers. The Company is aware of this risk exposure and monitors its below investment-grade securities closely. The creditworthiness of each issuer whose securities are held in the portfolio is evaluated periodically, with special attention to those securities whose market values have declined materially for reasons other than changes in interest rates or other general market conditions. Available evidence is considered to evaluate the realizable value of the investment, including specific conditions of the issuer and its ability to comply with the material terms of the security. Evidence reviewed may include the recent operational results and financial position of the issuer, information about its industry, recent press releases and other information. A staff of experienced securities analysts is employed in a variety of specialty areas. Among other responsibilities, this staff compiles and reviews such evidence. If evidence does not exist to support a realizable value equal to or greater than the carrying value of the investment and such decline in market value is determined to be other than temporary, the carrying amount is reduced to its net realizable value, which becomes the new cost basis. The amount of the reduction is reported as a realized loss. Any recovery of such reductions in the cost basis of an investment will be recognized as a realized gain only upon the sale, repayment or other disposition of the investment. The Company recorded writedowns of investments of $7.9 million as a result of conditions which arose in 1993 which caused the Company to conclude the issuer may be unable to comply with the material terms of the security. The carrying value and estimated fair value of fixed maturity investments which were in substantive default (i.e., in default due to nonpayment of interest or principal) as of December 31, 1993, were both $25.3 million, net of recorded writedowns totaling $16.8 million. The Company had no fixed maturity investment in technical (but not substantive) default, (i.e., in default, but not as to the payment of interest or principal). There were no other fixed maturity investments about which management has serious doubts as to the ability of the issuer to comply on a timely basis with the material terms of the instruments. All mortgage-backed securities are subject to risks associated with variable prepayments. This may result in these securities having a different actual maturity than planned at the time of purchase. Securities that have a carrying value greater than par which are backed by mortgages that prepay faster than expected will result in an adjustment charged to investment income. Those securities that have a carrying value less than par that prepay faster than expected will result in an adjustment credited to investment income. The degree to which a security is susceptible to either gains or losses is influenced by the difference between its carrying value and par, the relative sensitivity of the underlying mortgages backing the assets to prepayment in a changing interest environment and the repayment priority of the securities in the overall securitization structure. The Company limits the extent of these risks by (i) purchasing securities which are backed by collateral with lower prepayment sensitivity (such as mortgages priced at a discount to par value and mortgages that are extremely seasoned), (ii) avoiding securities whose values are heavily influenced by changes in prepayments (such as interest-only and principal-only securities) and (iii) concentrating on securities with prepayment protected structures (such as planned amortization class ("PAC") CMOs. PAC instruments represented approximately 44 percent of the Company's mortgage-backed securities at December 31, 1993. The call-adjusted modified duration of the Company's mortgage-backed securities at December 31, 1993, was 4.7 years. If the Company determines that actively managed fixed maturity investments will be disposed of, the security will be either (i) sold and the gain or loss recognized or (ii) transferred to the trading account at its fair value. There 35 were no such transfers in 1993. During 1993, the Company sold actively managed fixed maturity securities with a $6.4 billion book value, resulting in $168.3 million of investment gains (before related expenses, amortization and taxes). The sales of fixed maturity securities that result in investment gains may, absent any other management action, tend to decrease future interest yield on the portfolio. The Company believes that the decreases in future interest yields that may result because of these sales will not have a significant effect on future net income because, as explained in Note 11 to the consolidated financial statements, the Company reduced the balances of the cost of policies purchased and cost of policies produced by a total of $89.2 million and increased insurance liabilities $37.1 million to reflect reduced future yields, and because the Company has reduced interest rates credited to products thereby widening the total spread earned on deposits and reserves. During 1993, fixed maturity investments with par values totaling $1.2 billion were redeemed prior to the scheduled maturity date. Such redemptions resulted in the recognition of additional investment income of approximately $22.5 million. Other investments Credit-tenant loans are commercial loans which require the principal tenant, or any guarantor of such tenant's obligations, to have a credit rating at the time of origination of the loan of at least BBB or its equivalent. The underwriting guidelines consider such factors as the lease term of the property; the mortgagee's management ability, including business experience, property management capabilities and financial soundness; and such economic, demographic or other factors that may affect the income generated by the property or its value. The underwriting guidelines also require a loan to value ratio of 75 percent or less. Credit-tenant loans are carried at amortized cost and were $326.9 million at December 31, 1993, or 2.8 percent of total invested assets. The total estimated fair value of credit-tenant loans was $325 million at December 31, 1993. At December 31, 1993, the Company held mortgage loan investments with a carrying value of $158.4 million (or 1.4 percent of total invested assets) and a fair value of $175 million. Approximately 78 percent of the mortgage loan investments were commercial loans. Approximately 22 percent of the Company's mortgage loan balance consisted of investments in junior and residual interests of CMOs. Investments in junior and residual interests of CMOs are instruments that entitle the Company to the projected excess cash flows arising from the difference between (i) the cash flows required to make principal and interest payments on the related CMOs and (ii) the actual cash flows received on the mortgage loan assets included in the CMO portfolios. If prepayments vary from projections on the mortgage loan assets included in such CMO portfolios, the total cash flows to the Company from such residual interests could change from projected cash flows, resulting in a gain or loss. Non-current mortgage loans were not significant at December 31, 1993. The Company realized losses of approximately $6.1 million on mortgage loans for the year ended December 31, 1993, including $5.8 million from permanent write-downs of residual interests in collateralized mortgage obligation investments. At December 31, 1993, the Company had a loan loss reserve of $3.9 million. Approximately 22 percent, 15 percent, 10 percent and 8 percent of the mortgage loans were on properties located in Texas, New York, Virginia and Missouri, respectively. No other state comprised greater than 7 percent of the mortgage loan balance. At December 31, 1993, the Company held trading account securities with a carrying value of $105.8 million. Trading account securities are investments that are purchased with the intent to be traded prior to their maturity or are believed likely to be disposed of in the foreseeable future as a result of market or issuer developments. Effective December 31, 1993, with the Company's adoption of Statement of Financial Accounting Standards No. 115 ("SFAS 115"), trading account securities are carried at estimated fair value, with the changes in fair value reflected in the statement of operations. Prior to the adoption of SFAS 115, unrealized gains or losses on trading account securities were reflected as a component of shareholders' equity and not in the statement of operations. The net unrealized gain on trading account securities at December 31, 1993, recorded in trading income as a result of adopting SFAS 115, was immaterial. Short-term investments totaled $666.4 million, or 5.7 percent of invested assets at December 31, 1993, and consisted primarily of commercial paper and repurchase agreements relating to government securities. 36 CONSOLIDATED FINANCIAL CONDITION Changes in the Consolidated Balance Sheet of 1993 Compared to 1992 Changes in the Company's consolidated balance sheet of 1993 compared to 1992 reflected the operations of the Company and the capital and financing transactions discussed below. The increase in total investments resulted principally from: (i) the net cash flow from operations; (ii) the net proceeds from the public offering of 5.75 million shares of Series D cumulative convertible preferred stock; (iii) the net proceeds received by Bankers from its IPO; (iv) investments received by Bankers related to the recapture of insurance polices ceded in prior years; and (v) an increase in the net unrealized gains on actively managed fixed maturities. Additionally, as part of its investment strategy, the Company enters into reverse repurchase agreements and dollar roll transactions to increase its return on investments and improve liquidity. These transactions are accounted for as short-term collateralized borrowings and are collateralized by pledged securities with fair values approximately equal to the loan value. The average amount of investment borrowings during 1993 was approximately $410 million compared to $215 million during 1992. The increase in investment borrowings at December 31, 1993, contributed to the increase in the Company's investments. The investment in CCP increased during 1993 as a result of the Company's equity in CCP's earnings and the purchase of additional shares of common stock of CCP in September 1993, as described in Note 2 to the consolidated financial statements. Reinsurance receivables, which primarily represent liabilities ceded under reinsurance agreements, decreased as a result of the recapture of insurance policies that had previously been ceded to nonaffiliated companies as described in Note 6 to the consolidated financial statements. During 1993, goodwill increased as a result of: (i) the purchase of additional shares of common stock of Bankers in September 1993; (ii) the initial public offering of BLH and related transactions completed in March 1993; and (iii) the purchase of Bankmark in the first quarter of 1993. These transactions are further described in Note 2 to the consolidated financial statements. Insurance liabilities increased primarily as a result of additional annuity deposits and interest credited on annuity deposits, net of withdrawals. As described in Note 1 to the consolidated financial statements, Bankers competed an IPO in March 1993. The net proceeds from the offering of $405.3 million were used, in part, to redeem all of the $52.2 million par value Bankers' preferred stock held by minority interests. The change in minority interest during 1993 was attributable to the minority interests' share of: (i) the net increase in Bankers' shareholders' equity attributable to the IPO and related transactions; and (ii) the results of Bankers' operations for the year, offset by Conseco's purchase of additional common stock of Bankers in September 1993 and the redemption of Bankers' preferred stock. Preferred stock increased in 1993 due to the public offering of 5.75 million shares of Senior D cumulative convertible preferred stock, net of the retirement of all previously outstanding preferred stock. The $12.6 million decline in common stock and additional paid-in-capital was a result of the repurchase of 450,700 shares of common stock for $25.3 million as part of a stock repurchase program, $9.0 million of costs associated with the public offering of preferred stock (as discussed above) and a $3.8 million increase in the nonvested portion of stock under employee stock and deferred compensation plans. Offsetting these declines, 851,110 shares of common stock were issued pursuant to the Company's stock option and deferred compensation programs for net proceeds and tax benefits of $25.5 million and 274 Series D preferred shares were converted to 215 shares of common stock. As a result of changes in common stock accounts, the number of common shares outstanding increased 400,625 shares. 37 Financial Ratios The following table sets forth selected debt ratios for each of the five years ended December 31, 1993.
Years Ended December 31, ---------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Ratio of earnings to fixed charges 1.90X 1.50X 1.32X 1.16X 1.26X Ratio of earnings to fixed charges, excluding interest on annuities and financial products 6.96X 5.89X 3.41X 1.95X 2.49X Ratio of earnings to fixed charges on debt for which Conseco is directly liable, excluding interest on annuities and financial products 8.34X 7.21X 3.67X 2.08X 2.49X Ratio of earnings to fixed charges and preferred dividends 1.78X 1.47X 1.29X 1.14X 1.20X Ratio of earnings to fixed charges and preferred dividends, excluding interest on annuities and financial products 4.72X 4.80X 2.95X 1.72X 1.94X Ratio of earnings to fixed charges and preferred dividends for which Conseco is directly liable, excluding interest on annuities and financial products 4.25X 5.66X 3.04X 1.79X 1.94X Ratio of total debt (including debt of CCP guaranteed by Conseco until its retirement in 1993) to equity and minority interest .51X .94X .97X 2.67X 1.90X Ratio of debt for which Conseco is directly liable to equity .36X .27X .43X 1.53X 1.90X
Liquidity for Insurance Operations Conseco's insurance operating companies generally provide adequate cash flow from premium collections and investment income to meet their obligations. The liabilities related to insurance policies are primarily long term and generally are paid from future cash flows. Most of the assets, other than policy loans and the investment in CCP, are invested in bonds and other securities, substantially all of which are readily marketable. Although there is no present need or intent to dispose of such investments, the life companies could liquidate portions of the investments if such a need arose. To increase their return on investments and improve liquidity, the life companies from time to time will lend United States Treasury securities in reverse repurchase agreements. The life companies may also lend mortgage-backed securities to increase yield and income through the better financing rate typically found in such dollar roll transactions, which are specialized forms of collateralized lending involving mortgage-backed securities. 38 Of the companies' total insurance liabilities at December 31, 1993, approximately 74 percent may be surrendered by the policyholder, of which 71 percent were subject to penalty if surrendered. Payment characteristics of the insurance liabilities at December 31, 1993, were as follows (dollars in millions):
Payments under contracts containing fixed payment dates: Due in one year or less $ 210.1 Due after one year through five years 784.3 Due after five years through ten years 874.7 Due after ten years 4,363.8 --------- Total gross payments whose payment dates are fixed by contract 6,232.9 Less amounts representing future interest on such contracts 4,205.8 --------- Insurance liabilities whose payment dates are fixed by contract 2,027.1 Insurance liabilities whose payment dates are not fixed by contract 8,771.2 --------- Total insurance liabilities $10,798.3 =========
Of the above insurance liabilities under contracts containing fixed payment dates, approximately 35 percent related to payments that will be made on such date only if the contract holder is living. Expected mortality is considered in determining the amount of this liability. The remainder of the insurance liabilities with fixed payment dates were payable regardless of the contract holder's survival. Approximately 29 percent of the insurance liabilities were subject to interest rates, ranging from 3 percent to 12 percent, fixed for the life of the contract. The remaining liabilities generally were subject to interest rates that may be reset at least annually. The Company believes that it has adequate short-term investments and readily marketable investment grade securities to cover the payments under contracts containing fixed payment dates plus any likely cash needs for all other contracts. The Company's investment portfolio at December 31, 1993, included $.2 billion of short-term investments (net of investment borrowings), $.1 billion of trading account securities, $3.2 billion of U.S. government/agency and mortgage-backed securities and $5.8 billion of publicly-traded investment grade bonds. The Company believes that such investments could be readily sold at or near carrying value or used to facilitate borrowings under reverse repurchase agreements. At December 31, 1993, the Company's portfolio of bonds, notes and redeemable preferred stocks had an aggregate unrealized gain of $295.7 million. Liquidity of BLH As a holding company whose principal assets are the securities of its insurance subsidiaries, BLH's ability to meet debt service obligations and pay operating expenses and dividends is dependent primarily on the receipt of sufficient funds from its subsidiaries. Bankers Life Insurance Company of Illinois ("BLI", the parent of Bankers Life) provides liquidity to BLH by paying principal and interest on a surplus debenture and by paying dividends. 39 In connection with the acquisition of Bankers Life, BLH received a $500 million surplus debenture from BLI in exchange for funds provided to acquire Bankers Life. The surplus debenture was approved by the Illinois Department of Insurance ("DOI"). During 1993, BLI repaid principal of $15 million plus accrued interest on the surplus debenture. Payments by BLI of principal and interest on the surplus debenture may be made only when the DOI is satisfied that the financial condition of BLI warrants that action, but such approval may not be withheld if BLI submits satisfactory evidence of surplus of at least the amount stipulated in the surplus debenture. A summary of maturity dates and amounts (dollars in millions) of the surplus debenture is shown below. Interest is payable quarterly generally at prime plus two percent (8.0 percent at December 31, 1993). 1994 $ 25.0 1995 30.0 1996 30.0 1997 30.0 1998 30.0 Thereafter 340.0 ------ Total $485.0 ======
BLI's ability to service its obligation under the surplus debenture is dependent upon its ability to receive dividends and tax sharing payments from Bankers Life. Bankers Life may pay dividends up to $82.5 million without regulatory approval during 1994. Under an inter-company tax sharing agreement, Bankers Life remits tax payments to BLI based upon its tax liabilities calculated on a separate company basis. At December 31, 1993, BLH's debt service obligations included a $110 million principal amount senior term loan payable in annual installments and $180 million principal amount of senior subordinated notes due in 2002. Future annual debt service requirements are discussed in Note 8 to the consolidated financial statements. At December 31, 1993, BLH had short-term investments of $21.4 million. Conseco believes that BLH could generate additional liquidity, if needed in the future, through equity offerings, debt issuance or by the conversion of existing assets to cash, including the sale or transfer of existing blocks of insurance through reinsurance arrangements. BLH contributed $114 million of the proceeds from its IPO to the capital of its subsidiaries. BLH believes its life subsidiaries are adequately capitalized and will not require additional investment to maintain their current operations. BLH makes cash distributions for fees for administrative services provided by Conseco's wholly owned subsidiaries and for dividend payments on common stock to all its shareholders. Liquidity of the Parent Company The parent company (Conseco, Inc.) needs liquidity primarily to service its debt, pay dividends on preferred and common stock and meet administrative expenses. The wholly owned insurance subsidiaries (excluding Western), Bankers, Western and CCP provide liquidity to the parent company by paying dividends and fees for services provided. These operations generate adequate cash flow to meet the needs of the parent company's normal operations. The parent company also may issue debt or equity securities periodically to fund internal expansion, acquisitions, investment opportunities and for the retirement of debt and equity. Such transactions during 1993 included the following: - In January 1993, the Company completed a public offering of 5.75 million shares of Series D Cumulative Convertible Preferred Stock at $50 per share. Proceeds from the offering of approximately $278.5 million (after underwriting and associated costs) were added to the Company's general funds. 40 - In July 1993, the Company redeemed its $50.0 million stated value Series B Preferred Stock. - In February 1993, the Company completed a public offering of $200 million of 8.125 percent senior notes due in 2003. Proceeds from the offering of $195.6 million (after original issue discount and underwriting and other associated costs) were used to redeem all of the Company's outstanding 12.75 percent senior subordinated notes and for other general corporate purposes. - In connection with Conseco's acquisition of additional shares of Bankers common stock on September 30, 1993, a new $200 million senior term loan was executed, with net proceeds to Conseco of $197.8 million (after fees and other associated costs). This senior term loan was repaid with proceeds from the IPO of WNC on February 15, 1994. The following table shows the cash flow activity of the parent company and its non-life subsidiaries from 1991 through 1993.
Years ended December 31, ------------------------ 1993 1992 1991 ---- ---- ---- (Dollars in millions) Amounts received: Interest on surplus debentures $ - $ 36.9 $ 38.8 Dividends from subsidiaries 3.8 72.0 60.0 Tax sharing payments from subsidiaries 101.9 - - Fees for shared costs from wholly owned subsidiaries 15.4 12.5 10.4 Principal on surplus debentures - 41.4 12.4 Fees from CCP Companies and Bankers 18.3 8.6 6.0 Fees from unaffiliated companies 20.4 13.3 9.0 Proceeds from the sale of stock of Life Re - 64.0 - Proceeds from the issuance of equity securities 281.7 6.3 133.1 Proceeds from the issuance of debt 393.4 - - Repayment of debt and redemption of preferred stock by BLH and CCP 118.3 12.1 - Amounts paid: Parent company costs (62.9) (27.7) (23.7) Interest on debt of Conseco (23.7) (21.5) (35.4) Interest on amounts due from Conseco to life subsidiaries (8.6) (10.3) (11.1) Common and preferred dividends (23.0) (7.6) (8.3) Investments in equity investments (59.5) - - Investment in consolidated subsidiaries (391.4) (129.7) (69.5) Payments on debt, including prepayments (180.0) (24.8) (101.2) Repurchases of common stock (25.3) (49.4) (9.5) Payments to retire preferred stock (50.0) - (10.0) Income taxes (91.1) - - Other (12.8) (4.0) (3.6) ------- ------- ------ Change in short-term investments of parent and its non-life subsidiaries 24.9 (7.9) (2.6) Short-term investments, beginning of year 17.4 25.3 27.9 ------- ------- ------ Short-term investments, end of year $ 42.3 $ 17.4 $ 25.3 ====== ====== ======
41 At December 31, 1993, the parent company and its non-life subsidiaries had short-term investments of $42.3 million, of which $8.7 million was expended in January 1994 for accrued interest and dividends. In addition, the life subsidiaries are permitted to distribute $18.7 million to the parent company in 1994. The parent company and its non-life subsidiaries had additional investments in nonaffiliates of $52.2 million at December 31, 1993, which, if needed, could be liquidated or contributed to the insurance subsidiaries. Conseco believes that it could generate additional liquidity, if needed in the future, through equity offerings, debt issuance or by the conversion of existing assets to cash, including the sale of a partial interest in its minority owned affiliates. As described in the notes to the consolidated financial statements, on February 15, 1994, Conseco sold a 60 percent interest in WNC. Net pretax proceeds from the sale and related transactions totaling $537.9 million were used to repay a $200 million senior unsecured loan and for other general corporate purposes. Statutory Limitations on Payments by Life Insurance Subsidiaries to their Parent As described in the preceding section, Conseco receives funds from its wholly owned insurance subsidiaries from dividends and fees for shared expenses. In connection with its acquisition of certain life insurance subsidiaries, Conseco received surplus debentures from the subsidiaries and the repayment terms were established and approved by the applicable regulatory authorities at the time of each acquisition. All such surplus debentures with Conseco's wholly owned insurance subsidiaries were eliminated by a contribution to the statutory capital of such subsidiaries at December 31, 1992. Annual dividends in excess of maximum amounts prescribed by state statutes (so-called "extraordinary dividends") may not be paid without the approval of the insurance commissioner of each state in which a life subsidiary is domiciled. Statutory operating results and statutory surplus are governed by statutes adopted by each state in which the subsidiaries do business; therefore, statutory surplus bears no direct relationship to equity as determined under generally accepted accounting principles ("GAAP"). With respect to new business, statutory accounting practices require that (i) acquisition costs and (ii) reserves for future guaranteed principal payments and interest in excess of statutory rates be expensed in the year the new business is written. These items cause a statutory loss ("surplus strain") on many insurance products in the year they are issued. The Company designs its products to minimize such first-year losses but certain products continue to cause a statutory loss in the year written. The Company controls the amount of new premiums written in order to manage the effect of such statutory surplus strain. Note 13 to the consolidated financial statements shows the difference between pretax income reported using statutory accounting practices (before deduction of expenses paid to affiliates and transfers to and from IMR and the amortization of IMR) and GAAP as follows:
Statutory Income Greater Than Year GAAP Income ---- ----------- (Dollars in millions) 1993 $48.1 1992 72.0 1991 76.1
42 Insurance departments in the states where the Company's life insurance subsidiaries are domiciled or do business require insurance companies to make annual and quarterly filings. Prior to the 1992 annual statements, these statutory filings required the establishment of the mandatory securities valuation reserve ("MSVR"), an account designed to stabilize a company's statutory surplus against fluctuations in the market value of stocks and bonds, according to regulations prescribed by the NAIC. Effective for the 1992 annual statements, the NAIC replaced MSVR with two reserves, the interest maintenance reserve ("IMR") and the asset valuation reserve ("AVR"). The new regulations expanded reserve requirements to include all invested assets and to distinguish between investment gains and losses resulting from changes in interest rates and gains and losses resulting from changes in creditworthiness. The IMR captures all investment gains and losses resulting from changes in interest rates and provides for subsequent amortization of such amounts into statutory net income on a basis reflecting the remaining lives of the assets sold. The AVR captures investment gains and losses related to changes in creditworthiness and is also adjusted each year based on a formula related to the quality and loss experience of the Company's investment portfolio. Because the AVR requires expanded reserves for mortgage loans, other invested assets and short-term investments that were not previously considered in the MSVR, the reserve amount required under these regulations increased. Such changes affect the ability of the Company's insurance subsidiaries to reflect future investment gains and losses in statutory earnings and surplus. INFLATION Inflation does not have a significant effect on Conseco's balance sheet due to the minimal dollars invested in property and equipment and the absence of inventories. Medical cost inflation has had a significant impact on Bankers' operations. These costs have continued to increase in recent years in excess of the Consumer Price Index and similar increases will likely continue although recently the rate of increase has declined. The impact on Bankers' operations is dependent upon its ability to charge higher premium rates, which are subject to approval by the insurance departments of each state in which Bankers sells its products. Prior to the standardization of Medicare supplement plans, approximately two-thirds of the states permitted rate plans with automatic escalation clauses. This permitted Bankers, in periods following initial approval, to adjust premium rates for changes in Medicare deductibles and increases in medical cost inflation without refiling with the regulators. Currently, all rate changes for the standardized plans must now be individually approved by each state. Bankers' pricing of its new standardized supplement plans reflects the impact of these filings and the lengthening of time required to implement rate increases. CHANGES IN ACCOUNTING PRINCIPLES The Company adopted several new accounting standards during 1993. Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), requires that an impaired loan be revalued at the present value of expected future cash flows discounted at the loan's effective interest rate when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The adoption of SFAS 114 had an immaterial impact on the Company's financial position and results of operations. Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"), requires the Company to carry certain investments at current estimated fair value when there is not a positive intent to hold such investments to maturity. The Company's former policy was similar to that mandated by SFAS 115, with the most significant exception being that unrealized gains and losses on trading account securities, which had been included as an adjustment to shareholders' equity, are recognized in income under the provisions of SFAS 115. The early adoption of SFAS 115 as of December 31, 1993, resulted in an immaterial increase in income from the unrealized gain on trading account securities. In November 1992, the Financial Accounting Standards Board's Emerging Issues Task Force concluded that for acquisitions after November 19, 1992, the amortization method for cost of policies purchased should use an interest rate comparable to the rates credited to the underlying products. Such method was employed by the Company for the acquisition of 13.3 million common shares of Bankers (as described in Note 2 to the consolidated financial statements) and will be employed by the Company in future acquisitions. 43 OUTLOOK As indicated throughout this report, Conseco intends to continue its strategy of growth through its three principal sources of earnings: operations of life insurance companies, provision of services for fees to the affiliated companies and others, and acquisition and restructuring of life insurance companies. Growth Through Operations of Life Insurance Companies Conseco's life insurance operations include: (i) Bankers, in which Conseco has a 56 percent ownership interest; (ii) Western, in which Conseco has a 40 percent interest (wholly owned by Conseco until Western's IPO was completed on February 15, 1994); (iii) CCP, in which Conseco has a 40 percent ownership interest; and (iv) the wholly owned life insurance subsidiaries (excluding Western), principally Bankers National and National Fidelity. Conseco owns 30.4 million common shares of Bankers, or 56 percent of Bankers' outstanding common shares. At December 31, 1993, the Bankers shares owned by Conseco had a net carrying value of approximately $518.8 million, a fair value of approximately $652.8 million (based on the closing price of $21.50 per share) and a cost of $313.1 million. On March 8, 1994, Bankers announced an increase in its quarterly cash dividend to 15 cents per share from 2 cents. During 1993, Bankers implemented several measures to enhance efficiency and reduce operating costs, including the relocation of its office space, which was previously scattered in 27 separate buildings. Also during 1993, Bankers' agent force grew 7 percent and Bankers sold 3 percent more Medicare supplement policies than the prior year. The increased sales of Medicare supplement policies provide Bankers with opportunities for cross-selling in its niche market, senior citizens. As a result of cross-selling, 1993 annualized new business premiums increased 19 percent for long-term products and 27 percent for annuities. It is too early to analyze what changes, if any, will occur in the business activity of Bankers as a result of the current legislative debate on health care. At December 31, 1993, Conseco owned 100 percent of Western. On February 15, 1994, Conseco sold a majority interest in Western through an IPO of 60 percent of the common stock of WNC. The offering of WNC generated net pretax proceeds to Conseco of $537.9 million, which were used to repay a $200 million senior unsecured loan and for other general corporate purposes. Conseco will record, in the first quarter of 1994, a one-time, after-tax gain of approximately $43 million as a result of the IPO. At February 15, 1994, the WNC shares owned by Conseco had a fair value of approximately $330.6 million (based on the closing price of $13.25 per share) and a net carrying value of approximately $270.0 million. Premiums on SPDAs collected by Western decreased $262.8 million in 1993, or 39 percent. The decline in premiums collected reflected primarily: (i) increased competition from other carriers (including those with higher ratings); (ii) increased competition from other investments and retirement funding alternatives, such as variable annuities and mutual funds, during these periods of low interest rates; and (iii) Western's focus on maintaining profitability levels on SPDAs. Management believes that with the recent marketing initiatives intended to address the decrease in SPDA premiums collected, the trend of decreasing premiums will be reversed in 1994. In late 1993, Western entered into a significant sales agreement with Oregon-based U.S. Bancorp to market Western's products through the bank's 400 branches in Northern California and the Pacific Northwest. Conseco also owns 11.6 million shares, or 40 percent, of CCP's common shares outstanding. At December 31, 1993, the CCP shares owned by Conseco had a net carrying value of approximately $244.3 million, a fair value of approximately $322.1 million (based on the closing price of $27.875 per share) and a cost of $102.8 million. CCP has (i) a sizable and profitable block of in-force business and (ii) a distribution system that has the potential to generate growth in the 403(b) tax sheltered annuity market. Further, CCP believes it has the financial strength to pursue an acquisition to complement its internal growth. Statutory surplus of the Company's insurance subsidiaries and investees is believed to be adequate. Conseco expects that statutory earnings in 1994 will exceed amounts needed by the holding companies for debt service and other requirements. Such excesses will be available to increase statutory capital of the life insurance subsidiaries and investees in order that their internal growth can continue. 44 Services Provided for Fees Conseco continues to provide various combinations of services to Bankers, Western, CCP and the wholly owned subsidiaries (excluding Western) including investment management, mortgage origination and servicing, policy administration, data processing, product marketing and executive management services. Additionally, Conseco provides such services to unaffiliated insurance companies. It is the Company's intent to provide investment management services to all companies acquired by CCP II, and to provide administrative, data processing and other services to such companies when appropriate. It is also the Company's intent to expand its service fee revenue by seeking similar arrangements with other unaffiliated insurers in order to profit from the Company's ability to administer products and investments without the need to provide additional capital needed to support those products. In March 1993, Conseco acquired Bankmark, an insurance marketing company which develops relationships with financial institutions to provide insurance and investment products to their customers. After its acquisition by Conseco, Bankmark began a formal program to actively expand its business by developing relationships with a few large money-center banks. Acquisitions and Restructuring of Life Insurance Companies On February 2, 1994, Conseco announced the closing of CCP II, a partnership which will invest in acquisitions of specialized annuity, life and accident and health insurance companies and related businesses, in which 36 investors committed a total of $624 million of capital to the new partnership. Commitments to the new partnership include $100 million from Conseco, $25 million from Bankers, $25 million from CCP, $50 million from Western and $36 million from executive officers and directors of Conseco and its affiliates. A subsidiary of Conseco is the sole general partner. The Company believes that a number of life insurance companies will be available to be acquired in the next 10 years as a result of strategic posturing and consolidation within the life industry. The Company expects to participate in such acquisitions through CCP II using the capital provided by the partnership, mezzanine capital that may be provided by the individual partners of CCP II and others, and debt capital from various sources. The Company believes there will be a period in the future when it will be more difficult to obtain financing for acquisitions because of conditions in the capital markets, causing a greater dependence on equity capital financing, such as that obtained through CCP II. Conseco will actively seek alternative capital sources, if needed, to finance acquisitions. Continuation of those conditions in the capital markets may also affect the availability of appropriate acquisition targets if sellers of insurance companies decide to wait for more favorable conditions. In addition, Conseco's increased size and evolving strategies will eliminate a number of potential acquisition candidates who are either too small or inappropriate strategic targets. However, Conseco believes it has the resources and capabilities to continue its strategy of acquiring and restructuring life insurance companies. It also believes that its past record of successfully acquiring, financing and operating life insurance companies will be an advantage compared to others who may attempt to acquire available candidates. As part of its program of exploring opportunities to improve its capital structure, Conseco continually reviews the need and desirability of restructuring the existing debt and equity of the Company and its affiliates. ______________________________ 45 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA. Index to Consolidated Financial Statements PAGE Report of Management. . . . . . . . . . . . . . . . . . . . . . . . 46 Report of Independent Accountants . . . . . . . . . . . . . . . . . 47 Consolidated Balance Sheet at December 31, 1993 and 1992. . . . . . 48 Consolidated Statement of Operations for the years ended December 31, 1993, 1992 and 1991. . . . . . . . . . . . . . . . . 50 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1993, 1992 and 1991. . . . . . . 52 Consolidated Statement of Cash Flows for the years ended December 31, 1993, 1992 and 1991. . . . . . . . . . . . . . . . . 53 Notes to Consolidated Financial Statements. . . . . . . . . . . . . 55 46 REPORT OF MANAGEMENT To Our Shareholders Management of Conseco, Inc. is responsible for the reliability of the financial information in this annual report. The financial statements are prepared in accordance with generally accepted accounting principles and the other financial information in this annual report is consistent with that of the financial statements. The integrity of the financial information relies in large part on maintaining a system of internal control that is established by management to provide reasonable assurance that assets are safeguarded and transactions are properly authorized, recorded and reported. Reasonable assurance is based upon the premise that the cost of controls should not exceed the benefits derived from them. Certain financial information presented depends upon management's estimates and judgments regarding the ultimate outcome of transactions which are not yet complete. Management believes these estimates and judgments are fair and reasonable in view of present conditions and available information. The Company engages independent accountants to audit its financial statements and express their opinion thereon. They have full access to each member of management in conducting their audits. Such audits are conducted in accordance with generally accepted auditing standards and include a review of internal controls, tests of the accounting records, and such other auditing procedures as they consider necessary to express an opinion on the Company's financial statements. The Audit Committee of the Board of Directors, composed solely of nonmanagement directors, meets periodically with management, internal auditors and the independent accountants to review internal accounting control, audit activities and financial reporting matters. The internal auditors and the independent accountants have full and free access to the Audit Committee. /s/ STEPHEN C. HILBERT /s/ ROLLIN M. DICK Stephen C. Hilbert Rollin M. Dick Chairman of the Board, Executive Vice President and President and Chief Financial Officer Chief Executive Officer 47 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders Conseco, Inc. We have audited the accompanying consolidated balance sheet of Conseco, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Conseco, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. /s/COOPERS & LYBRAND Indianapolis, Indiana March 24, 1994 48 CONSECO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1993 and 1992 (Dollars in millions) ASSETS
1993 1992 ---- ---- Investments: Fixed maturities: Actively managed at fair value (amortized cost: 1993 - $9,525.4; 1992 - $7,348.8) $ 9,820.6 $ 7,495.2 Held to maturity at amortized cost (fair value: 1993 - $1.6; 1992 - $19.4) 1.1 18.6 Equity securities at fair value (cost: 1993 - $30.2; 1992 - $65.0) 30.3 71.6 Mortgage loans 158.4 178.0 Credit-tenant loans 326.9 150.6 Policy loans 190.0 184.3 Investment in CCP Insurance, Inc. 244.3 130.5 Other invested assets 64.2 53.0 Trading account securities 105.8 468.6 Short-term investments 666.4 666.6 Assets held in separate accounts 81.1 33.0 --------- --------- Total investments 11,689.1 9,450.0 Accrued investment income 168.3 156.9 Reinsurance receivables 511.1 891.5 Cost of policies purchased 603.7 623.5 Cost of policies produced 258.6 310.8 Goodwill (net of accumulated amortization: 1993 - $14.3; 1992 - $8.8) 320.6 149.8 Property and equipment at cost (net of accumulated depreciation: 1993 - $21.1 1992 - $15.4) 71.7 62.5 Other assets 126.2 127.7 --------- --------- Total assets $13,749.3 $11,772.7 --------- --------- --------- --------- (continued on next page) The accompanying notes are an integral part of the consolidated financial statements.
49 CONSECO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Continued) December 31, 1993 and 1992 (Dollars in millions) LIABILITIES AND SHAREHOLDERS' EQUITY
1993 1992 ---- ---- Liabilities: Insurance liabilities $10,798.3 $10,039.0 Income tax liabilities 118.2 81.4 Investment borrowings 427.7 207.3 Other liabilities 256.4 240.5 Liabilities related to separate accounts 79.0 31.0 Notes payable of Conseco 413.0 163.2 Notes payable of Bankers Life Holding Corporation, not direct obligations of Conseco 290.3 392.0 --------- --------- Total liabilities 12,382.9 11,154.4 --------- --------- Minority interest 223.8 24.0 --------- --------- Shareholders' equity: Preferred stock 287.5 50.0 Common stock and additional paid-in capital (no par value, 500,000,000 shares authorized, shares issued and outstanding: 1993 - 25,311,773; 1992 - 24,911,148) 102.8 115.4 Unrealized appreciation of securities (net of applicable deferred income taxes: 1993 - $41.8; 1992 - $17.3) 97.5 42.9 Retained earnings 654.8 386.0 --------- --------- Total shareholders' equity 1,142.6 594.3 --------- --------- Total liabilities and shareholders' equity $13,749.3 $11,772.7 --------- --------- --------- --------- The accompanying notes are an integral part of the consolidated financial statements.
50 CONSECO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS for the years ended December 31, 1993, 1992 and 1991 (Dollars in millions, except per share data)
1993 1992 1991 ---- ---- ---- Revenues: Insurance policy income $1,293.8 $ 378.7 $ 280.8 Investment activity: Net investment income 896.2 888.6 921.4 Net trading income 93.1 35.9 50.7 Net realized gains 149.5 124.3 123.3 Fee revenue 26.5 12.9 5.4 Other income 1.4 1.5 .9 Equity in earnings of Life Re - 11.3 9.3 Equity in earnings of CCP Insurance, Inc. 37.4 15.8 - Incentive earnings allocation from the Partnership 36.6 9.3 - Gain on sale of stock by subsidiaries 101.5 9.2 - Gain on sale of stock of Life Re - 36.4 - ------- ------- ------- Total revenues 2,636.0 1,523.9 1,391.8 ------- ------- ------- Benefits and expenses: Insurance policy benefits 1,007.8 334.7 276.2 Change in future policy benefits 60.0 40.2 37.2 Interest expense on annuities and financial products 408.5 506.8 576.7 Interest expense on long-term debt 58.0 46.2 69.9 Interest expense on short-term investment borrowings 10.6 8.8 17.1 Amortization related to operations 140.2 62.2 46.8 Amortization and change in future policy benefits related to realized gains 126.3 93.4 50.4 Other operating costs and expenses 214.4 101.6 94.3 ------- ------- ------- Total benefits and expenses 2,025.8 1,193.9 1,168.6 ------- ------- ------- Income before income taxes, minority interest and extraordinary charge 610.2 330.0 223.2 Income tax expense 223.1 124.6 78.2 ------- ------- ------- Income before minority interest and extraordinary charge 387.1 205.4 145.0 Less minority interest 78.2 30.6 24.0 ------- ------- ------- (Continued on next page) The accompanying notes are an integral part of the consolidated financial statements.
51 CONSECO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Continued) for the years ended December 31, 1993, 1992 and 1991 (Dollars in millions, except per share data)
1993 1992 1991 ---- ---- ---- Income before extraordinary charge 308.9 174.8 121.0 Extraordinary charge on extinguishment of debt, net of taxes and minority interest 11.9 5.3 5.0 ------- ------ ------ Net income 297.0 169.5 116.0 Less preferred stock dividends 20.6 5.5 6.8 ------- ------ ------ Earnings applicable to common stock $276.4 $164.0 $109.2 ------- ------ ------ ------- ------ ------ Earnings per common share and common equivalent share: Primary: Weighted average shares 29,245,000 29,479,000 24,918,000 Earnings before extraordinary charge $9.86 $5.59 $4.30 Extraordinary charge .41 .16 .20 ----- ----- ----- Net income $9.45 $5.43 $4.10 ----- ----- ----- ----- ----- ----- Fully diluted: Weighted average shares 33,495,000 29,603,000 25,416,000 Earnings before extraordinary charge $9.12 $5.56 $4.22 Extraordinary charge .35 .16 .20 ----- ----- ----- Net income $8.77 $5.40 $4.02 ----- ----- ----- ----- ----- ----- The accompanying notes are an integral part of the consolidated financial statements.
52 CONSECO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY for the years ended December 31, 1993, 1992 and 1991 (Dollars in millions)
1993 1992 1991 ---- ---- ---- Preferred stock: Balance, beginning of year $ 50.0 $ 50.0 $ 60.0 Series D preferred shares issued 287.5 - - Preferred shares redeemed (50.0) - (10.0) -------- ------ ------ Balance, end of year $ 287.5 $ 50.0 $ 50.0 -------- ------ ------ -------- ------ ------ Common stock and additional paid-in capital: Balance, beginning of year $ 115.4 $139.5 $ 14.5 Issuance of common stock, net - - 132.2 Amounts related to stock options and employee benefit plans 6.4 7.4 2.3 Tax benefit related to issuance of shares under employee benefit plans 15.3 17.9 - Cost of shares acquired (25.3) (49.4) (9.5) Cost of issuance of Series D preferred shares (9.0) - - -------- ------ ------ Balance, end of year $ 102.8 $115.4 $139.5 -------- ------ ------ -------- ------ ------ Unrealized appreciation (depreciation) of securities: Balance, beginning of year $ 42.9 $ 18.0 $(10.7) Change in unrealized appreciation 54.6 24.9 28.7 -------- ------ ------ Balance, end of year $ 97.5 $ 42.9 $ 18.0 -------- ------ ------ -------- ------ ------ Retained earnings: Balance, beginning of year $ 386.0 $224.1 $116.4 Net income 297.0 169.5 116.0 Dividends on common stock (7.6) (2.1) (1.5) Dividends on preferred stock (20.6) (5.5) (6.8) -------- ------ ------ Balance, end of year $ 654.8 $386.0 $224.1 -------- ------ ------ -------- ------ ------ Total shareholders' equity $1,142.6 $594.3 $431.6 -------- ------ ------ -------- ------ ------ The accompanying notes are an integral part of the consolidated financial statements.
53 CONSECO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS for the years ended December 31, 1993, 1992 and 1991 (Dollars in millions)
1993 1992 1991 ---- ---- ---- Cash flows from operating activities: Net income $ 297.0 $ 169.5 $ 116.0 Adjustments to reconcile net income to net cash provided by operating activities: Amortization and depreciation 235.4 161.5 107.2 Income taxes 5.6 1.2 19.6 Insurance liabilities 89.5 128.4 14.9 Interest credited to insurance liabilities 408.5 506.8 576.7 Fees charged to insurance liabilities (38.8) (55.3) (82.6) Accrual and amortization of investment income (34.0) (56.8) (28.2) Deferral of cost of policies produced (159.7) (83.2) (80.6) Gain on sale of stock by subsidiaries (101.5) (9.2) - Incentive earnings allocation from the Partnership (36.6) (9.3) - Equity in earnings of Life Re - (11.3) (9.3) Equity in earnings of CCP Insurance, Inc. (36.6) (15.6) - Trading account securities 287.0 750.1 (375.5) Minority interest 77.2 28.9 23.1 Extraordinary charge on extinguishment of debt 11.9 5.3 5.0 Other 21.7 (8.6) (18.4) -------- -------- ------ Net cash provided by operating activities 1,026.6 1,502.4 267.9 -------- -------- ------ Cash flows from investing activities: Sales of investments 6,386.2 4,155.3 4,648.0 Maturities and redemptions 1,428.9 1,044.8 619.4 Purchases of investments (9,703.4) (6,925.6) (6,173.6) Purchase of additional shares of Bankers Life Holding Corporation (237.6) - - Purchase of additional shares of CCP Insurance, Inc. (59.5) - - Purchase of Bankmark (3.8) - - Acquisition of Partnership companies - (203.0) (71.7) Cash held by CCP Subsidiaries before public offering - (350.6) - Other (25.7) (16.0) 3.8 -------- -------- ------ Net cash used by investing activities (2,214.9) (2,295.1) (974.1) -------- -------- ------ (continued on next page) The accompanying notes are an integral part of the consolidated financial statements.
54 CONSECO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) for the years ended December 31, 1993, 1992 and 1991 (Dollars in millions)
1993 1992 1991 ---- ---- ---- Cash flows from financing activities: Issuance of capital stock, net $ 281.7 $ 6.3 $ 133.1 Issuance of capital stock by subsidiaries, net 405.3 96.4 35.4 Issuance of debt of Conseco, net 393.4 - - Issuance of debt of subsidiaries - not direct obligations of Conseco, net - 584.4 76.5 Payments to retire equity securities (75.3) (49.4) (19.5) Payments to retire equity securities of subsidiaries (52.2) (21.7) - Payments on debt of Conseco (157.2) (23.8) (100.2) Payments on debt of subsidiaries - not direct obligations of Conseco (127.3) (291.2) (9.0) Deposits to insurance liabilities 886.2 1,141.0 1,449.1 Investment borrowings 220.4 280.8 - Withdrawals from insurance liabilities (563.9) (716.0) (830.2) Dividends paid (23.0) (7.6) (8.3) -------- -------- -------- Net cash provided by financing activities 1,188.1 999.2 726.9 -------- -------- -------- Net increase (decrease) in short-term investments (.2) 206.5 20.7 Short-term investments, beginning of year 666.6 460.1 439.4 -------- -------- -------- Short-term investments, end of year $ 666.4 $ 666.6 $ 460.1 -------- -------- -------- -------- -------- -------- The accompanying notes are an integral part of the consolidated financial statements.
55 CONSECO, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation Conseco, Inc. ("Conseco" or the "Company") is a specialized financial services holding company which primarily makes controlling strategic investments in insurance companies and related businesses, manages the operations of those businesses to increase their value, provides services to acquired companies and other businesses, and seeks to realize the increase in value that its management brings to such companies through sale or restructuring. The insurance companies in which Conseco has made investments develop, market, issue and administer primarily annuity, individual health insurance and life insurance products. Conseco provides administrative, data processing and investment management services to affiliated and nonaffiliated companies. The Company's principal wholly owned life insurance subsidiaries are Western National Life Insurance Company ("Western National"), Bankers National Life Insurance Company ("Bankers National") and National Fidelity Life Insurance Company ("National Fidelity"). A majority interest of Western National was sold on February 15, 1994 (see Note 16). During 1990, Conseco formed the Partnership, which raised and invested $99.5 million of capital, of which approximately half was provided by the Company and the balance by other investors. A wholly owned subsidiary of Conseco was the sole general partner of the Partnership. The Partnership was the Company's vehicle for effecting the following acquisitions of insurance companies: Great American Reserve Insurance Company ("Great American Reserve") in June 1990, Jefferson National Life Insurance Company ("Jefferson National") in November 1990, Beneficial Standard Life Insurance Company ("Beneficial Standard") in March 1991 and Bankers Life and Casualty Company and its subsidiary, Certified Life Insurance Company (collectively, "Bankers Life") in November 1992. All acquisitions were accounted for as purchases and were reflected in operations as of their effective dates. As sole general partner, Conseco exercised unilateral control over the Partnership; therefore, the accounts of the Partnership and its majority-owned subsidiaries were included in the consolidated financial statements of Conseco and its wholly owned subsidiaries in the periods prior to the Partnership's liquidation as of March 31, 1993. Intercompany accounts and transactions were eliminated. See Note 2 for a description of the activities of the Partnership and its acquired companies. As a result of the public offering in July 1992 by CCP Insurance, Inc. ("CCP"), a newly organized holding company for the Partnership's first three acquisitions, Conseco no longer had unilateral control over those entities and ceased including the accounts of those companies in its consolidated financial statements. CCP and its subsidiaries are included in Conseco's financial statements on the equity basis since July 1, 1992. As a result of the public offering in March 1993 by Bankers Life Holding Corporation ("BLH"), a company formed by the Partnership to acquire Bankers Life (collectively referred to herein as "Bankers"), Conseco no longer had unilateral control of Bankers. However, after the acquisition by Conseco of additional shares of BLH in September 1993, Conseco's ownership position in Bankers increased to 56 percent. Accordingly, the accounts of Bankers have been consolidated with Conseco's accounts in the accompanying consolidated financial statements throughout 1993. Because its former owner continued to own 40 percent of BLH following the Partnership's acquisition of Bankers Life in 1992, it was necessary for the Partnership and Conseco to account for that acquisition as a "step acquisition transaction" in accordance with the guidance provided in Issue Number 88-16 of the Emerging Issues Task Force of the Financial Accounting Standards Board entitled "Basis in Leveraged Buyout Transactions." The step acquisition accounting was also used by Conseco to account for its increased ownership in Bankers acquired in September 1993. As a result, the assets and liabilities of Bankers included in Conseco's 1993 consolidated balance sheet represent the following combination of values: (i) the portion of Bankers' net assets acquired by Conseco in the November 1992 acquisition made by the Partnership is valued as of that acquisition date, (ii) the portion of Bankers' net assets acquired in September 1993 is valued as of that date, and (iii) the portion of Bankers' net assets owned by minority interests is valued based on Bankers' consolidated financial statements. 56 The cost of Conseco's September 1993 purchase of BLH shares was allocated to the assets and liabilities acquired based on a preliminary determination of their fair values; accordingly, this allocation may be adjusted upon final determination of such values. In management's opinion, however, any adjustments to fair values are not expected to be material. Certain amounts from prior periods were reclassified to conform to the 1993 presentation. Investments Fixed maturity investments are securities that mature more than one year after they are issued and include bonds, notes receivable and preferred stocks with mandatory redemption features. Equity securities include investments in common stocks and non-redeemable preferred stock. Effective December 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"), and, accordingly, classifies its fixed maturity and equity securities into the following three categories: - Actively managed fixed maturity and equity securities are securities that may be sold prior to maturity due to changes that might occur in market interest rate risks, changes in the security's prepayment risk, the management of income tax position, general liquidity needs, and increase in loan demand, the need to increase regulatory capital, changes in foreign currency risk or similar factors. Actively managed securities are carried at fair value and the unrealized gain or loss is recorded to shareholders' equity, net of tax and the related adjustments described in the second following paragraph. - Trading account securities are fixed maturity and equity securities that are bought and held principally for the purpose of selling them in the near term. Trading account securities are carried at estimated fair value and the unrealized gain or loss is included as a component of net trading income. - All other fixed maturity securities are those securities which the Company has the ability and positive intent to hold to maturity, and are carried at amortized cost. The Company may dispose of such securities under certain unforeseen circumstances, such as issuer credit deterioration or regulatory requirements. The above categories for classifying fixed maturity and equity securities are consistent with the Company's policy prior to the adoption of SFAS 115, with one exception that net unrealized gains and losses on trading account securities, which had previously been recorded as an adjustment to shareholders' equity, are now recognized as trading income under the provisions of SFAS 115. The net unrealized gain on trading account securities at December 31, 1993, recorded in trading income as a result of adopting SFAS 115 was immaterial. Anticipated returns, including realized gains and losses, from the investment of policyholder balances are considered in determining the amortization of the cost of policies purchased and the cost of policies produced. When actively managed fixed maturity and equity securities are stated at fair value, an adjustment is made to the cost of policies purchased and the cost of policies produced equal to the change in amortization that would have been recorded if such securities had been sold at their fair value and the proceeds reinvested at current yields. Furthermore, if future yields expected to be earned on such securities decline, it may be necessary to increase certain insurance liabilities. Adjustments to such liabilities are required when their balances, in addition to future net cash flows including investment income, are insufficient to cover future benefits and expenses. 57 Unrealized gains and losses and the related adjustments described in the preceding paragraph have no effect on earnings, but are recorded, net of tax, to shareholders' equity. The following table summarizes the effect of these adjustments as of December 31, 1993:
Effect of Fair Value Adjustment to Balance Actively Managed Reported before Adjustment Fixed Maturities Amount ----------------- ---------------- ------ (Dollars in millions) Actively managed fixed maturities $ 9,525.4 $295.2 $ 9,820.6 Cost of policies purchased 635.8 (32.1) 603.7 Cost of policies produced 379.9 (121.3) 258.6 Insurance liabilities 10,759.2 39.1 10,798.3 Income tax liabilities 82.3 35.9 118.2 Minority interest 221.3 2.5 223.8 Unrealized appreciation of securities 33.2 64.3 97.5
Effective December 31, 1993, when the Company recognizes changes in conditions that cause a fixed maturity investment to be transferred to a different category (e.g., actively managed, held to maturity or trading), the security is transferred to the new category at its fair value at the date of the transfer. At the date of transfer, the security's unrealized gain or loss is accounted for as follows: - For transfers to the trading category, the unrealized gain or loss is recognized in earnings; - For transfers from the trading category, the unrealized gain or loss already recognized in earnings is not reversed; - For transfers to actively managed from held to maturity, the unrealized gain or loss is recognized in shareholders' equity; and - For transfers to held to maturity from actively managed, the unrealized gain or loss at the date of transfer continues to be reported in shareholders' equity, but is amortized over the remaining life of the security as an adjustment of yield. Prior to adopting SFAS 115, the above investments were transferred to the new category at the lower of cost or fair value at the date of transfer. Unrealized losses were recognized upon such transfers; and unrealized gains were deferred until the final disposition of the securities. Transfers between categories in 1993 and 1992 and the resulting gains were immaterial. Credit-tenant loans are loans for commercial properties which require (i) the lease of the principal tenant to be assigned to the Company and to produce adequate cash flow to fund substantially all the requirements of the loan and (ii) the principal tenant or the guarantor of such tenant's obligations to have an investment-grade credit rating at the time of origination of the loan. These loans are also secured by the value of the related property. The underwriting guidelines take into account such factors as the lease term of the property; the borrower's management ability, including business experience, property management capabilities and financial soundness; and such economic, demographic or other factors that may affect the income generated by the property or its value. The underwriting guidelines also require a loan-to-value ratio of 75 percent or less. Other invested assets (principally investments in unconsolidated limited partnerships) are generally accounted for using the equity method. 58 Policy loans are stated at their current unpaid principal balance. Short-term investments include commercial paper, invested cash and other investments purchased with maturities less than three months and are carried at amortized cost, which approximates estimated fair value. The company considers all short-term investments to be cash equivalents. Mortgage and credit-tenant loans are stated at amortized cost. Fees received and costs incurred in connection with origination of investments, principally mortgages and credit-tenant loans are deferred. Fees, costs, discounts and premiums are amortized as yield adjustments over the contractual life of the investments. Anticipated prepayments on mortgage-backed securities are taken into consideration in determining estimated future yields on such securities. The specific identification method is used to account for the disposition of investments. The differences between sale proceeds and carrying values are reported as gains and losses on investments, or as adjustments to investment income if the proceeds are prepayments by issuers prior to maturity. The Company regularly evaluates mortgage loans, credit-tenant loans and other securities based on current economic conditions, past credit loss experience and other circumstances of the investee. Impaired loans are revalued at the present value of expected cash flows discounted at the loan's effective interest rate when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the agreement. A decline in a security's net realizable value that is other than temporary is treated as a realized loss and the cost basis of the security is reduced to its estimated fair value. Separate Accounts Separate accounts represent funds for which investment income and gains or losses accrue directly to certain policyholders. The assets of these accounts are legally segregated and are not subject to the claims which may arise out of any other business of the Company. Separate account assets are reported at market value since the underlying investment risks are assumed by the contract holders. The related liabilities are recorded at amounts equal to the underlying assets and the fair value of those liabilities is equal to their carrying amount. Cost of Policies Purchased The cost of policies purchased represents the portion of the cost to acquire a subsidiary that is attributable to the right to receive future cash flows from insurance contracts existing at the date of acquisition of the subsidiary. The value of cost of policies purchased is the actuarially determined present value of the projected future cash flows from the acquired policies. The method used by the Company to value the cost of policies purchased is consistent with the valuation methods used most commonly to value blocks of insurance business, which is also consistent with the basic methodology generally used to value assets. The method used by the Company is summarized as follows: - Identify the expected future cash flows from the blocks of business. - Identify the risks inherent in realizing those cash flows (i.e., what is the probability that the cash flows will be realized). - Identify the rate of return that the Company believes it must earn in order to accept the risks inherent in realizing the cash flows, based on consideration of the factors summarized below. - Determine the value of the policies purchased by discounting the expected future cash flows by the discount rate the Company requires. 59 Expected future cash flows used in determining such value are based on actuarially determined projections of future premium collections, mortality, surrenders, operating expenses, changes in insurance liabilities, investment yields on the assets held to back the policy liabilities and other factors. These projections take into account all factors known or expected at the valuation date based on the collective judgment of the management of the Company. Actual experience on purchased business may vary from projections due to differences in renewal premiums collected, investment spread, investment gains or losses, mortality and morbidity costs and other factors. These variances from original projections, whether positive or negative, are included in net income as they occur. To the extent that these variances indicate that future cash flows will differ from those reflected in the scheduled amortization of the cost of policies purchased, current and future amortization is adjusted. For example, sales of fixed maturity investments that result in a gain (or loss), but also reduce (or increase) the future investment spread because the sale proceeds are reinvested at a lower (or higher) earnings rate, cause amortization to increase (or decrease) reflecting the change in the incidence of cash flows. The discount rate used to determine the value of the cost of policies purchased is the rate of return required in order for the Company to invest in the business being acquired. In determining the rate of return to be used by the Company, the following factors are considered: - The magnitude of the risks associated with each of the actuarial assumptions used in determining expected future cash flows as described in the preceding paragraphs. - The cost of capital to fund the acquisition. - The perceived likelihood of changes in projected future cash flows that might occur if there are changes in insurance regulations and tax laws. - The compatibility with other Company activities that may favorably affect future cash flows. - The complexity of the acquired company. - Recent purchase prices (i.e., discount rates used in determining valuations) on similar blocks of business. After the cost of purchased policies is determined using the methods described above, the amount is amortized based on the incidence of the expected cash flows. For acquisitions made on or before November 19, 1992, the asset is amortized with interest at the same rate used to determine the discounted value of the asset. For acquisitions after November 19, 1992, including the acquisition of additional shares of Bankers on September 30, 1993, the asset is amortized using an interest rate comparable to the rate credited to the underlying products. This amortization methodology is in accordance with the conclusions reached by the Emerging Issues Task Force of the Financial Accounting Standards Board in their November 19, 1992, meeting. Recoverability of the cost of policies purchased is evaluated annually by comparing the current estimate of expected future cash flows (discounted at the rate of interest earned on invested assets) to the unamortized asset balance by line of insurance business. If such current estimate indicates that the existing insurance liabilities, together with the present value of future net cash flows from the blocks of business purchased, will not be sufficient to recover the cost of policies purchased, the difference is charged to expense. Amortization is also adjusted for the current and future years to reflect (i) the revised estimate of future cash flows and (ii) the revised interest rate (but not greater than the rate initially used and not lower than the rate of interest earned on invested assets) at which the discounted present value of such expected future profits equals the unamortized asset balance. 60 Cost of Policies Produced Costs of producing new business (primarily commissions and certain costs of policy issuance and underwriting, net of fees charged to the policy in excess of ultimate fees charged), which vary with and are primarily related to the production of new business, are deferred to the extent recoverable from future profits. Such costs are amortized with interest as follows: - For universal life-type contracts and investment-type contracts, in relation to the present value of expected gross profits from these contracts, discounted using the interest rate credited to the policy. - For immediate annuities with mortality risks, in relation to the present value of benefits to be paid. - For traditional life and accident and health products, in relation to future anticipated premium revenue using the same assumptions that are used in calculating the insurance liabilities. Recoverability of the unamortized balance of the cost of policies produced is evaluated regularly. For universal life-type contracts and investment-type contracts, the accumulated amortization is adjusted (whether an increase or a decrease) whenever there is a material change in the estimated gross profits expected over the life of a block of business in order to maintain a constant relationship between cumulative amortization and the present value (discounted at the rate of interest that accrues to the policies) of expected gross profits. For most other contracts, the unamortized asset balance is reduced by a charge to income only when the present value of future cash flows, net of the policy liabilities, is not sufficient to cover such asset balance. Goodwill The excess of the cost to acquire purchased companies over the net assets acquired is recorded as goodwill and is amortized on the straight-line basis over a 40-year period. Property and Equipment Property and equipment are carried at cost, net of accumulated depreciation. Depreciation expense was $6.0 million, $3.7 million and $4.0 million for 1993, 1992 and 1991, respectively, computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 50 years. Insurance Liabilities, Recognition of Insurance Policy Income and Related Benefits and Expenses Reserves for universal life-type and investment-type contracts are based on the contract account balance, if future benefit payments in excess of the account balance are not guaranteed, or on the present value of future benefit payments when such payments are guaranteed. Additions to insurance liabilities are made if future cash flows including investment income are insufficient to cover future benefits and expenses. For investment contracts without mortality risk (such as deferred annuities and immediate annuities with benefits paid for a period certain) and for contracts that permit the Company or the insured to make changes in the contract terms (such as single-premium whole life and universal life), premium deposits and benefit payments are recorded as increases or decreases in a liability account rather than as revenue and expense. Amounts charged against the liability account for the cost of insurance, policy administration and surrender penalties are recorded as revenues. Interest credited to the liability account and benefit payments made in excess of the contract liability account balance are charged to expense. 61 Reserves for traditional and limited-payment contracts are generally calculated using the net level premium method and assumptions as to investment yields, mortality, withdrawals and dividends. The assumptions are based on projections of past experience and include provisions for possible unfavorable deviation. These assumptions are made at the time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date. For traditional insurance contracts, premiums are recognized as income when due or, for short duration contracts, over the period to which the premiums relate. Benefits and expenses are recognized as a level percentage of earned premiums. Such recognition is accomplished through the provision for future policy benefits and the amortization of deferred policy acquisition costs. For contracts with mortality risk, but with premiums paid for only a limited period (such as single-premium immediate annuities with benefits paid for the life of the annuitant), the accounting treatment is similar to traditional contracts. However, the excess of the gross premium over the net premium is deferred and recognized in relation to the present value of expected future benefit payments (when accounting for annuity contracts) or in relation to insurance in force (when accounting for life insurance contracts). Liabilities for incurred claims are determined using historical experience and published tables for disabled lives and represent an estimate of the present value of the remaining ultimate net cost of all reported and unreported claims. Management believes these estimates are adequate. Such estimates are reviewed continually and any adjustments are reflected in current operations. The liability for future policy benefits for accident and health policies consists of active life reserves and the estimated present value of the remaining ultimate net cost of incurred claims. The active life reserves include unearned premiums and additional reserves. The additional reserves are computed on the net level premium method using assumptions for future investment yield, mortality and morbidity experience. The assumptions are based on projections of past experience and reflect provisions for possible adverse deviation. For participating policies, the amount of dividends to be paid is determined annually by the Company. The portion of the earnings allocated to participating policyholders is included as an insurance liability. Reinsurance In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of the benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage and coinsurance contracts. The Company has set its retention limit for acceptance of risk on life insurance policies at various levels up to $.8 million. Assets and liabilities related to insurance contracts are reported before the effects of reinsurance. Reinsurance receivables and prepaid reinsurance premiums (including amounts related to insurance liabilities) are reported as assets. Estimated reinsurance receivables are recognized in a manner consistent with the liabilities related to the underlying reinsured contracts. Such amounts have been presented in accordance with Statement of Financial Accounting Standards No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts." Income Taxes Income tax expense includes deferred taxes arising from temporary differences between the tax and financial reporting basis of assets and liabilities. Additionally, this liability method of accounting for income taxes requires the effect of a tax rate change on accumulated deferred income taxes to be reflected in income in the period in which the change is enacted. 62 Minority Interest The consolidated financial statements include all of the assets, liabilities, revenues and expenses of the Partnership, its subsidiaries and Bankers. A charge is made against consolidated income representing the share of the earnings of these partially-owned entities allocable to the minority interests. Shareholders' equity of such entities allocable to the minority interests is shown separately on the consolidated balance sheet. Development Cost Market development and start-up costs are expensed as incurred. After its acquisition by Conseco in March 1993, Marketing Distribution Systems Consulting Group, Inc. and Subsidiaries ("Bankmark") began a program to expand its business. Start-up costs of approximately $2.4 million were expensed in 1993 related to such program. Earnings Per Share All applicable share and per share data have been adjusted for the two-for-one stock splits distributed on July 1, 1991 and April 1, 1992. Primary net income per share is computed by dividing earnings, less preferred dividend requirements and an adjustment for the dilutive securities of affiliates and of subsidiaries of the Partnership, by the weighted average number of common and common equivalent shares outstanding for the year. Fully diluted net income per share is computed on that same basis, except (i) the number of common equivalent shares related to stock options is based on the year-end market value of the shares if that is more dilutive than the average market value and (ii) the conversion of the convertible preferred stock into common shares is assumed. Fair Values of Financial Instruments The following methods and assumptions are used by the Company in determining estimated fair values of financial instruments: Investment securities: The estimated fair values for fixed maturity securities (including redeemable preferred stocks) are based on quoted market prices, where available. For fixed maturity securities not actively traded, the estimated fair values are determined using values obtained from independent pricing services or, in the case of private placements, are determined by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investments. The estimated fair values for equity securities and trading account securities are based on quoted market prices. Short-term investments: The estimated fair values for short-term investments are based on quoted market prices. The carrying amount reported in the consolidated balance sheet for these instruments approximates their estimated fair value. Mortgage loans, credit-tenant loans and policy loans: The estimated fair values of these loans are determined by discounting future expected cash flows using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Other invested assets: The estimated fair values of other invested assets are determined using quoted market prices for similar instruments. 63 Off-balance sheet interest rate guarantee and swaps: The estimated fair value of the Company's interest rate guarantee contract and swap agreements are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standings. Insurance liabilities for investment contracts: The estimated fair values of the Company's liabilities under investment-type insurance contracts are determined using discounted cash flow calculations based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. Investment borrowings and notes payable: The estimated fair values of the Company's investment borrowings and notes payable are determined using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of the Company's investment borrowings approximates its estimated fair value. 2. ACQUISITIONS: CCP Insurance, Inc. As of March 31, 1991, the Partnership completed the acquisition of all of the outstanding stock of Beneficial Standard for a purchase price of $141.1 million, including $.9 million of fees and other costs. The acquisition was funded with $27.0 million of capital contributions from the Partnership and the net proceeds of the following: a $79.5 million senior secured loan from lending banks; a $9.5 million senior secured loan provided by the Company and $40.0 million of preferred stock (including $17.9 million provided by the Company). In July 1992, CCP, a newly organized holding company for the Partnership's first three acquisitions, completed an initial public offering ("IPO") of 8,010,700 shares of common stock, with net proceeds to CCP totaling $111.2 million. The shares issued in the offering represented a 31 percent ownership interest in the common stock outstanding of CCP. The remaining ownership interest in CCP was held by Conseco and others who exchanged their investments in the Partnership and its subsidiaries for common stock of CCP. In September 1993, CCP completed a public offering in which CCP sold 3.0 million shares of its common stock and certain shareholders sold 6.5 million shares of CCP common stock. Proceeds of approximately $80.9 million from the offering of common shares by CCP (after underwriting and issuance costs) were added to CCP's funds for general corporate purposes. CCP received no proceeds from the sale of shares by the selling shareholders. In a separate transaction, Conseco purchased 2.0 million shares of CCP common stock from the selling shareholders for $53.6 million. In addition, Conseco purchased .3 million shares of CCP common stock in open market transactions for $5.9 million during 1993. After these transactions, Conseco owns 40 percent of the common stock of CCP. The Partnership agreement provided incentive compensation to the general partner in the form of transfers from the limited partners of a portion of their returns in excess of prescribed targets. The distribution of CCP shares to the limited partners in 1992 caused such targets to be exceeded, resulting in incentive compensation of $6.1 million, net of tax of $3.2 million, to Conseco. In addition, income in 1992 included $1.9 million, net of tax of $7.3 million, representing Conseco's percentage share in the increase in CCP's shareholders' equity account attributable to the proceeds from the IPO. Bankers Life Holding Corporation On November 9, 1992, the Partnership acquired Bankers Life from I.C.H. Corporation (I.C.H. Corporation and its subsidiaries are collectively referred to herein as "ICH"). The acquisition was completed through BLH, a company formed and controlled by the Partnership. 64 The purchase price of $600.0 million was funded with the net proceeds of the following securities issued by BLH: $175.0 million senior loan from a group of lending banks; $200.0 million senior subordinated notes; $45.0 million payment-in-kind junior subordinated notes (including $8.3 million provided by Conseco and $34.7 million provided by ICH); $158.3 million of payment-in-kind preferred stock (of which $108.3 million was provided by Conseco and $50.0 million was provided by ICH); and $66.7 million of common stock of BLH, including $16.7 million directly provided by ICH and $50.0 million provided by the Partnership (including $25.5 million provided by Conseco and $9.6 million provided by ICH). The notes are not direct obligations of Conseco. After this acquisition, Conseco owned approximately 44 percent of the common equity interest in BLH through direct investments and investments in the Partnership. For accounting convenience, the acquisition was reported as of November 1, 1992, and adjustments were made to reflect financing costs for the period between that date and the actual date of acquisition, November 9, 1992. On March 25, 1993, BLH completed an IPO of 19.6 million shares of its common stock at $22 per share. Proceeds from the offering of $405.3 million (after underwriting and issuance costs) were used by BLH to redeem all outstanding preferred stock, to retire all junior subordinated debt, to prepay a portion of the senior debt and for other corporate purposes. After the offering, Conseco owned 31 percent of the common shares of BLH. As a result of the offering, Conseco recorded a one-time gain of $59.3 million (net of tax of $39.9 million) in the first quarter of 1993, representing Conseco's direct percentage share of the increase in Bankers' shareholders' equity account attributable to the proceeds from the offering. In addition, Conseco recorded a gain of $2.2 million (net of tax of $.1 million) in the first quarter of 1993, representing Conseco's indirect percentage share (through the Company's ownership of CCP) of CCP's percentage share of the increase in Bankers' shareholders' equity account attributable to the proceeds from the offering. The Partnership agreement provided incentive compensation to Conseco as the general partner in the form of transfers from the limited partners of a portion of their returns in excess of prescribed targeted returns. The distribution of BLH shares to the limited partners caused such targets to be exceeded, resulting in incentive compensation to Conseco of $21.9 million, net of tax of $14.7 million. On September 30, 1993, Conseco completed the acquisition of 13.3 million shares of common stock of BLH from ICH for $287.6 million. The shares purchased represented 25 percent of the outstanding shares of common stock of BLH, increasing Conseco's ownership of shares of common stock of BLH to 56 percent. The purchase price for the shares acquired from ICH was paid by the surrender for redemption of $50.0 million stated value of ICH preferred stock owned by a Conseco subsidiary and the payment of $237.6 million in cash. The cash payment was funded with available cash and the net proceeds from a $200.0 million senior unsecured loan. As described in Note 16, the loan was repaid in February 1994, using the proceeds from the IPO of Western National Corporation. 65 The closing price of BLH's shares on the New York Stock Exchange on December 31, 1993, was $21.50 per share. This indicated a total fair value of Conseco's investment in BLH of $652.8 million, compared to the cost to Conseco totaling $313.1 million and net equity included in these consolidated financial statements of $518.8 million. Shares held by the Company are not freely tradable, and sale of such shares may require a registration statement with the Securities and Exchange Commission. Bankmark In March 1993, Conseco acquired 95 percent of the outstanding common stock of Bankmark for $6.1 million. Bankmark is an insurance marketing company which develops marketing relationships with financial institutions to provide insurance and investment products to their customers. The acquisitions of CCP, Bankers and Bankmark described above were recorded in the consolidated statement of cash flows as follows:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Fixed maturities $ - $ (721.3) $(1,314.3) Mortgage loans (.6) (22.5) (337.0) Policy loans - (35.9) (66.5) Investment in CCP Insurance, Inc. (59.5) - - Trading account securities - (377.2) (43.0) Other investments 50.0 (35.6) - Cost of policies purchased (118.4) (516.0) (173.9) Cost of policies produced 73.3 (152.9) - Goodwill (154.6) (100.9) - Reinsurance receivables - (638.7) - Insurance liabilities 11.2 2,436.4 1,889.6 Tax liabilities 14.3 32.7 .5 Notes payable 12.1 - - Minority interest (117.8) - - Other (10.9) (71.1) (27.1) ------- -------- ---------- Cash used $(300.9) $ (203.0) $ (71.7) ------- -------- ---------- ------- -------- ----------
66 Following are unaudited pro forma results of operations of the Company as if the Partnership's acquisition of Bankers, the IPOs of BLH and CCP and Conseco's subsequent purchases of additional shares of BLH and CCP had occurred at the beginning of the periods presented. Prior operations of Bankmark are not included in the following table since the effect is not material.
1993 1992 ---- ---- (Dollars in millions, except per share amounts) Revenues $2,497.0 $2,290.0 Income before extraordinary charge 242.8 189.7 Earnings before extraordinary charge per common share and common equivalent share: Primary $7.60 $6.15 Fully diluted 7.14 6.12
3. INVESTMENTS: The amortized cost, estimated fair value and carrying value of fixed maturities were as follows at December 31, 1993:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Carrying Cost Gains Losses Value Value ---- ----- ------ ----- ----- (Dollars in millions) Actively managed: United States Treasury securities and obligations of United States government corporations and agencies $ 76.5 $ 3.9 $ 2.0 $ 78.4 $ 78.4 Obligations of states and political subdivisions 77.8 1.0 2.5 76.3 76.3 Debt securities issued by foreign governments 2.9 .9 - 3.8 3.8 Public utility securities 2,255.1 80.6 28.2 2,307.5 2,307.5 Other corporate securities 4,029.7 206.8 38.3 4,198.2 4,198.2 Mortgage-backed securities 3,083.4 90.6 17.6 3,156.4 3,156.4 -------- ------ ----- -------- -------- Total actively managed 9,525.4 383.8 88.6 9,820.6 9,820.6 Held to maturity: Obligations of states and political subdivisions 1.1 .5 - 1.6 1.1 -------- ------ ----- -------- -------- Total fixed maturities $9,526.5 $384.3 $88.6 $9,822.2 $9,821.7 -------- ------ ----- -------- -------- -------- ------ ----- -------- --------
67 At December 31, 1992, the amortized cost and estimated fair value of fixed maturities were as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Carrying Cost Gains Losses Value Value ---- ----- ------ ----- ----- (Dollars in millions) Actively managed: United States Treasury securities and obligations of United States government corporations and agencies $ 91.1 $ 2.5 $ 1.8 $ 91.8 $ 91.8 Obligations of states and political subdivisions 55.6 .5 .5 55.6 55.6 Debt securities issued by foreign governments 2.5 .6 - 3.1 3.1 Public utility securities 1,841.1 50.9 7.9 1,884.1 1,884.1 Other corporate securities 2,870.8 65.0 43.9 2,891.9 2,891.9 Mortgage-backed securities 2,487.7 96.2 15.2 2,568.7 2,568.7 -------- ------ ----- -------- -------- Total activity managed 7,348.8 215.7 69.3 7,495.2 7,495.2 -------- ------ ----- -------- -------- Held to maturity: Obligations of states and political subdivisions 1.0 .4 - 1.4 1.0 Other corporate securities 17.6 .4 - 18.0 17.6 -------- ------ ----- -------- -------- Total held to maturity 18.6 .8 - 19.4 18.6 -------- ------ ----- -------- -------- Total fixed maturities $7,367.4 $216.5 $69.3 $7,514.6 $7,513.8 -------- ------ ----- -------- -------- -------- ------ ----- -------- --------
The following table sets forth the amortized cost and estimated fair value of fixed maturities as of December 31, 1993, based upon the source of the estimated fair value:
Estimated Amortized Fair Cost Value ---- ----- (Dollars in millions) Nationally recognized pricing services $7,137.9 $7,383.5 Broker-dealer market makers 2,361.1 2,411.1 Internally developed methods (calculated based on a weighted-average current market yield of 4.31 percent) 27.5 27.6 -------- -------- Total fixed maturities $9,526.5 $9,822.2 -------- -------- -------- --------
68 The following table sets forth the quality of total fixed maturity investments as of December 31, 1993, classified in accordance with the highest rating by a nationally recognized statistical rating organization or, as to $69.1 million fair value of fixed maturities not rated by such firms, based on ratings assigned by the National Association of Insurance Commissioners ("NAIC") as follows: for purposes of the table, NAIC Class 1 is included in the "A" rating; Class 2, "BBB-"; Class 3, "BB-"; and Classes 4-6, "B+ and below."
Percent of Percent of Investment Rating Fixed Maturities Total Investments ----------------- ---------------- ----------------- AAA 34% 28% AA 9 8 A 20 17 BBB+ 10 9 BBB 11 9 BBB- 10 8 --- -- Investment grade 94 79 --- -- BB+ 2 2 BB 1 1 BB- 1 1 B+ and below 2 1 --- -- Below investment grade 6 5 --- -- Total fixed maturities 100% 84% --- -- --- --
Below investment grade fixed maturity investments, summarized by the amount their amortized cost exceeds fair value, were as follows at December 31, 1993:
Estimated Amortized Fair Cost Value ---- ----- (Dollars in millions) Amortized cost exceeds fair value by 15% or more $ 20.2 $ 16.6 Amortized cost exceeds fair value by 5%, but not more than 15% 38.0 34.4 All others 524.3 546.7 ------ ------ Total below investment grade fixed maturity investments $582.5 $597.7 ------ ------ ------ ------
69 The amortized cost and estimated fair value of fixed maturities at December 31, 1993, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties and because most mortgage-backed securities provide for periodic payments throughout their lives.
Estimated Amortized Fair Cost Value ---- ----- (Dollars in millions) Due in one year or less $ 23.4 $ 25.7 Due after one year through five years 184.1 185.7 Due after five years through ten years 1,216.1 1,256.0 Due after ten years 5,019.5 5,198.4 -------- -------- Subtotal 6,443.1 6,665.8 Mortgage-backed securities 3,083.4 3,156.4 -------- -------- Total fixed maturities $9,526.5 $9,822.2 -------- -------- -------- --------
Equity securities consisted of the following:
December 31, 1993 December 31, 1992 ----------------- ----------------- Estimated Estimated Fair Fair Cost Value Cost Value ---- ----- ---- ----- (Dollars in millions) Common stock, principally insurance companies $15.2 $15.3 $ 8.4 $24.0 Preferred stock, non-redeemable 15.0 15.0 56.6 47.6 ----- ----- ----- ----- Total equity securities $30.2 $30.3 $65.0 $71.6 ===== ===== ===== =====
70 Net investment income consisted of the following:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Fixed maturities $777.6 $762.2 $766.7 Equity securities 7.1 10.5 10.8 Mortgage loans 23.2 49.8 57.9 Credit-tenant loans 24.2 15.7 10.5 Policy loans 11.3 13.8 16.9 Other 23.8 8.6 3.5 Short-term investments 28.2 26.5 52.4 Separate accounts 5.9 6.1 7.9 ------ ------ ------ Gross investment income 901.3 893.2 926.6 Investment expenses 5.1 4.6 5.2 ------ ------ ------ Net investment income $896.2 $888.6 $921.4 ------ ------ ------ ------ ------ ------
The carrying value of investments not accruing investment income totaled $19.6 million, $24.8 million and $36.8 million at December 31, 1993, 1992 and 1991, respectively. The proceeds from sales of fixed maturity investments were $6.5 billion, $4.2 billion and $4.8 billion for the years ended December 31, 1993, 1992 and 1991, respectively. The proceeds from the sales of trading account securities were $10.0 billion, $6.7 billion and $5.6 billion for the years ended December 31, 1993, 1992 and 1991, respectively. In 1993, there were no sales of fixed maturities classified as held to maturity, although some were called by the issuer. Realized gains (losses) from trading account securities, net of investment expenses, were included in revenue as follows:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Gross gains $129.5 $75.0 $68.7 Gross losses (26.4) (30.3) (10.7) ------ ----- ----- Net realized gains from trading account securities before expenses 103.1 44.7 58.0 Trading expenses 10.0 8.8 7.3 ------ ----- ----- Net trading income $ 93.1 $35.9 $50.7 ------ ----- ----- ------ ----- -----
71 Realized gains (losses), net of investment expenses, were included in revenue as follows:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Fixed maturities: Gross gains $214.9 $141.4 $163.6 Gross losses (46.6) (16.4) (14.2) Decline in net realizable value of fixed maturities (7.9) - (18.7) ------ ------ ------ Net realized gains from fixed maturities before expenses 160.4 125.0 130.7 Equity securities 10.4 3.8 .4 Mortgages (6.1) (6.7) .2 Other (2.1) 6.6 (2.5) ------ ------ ------ Net realized gains before expenses 162.6 128.7 128.8 Realized gain expenses 13.1 4.4 5.5 ------ ------ ------ Net realized gains $149.5 $124.3 $123.3 ------ ------ ------ ------ ------ ------
72 Changes in unrealized appreciation (depreciation) on investments were as follows:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Investments carried at amortized cost: Fixed maturities held to maturity $ (.3) $(280.8) $456.5 ------ ------- ------- ------ ------- ------- Investments carried at estimated fair value: Actively managed fixed maturities $148.8 $146.4 $ - Equity securities (6.5) 18.8 6.0 Other investments 14.4 - - Trading account securities (3.3) (42.0) 43.4 ------ ------- ------- 153.4 123.2 49.4 Equity in unrealized appreciation of CCP's investments 15.0 9.6 - Less effect on other balance sheet accounts: Cost of policies purchased (5.3) (26.8) - Cost of policies produced (65.0) (56.3) - Insurance liabilities (14.2) (24.9) - Income tax liabilities (24.5) (8.2) (16.8) Minority interest (4.8) 8.3 (3.9) ------ ------- ------- Change in unrealized appreciation of investments carried at estimated fair value $ 54.6 $ 24.9 $ 28.7 ------ ------- ------- ------ ------- -------
73 Accumulated net appreciation of equity securities before tax as of December 31, 1993, was $.1 million consisting of $.1 million of appreciation and no depreciation. The carrying value and fair value of fixed maturity investments in default as to the payment of principal or interest totaled $25.3 million at December 31, 1993, net of total recorded writedowns of $16.8 million. During 1991, the Company recorded $18.7 million of writedowns of fixed maturity investments as a result of changes in conditions which caused the Company to conclude the issuer may be unable to comply with the terms of the investment. During 1992, the Company recorded no such writedowns. During 1993, the Company recorded $7.9 million of such writedowns. Investments in mortgage-backed securities at December 31, 1993, included collateralized mortgage obligations ("CMOs") of $2,193.9 million and mortgage-backed pass-through securities of $962.5 million. At December 31, 1993, the par value, amortized cost and estimated fair value of investments in mortgage-backed securities summarized by interest rates on the underlying collateral were comprised of the following:
Par Amortized Estimated Value Cost Fair Value ----- ---- ---------- (Dollars in millions) Pass-through securities: Below 7% $ 467.7 $ 469.5 $ 465.8 7% - 8% 410.2 416.5 418.8 8% - 9% 26.1 26.2 27.3 Above 9% 46.5 46.6 50.6 Planned amortization class CMO instruments: Below 7% 315.9 309.2 303.6 7% - 8% 574.9 557.1 572.4 8% - 9% 232.5 229.9 239.6 Above 9% 261.5 263.9 274.3 Other CMO instruments: Below 7% 87.6 87.7 88.2 7% - 8% 71.2 69.5 70.6 8% - 9% 61.7 62.4 63.8 Above 9% 564.9 544.9 581.4 -------- -------- -------- Total mortgage-backed securities $3,120.7 $3,083.4 $3,156.4 -------- -------- -------- -------- -------- --------
At December 31, 1993, the balance of mortgage loans was comprised of 78 percent commercial loans and 22 percent junior and residual interests in collateralized mortgage obligations. The total estimated fair value of mortgage loans was approximately $175 million and $190 million at December 31, 1993 and 1992, respectively. Approximately 22 percent, 15 percent, 10 percent and 8 percent of the mortgage loans were on properties located in Texas, New York, Virginia and Missouri, respectively. No other state comprised greater than 7 percent of the mortgage loan balance. At December 31, 1993, the Company had an allowance for loss on mortgage loans of $3.9 million. During the year ended December 31, 1993, the Company realized losses of $6.1 million on mortgage loans, of which $5.8 million related to other than temporary declines in the value of certain residual interests in collateralized mortgage obligations. At December 31, 1993 and 1992, the estimated fair values of credit-tenant loans, policy loans and other invested assets were approximately equal to their respective carrying values. 74 As part of its investment strategy, the Company enters into repurchase agreements and dollar roll transactions to increase its return on investments and improve liquidity. These transactions generally terminate after 30 days and are accounted for as short-term collateralized borrowings. Such borrowings averaged approximately $410 million during 1993 (compared to $215 million during 1992) and were collateralized by mortgage-backed securities with fair values approximately equal to the loan value. In 1992, the Company entered into an interest rate guarantee contract to convert the characteristics of certain investments to match those of related insurance liabilities. The agreement expires in January 1995 and provides for a constant yield on $100.0 million indexed to current rates on U.S. Treasuries. The estimated fair value of the agreement was approximately $.1 million and $.9 million at December 31, 1993 and 1992, respectively, which was not recognized in the accompanying consolidated balance sheet. At December 31, 1993, the Company had outstanding interest rate swap agreements which expire at various dates through 1999. Under the agreements, the Company receives a fixed rate averaging 6.7 percent on $295.0 million and pays a floating rate based on LIBOR. The estimated fair value of the agreements was approximately $13.7 million at December 31, 1993, which was not recognized in the accompanying consolidated balance sheet. Life insurance companies are required to maintain certain amounts of assets on deposit with state regulatory authorities. Such assets had an aggregate carrying value of $27.0 million at December 31, 1993. Investments in any entity in excess of 10 percent of shareholders' equity at December 31, 1993, other than investments in affiliates and investments issued or guaranteed by the U.S. government, substantially all of which were actively managed fixed maturities, were as follows:
Estimated Amortized Fair Investment Cost Value ---------- ---- ----- (Dollars in millions) News America Holding Corporation $149.8 $159.1 Commonwealth Edison Company 142.8 140.2 Texas Utilities Electric Company 126.9 128.4 GTE Corporation 120.1 128.2 Time Warner, Inc. 123.9 128.0
75 4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES: CCP See Note 2 for a description of transactions affecting Conseco's ownership of CCP. Conseco's investment in 40 percent of the common stock of CCP is included in the consolidated balance sheet on the equity basis at $244.3 million at December 31, 1993, representing the effect of the transactions described in Note 2 plus equity in CCP's earnings. The closing price of CCP's shares on the New York Stock Exchange on December 31, 1993, was $27.875 per share, indicating a total fair value of the CCP shares owned by Conseco of $322.1 million, compared to the total cost to Conseco of $102.8 million. A substantial portion of the shares of CCP common stock held by Conseco are subject to restrictions on trading. 76 The difference of $22.8 million between the carrying value of Conseco's investment in CCP and the amount of its underlying equity in net assets is amortized on the straight-line basis over a 40-year period. Financial information of CCP at December 31, 1993 and 1992, for the year ended December 31, 1993, and for the six months ended December 31, 1992 (the period CCP and its subsidiaries were included in Conseco's financial statements on the equity basis) were as follows:
December 31, ------------------------------ 1993 1992 ---- ---- (Dollars in millions) Financial position: Total assets $5,298.1 $4,856.5 Total investments 4,872.5 4,373.7 Cost of policies purchased 175.5 247.9 Cost of policies produced 42.3 44.4 Total liabilities 4,734.2 4,522.7 Insurance liabilities 4,233.3 4,137.2 Notes payable 173.5 231.9 Common shareholders' equity 563.9 333.8 Amounts recorded by Conseco: Investment in CCP $ 244.3 $ 130.5
Year Ended Six Months Ended December 31, 1993 December 31, 1992 ----------------- ------------------ (Dollars in millions) Results of operations: Total revenues $632.5 $318.0 Investment activity insurance policy income 127.8 72.4 Investment activity: Net investment income 412.9 193.4 Net trading income 24.3 10.7 Net realized gains 55.8 40.7 Total benefits and expenses 459.0 249.9 Interest expense on annuities and financial products 243.5 128.2 Interest expense on long-term debt 16.1 9.8 Income before income taxes and extraordinary charge 173.5 68.1 Income tax expense 65.9 24.4 Income before extraordinary charge 107.6 43.7 Extraordinary charge on extinguishment of debt, net of tax - 8.3 Net income 107.6 35.4 Amounts recorded by Conseco: Equity in earnings before extraordinary charge $37.4 $15.8 Fees received for services provided by Conseco to CCP 10.6 4.5 Extraordinary charge - 3.9 Dividends received .8 .2
77 Life Re Corporation At December 31, 1991, the Company owned a 31 percent equity interest (after exercise of warrants held by others) in the common stock and $30.0 million of 12 percent junior preferred stock of Life Re Corporation ("Life Re"), a company engaged in the life reinsurance business. In November 1992, Life Re completed an initial public offering of its common stock and redeemed all of the common and preferred stock held by the Company. As a result, a gain of $15.2 million (net of tax of $21.2 million) was recorded in 1992. The following amounts were recorded in Conseco's financial statements related to the results of operations of Life Re:
1992 1991 ---- ---- (Dollars in millions) Equity in earnings of Life Re $11.3 $ 9.3 Net investment income received on preferred stock 3.0 3.6 Gain on sale of investment in Life Re 36.4 -
5. INSURANCE LIABILITIES: Insurance liabilities consisted of the following:
Interest December 31, Withdrawal Mortality Rate ---------------------- Assumption Assumption Assumption 1993 1992 ---------- ---------- ---------- ---- ---- (Dollars in millions) Future policy benefits: Investment contracts N/A N/A (c) $ 7,114.4 $ 6,553.2 Limited-payment contracts None (a) (d) 1,583.9 1,357.7 Traditional life insurance Company contracts experience (b) (e) 632.7 713.3 Universal life-type contracts N/A N/A (f) 341.0 337.4 Individual accident and health Company Company (g) 545.1 513.0 experience experience Group life and health N/A N/A N/A 14.2 26.4 Unearned premiums N/A N/A N/A 189.4 183.2 Claims payable and other policyholders' funds N/A N/A N/A 377.6 354.8 --------- --------- Total insurance liabilities $10,798.3 $10,039.0 --------- --------- --------- --------- (a) Principally the 1984 United States Population Table. (b) Principally modifications of the 1965 - 70 Basic, Select and Ultimate Tables. (c) In both 1993 and 1992, approximately 94 percent of this liability represented account balances where future benefits are not guaranteed and 6 percent represented the present value of guaranteed future benefits determined using interest rates ranging from 3 percent to 12 percent. (d) The weighted average rate was approximately 9 percent at December 31, 1993. (e) The weighted average rate was approximately 7 percent at December 31, 1993. (f) The weighted average rate was approximately 5 percent at December 31, 1993. (g) The weighted average rate was approximately 7 percent at December 31, 1993.
78 Participating policies represented approximately 11 percent, 12 percent and 14 percent of total life insurance in force at December 31, 1993, 1992 and 1991, respectively, and approximately 3 percent, 8 percent and 18 percent of premium income for 1993, 1992 and 1991, respectively. Dividends on participating policies amounted to $16.0 million, $11.1 million and $14.6 million in 1993, 1992 and 1991, respectively. The sales of fixed maturity investments during 1993 reduced the expected future yields on the investment of policyholder balances to the extent that projected future cash flows on certain products were insufficient to cover future benefits and expenses. Accordingly, additional estimated insurance liabilities of $37.1 million were established by a charge to expense. As described in Note 1, an adjustment was made to increase insurance liabilities by $39.1 million related to recording unrealized gains on actively managed fixed maturities. The estimated fair value of the liabilities for investment contracts was approximately equal to its carrying value at December 31, 1993 and 1992, because interest rates credited on the vast majority of account balances approximate current rates paid on similar investments and are not generally guaranteed beyond one year. Fair values for the Company's insurance liabilities other than those for investment contracts are not required to be disclosed. However, the estimated fair values of liabilities for all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts. 6. REINSURANCE: Cost of reinsurance ceded where the reinsured policy contains mortality risks totaled $34.9 million, $41.9 million and $63.8 million in 1993, 1992 and 1991, respectively, and was deducted from insurance premium revenue. The Company is contingently liable for claims reinsured if the assuming company is unable to pay. Reinsurance recoveries netted against insurance policy benefits totaled $41.9 million, $45.4 million and $68.1 million in 1993, 1992 and 1991, respectively. The Company has ceded blocks of insurance under reinsurance transactions which represent financing arrangements and, in accordance with generally accepted accounting principles, are not reflected in the accompanying consolidated financial statements except for the risk fees paid to reinsurers. Net statutory surplus provided by such treaties totaled $2.9 million and $11.2 million at December 31, 1993 and 1992, respectively. Risk fees paid to reinsurers generally ranged from 2 percent to 4 percent of the net amount of surplus provided. 79 The Company has also ceded policy liabilities under assumption reinsurance agreements where all obligations under the insurance contracts have been ceded to another company. Accordingly, insurance liabilities related to such policies were not reported in the balance sheet. The Company believes the assuming companies are able to honor all contractual commitments under the assumption reinsurance agreements based on periodic reviews of financial statements, insurance industry reports and reports filed with state insurance departments. At December 31, 1993 and 1992, reinsurance receivables with carrying values of $398.5 million and $420.0 million, respectively, were associated with annuity business ceded by Bankers to an unaffiliated company and retroceded on substantially identical terms to an ICH affiliate. Bankers provides investment management, administrative, data processing and general management services related to the reinsured business in exchange for annual fees equal to .45 percent of reinsured reserves. Administrative fees earned were $1.8 million and $.3 million for 1993 and the two months ended December 31, 1992, respectively. Experience refunds including administrative fees, earned during 1993 and the two months ended December 31, 1992, were $3.2 million and $.3 million, respectively. At December 31, 1992, insurance liabilities of approximately $182.0 million, were reinsured by Bankers with a subsidiary of ICH. During the first quarter of 1993, Bankers recaptured the reinsured business with assets approximately equal to the insurance liabilities. Recapture fees of $15.5 million were capitalized as a component of cost of policies purchased. On June 30, 1993, the Company recaptured certain annuity business with insurance liabilities of $156.5 million that had previously been reinsured with an unaffiliated company. Assets with a fair value approximating the insurance liabilities were transferred to the Company. 80 7. INCOME TAXES: Income tax liabilities were comprised of the following:
December 31, ---------------------- 1993 1992 ---- ---- (Dollars in millions) Deferred income tax liabilities: Investments $ 67.9 $ 37.8 Cost of policies purchased and cost of policies produced 275.8 250.3 Insurance liabilities (245.1) (224.5) Other (17.9) (36.3) Unrealized appreciation 41.8 17.3 Less net operating loss carryforward (33.2) (6.4) ------ ------ Deferred income tax liabilities 89.3 38.2 Current income tax liabilities 28.9 43.2 ------ ------ Income tax liabilities $118.2 $ 81.4 ------ ------ ------ ------
Income tax expense was as follows:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Current tax provision $162.9 $110.9 $75.5 Deferred tax provision 60.2 13.7 2.7 ------ ------ ----- Income tax expense $223.1 $124.6 $78.2 ------ ------ ----- ------ ------ -----
Income tax expense differed from that computed at the applicable federal statutory rate (35 percent during 1993 and 34 percent during 1992 and 1991) for the following reasons:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Tax on income before income taxes at statutory rates $213.6 $112.2 $75.9 Additional tax on unrealized gains and income from prior periods related to increase in corporate income tax rate 3.3 - - Nontaxable investment income and dividends received deduction (10.8) (.8) (12.8) Undistributed earnings of affiliates 3.3 6.8 11.9 Nondeductible items 2.2 1.0 1.2 State taxes 11.9 4.2 - Other (.4) 1.2 2.0 ------ ------ ----- Income tax expense $223.1 $124.6 $78.2 ------ ------ ----- ------ ------ -----
81 The Omnibus Budget Reconciliation Act of 1993 (the "Act") was enacted on August 10, 1993. The most significant provision of the Act affecting the Company was the increase in the corporate income tax rate to 35 percent from 34 percent, effective for taxable income reported for the year 1993. As a result of the increase in the tax rate, the Company recognized additional tax expense of $8.9 million consisting of: (i) $5.6 million related to income of 1993; (ii) $1.9 million related to a one-time adjustment to accumulated deferred taxes relating to prior years' income; and (iii) $1.4 million related to unrealized appreciation of securities at the date the new law was enacted. In addition, the equity in earnings of CCP was reduced by $1.6 million as a result of the Company's share of the additional tax expense recorded by CCP related to the increase in the tax rate. The impact of other provisions of the Act was not material to the Company. At December 31, 1993, federal income tax loss carryforwards of $94.9 million were available (subject to various statutory restrictions) for use on future tax returns, portions of which begin expiring in 1999. Of the loss carryforwards, $24.5 million may be used to offset income from the non-life insurance companies only. None of the carryforwards are available to reduce the tax provision for financial reporting purposes. The Company's subsidiaries have deducted approximately $12.9 million on their tax returns allocated to policyholders' surplus for which no provision has been made for income taxes that may be payable if such amounts are used to pay dividends to the shareholder or for certain other purposes. The IRS has completed its examination of the Company for years through 1990. All amounts due have been paid or accrued. 8. NOTES PAYABLE: Notes payable that are direct obligations of the Company at December 31, 1993 and 1992, were as follows:
Amount Outstanding Net of Par Value Unamortized ---------------------------------- Discount and Estimated Outstanding at Issuance Costs Fair Value at December 31, at December 31, December 31, Initially -------------------- -------------------- -------------------- Issued 1993 1992 1993 1992 1993 1992 ------ ---- ---- ---- ---- ---- ---- (Dollars in millions) Issued September 1993 $200.0 $200.0 $ - $198.0 $ - $200.0 $ - Issued February 1993 200.0 200.0 - 195.8 - 208.0 - Issued July 1987 255.0 - 139.8 - 135.9 - 147.7 Issued June 1989 34.0 14.4 23.8 13.2 21.3 14.9 24.0 Issued June 1990 6.0 6.0 6.0 6.0 6.0 6.5 6.0 ------ ------ ------ ------ ------ ------ Total $420.4 $169.6 $413.0 $163.2 $429.4 $177.7 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
On September 30, 1993, the Company executed a $200 million senior unsecured loan due to a group of banks as financing for Conseco's purchase of common shares of Bankers as described in Note 2. As discussed in Note 16, on February 15, 1994, the loan was repaid in full, resulting in an extraordinary charge of $1.2 million (net of a $.6 million tax benefit) in the first quarter of 1994. 82 In February 1993, the Company completed a public offering of $200 million of its 8.125 percent senior notes due in 2003. Proceeds from the offering of approximately $195.6 million (after original issue discount and other associated costs) were used to repurchase in open market transactions or redeem the remaining outstanding 12.75 percent senior subordinated notes issued in July 1987 and for general corporate purposes. The repurchase and redemption of the senior subordinated notes resulted in an extraordinary charge of $8.4 million, net of a $4.3 million tax benefit, in 1993. The 8.125 percent senior notes bear interest payable semi-annually on February 15 and August 15. The notes are unsecured and rank pari passu with all other unsecured and unsubordinated indebtedness of the Company. The notes are not redeemable prior to maturity. In June 1989, the Company, as partial acquisition financing for National Fidelity, executed a senior promissory note payable in the amount of $34.0 million. The note was subsequently rewritten into two notes - one for $24.0 million and one for $10.0 million. The $10.0 million note was held by Great American Reserve at the time Great American Reserve was acquired by the Partnership in 1990. In March 1993, the Company redeemed the note held by Great American Reserve at its current par value of $7.0 million, resulting in an extraordinary charge of $.4 million (net of a $.3 million tax benefit). In March 1994, the $24 million note was repaid in full resulting in an extraordinary charge of $.8 million (net of a $.4 million tax benefit) in the first quarter of 1994. In June 1990, the Company, as partial acquisition financing for Great American Reserve, executed a subordinated promissory note in the amount of $6.0 million. In March 1994, this note was repaid in full. During 1992 and 1991, the Company purchased in the market or called $20.0 million and $92.4 million, respectively, par value of senior subordinated notes. These redemptions resulted in extraordinary charges of $1.4 million, net of a $.7 million tax benefit, in 1992 and $5.0 million, net of a $2.6 million tax benefit, in 1991. The following notes payable, which are not direct obligations of Conseco, were issued by Bankers to finance its acquisition by the Partnership:
Amount Outstanding Net of Par Value Unamortized ----------------------------- Discount and Estimated Outstanding at Issuance Costs at Fair Value at December 31, December 31, December 31, Initially ----------------- ----------------- --------------- Issued 1993 1992 1993 1992 1993 1992 ------ ---- ---- ---- ---- ---- ---- (Dollars in millions) Senior term loan $175.0 $110.0 $175.0 $106.4 $168.2 $110.0 $175.0 Senior subordinated notes 200.0 180.0 200.0 183.9 192.1 216.0 207.0 PIK subordinated notes 36.7 - 36.7 - 31.7 - 31.7 ------ ------ ------ ------ ------ ------ Total $290.0 $411.7 $290.3 $392.0 $326.0 $413.7 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
83 The $175.0 million senior term loan is due to a group of banks with principal due in varying amounts from 1994 through 1999. The interest rate is based on either LIBOR plus an applicable margin or prime rate plus an applicable margin for periods of one, two, three or six months as selected by Bankers from time to time (such rate was 5.5 percent at December 31, 1993). The applicable margin for the rate based on a prime rate will vary from .75 percent to 1.5 percent depending on the principal amount of the senior term loan outstanding and a defined cash coverage ratio based generally on cash flows relative to certain fixed charges. The applicable margin for the LIBOR rate will vary from 2.0 percent to 2.75 percent depending on such principal amount and ratio. Under the provisions of the note agreement, the subsidiaries of Bankers are limited in the amount of dividends they may pay on common stock and Bankers must comply with other covenants, including the maintenance of specific financial ratios. The senior term loan has as collateral the majority of the common stock of Bankers and the common stock and surplus debentures issued by its life insurance subsidiary to BLH. The $200.0 million senior subordinated notes bear interest at 13 percent, payable semi-annually on May 1 and November 1, are due November 1, 2002, and may be redeemed, at the Company's option, on or after November 1, 1997, at a redemption price initially at 106.5 percent and declining thereafter. In December 1993, Bankers repurchased $20.0 million of the notes in open market transactions for $24.0 million, resulting in an extraordinary charge, net of tax, of $3.1 million. Conseco's share of this charge ($1.0 million) was included as an extraordinary charge in the consolidated financial statements. The PIK subordinated notes were subordinated in right of payment to the prior payment in full of the senior term loan and, in certain circumstances, the senior subordinated notes. In 1993, Bankers retired all of its PIK subordinated notes totaling $38.3 million and prepaid $55.0 million of its senior term loan. The repayment of this debt resulted in an extraordinary charge for Bankers of $4.8 million, net of a $2.5 million tax benefit, in 1993. Conseco's share of this charge ($2.1 million) was included as an extraordinary charge in the consolidated financial statements. A summary of the maturity dates of the various notes is as follows:
Par Value Par Value Notes Notes Payable Payable of Par Value of Conseco Bankers Total ---------- ------- ----- (Dollars in millions) Repaid in the first quarter of 1994 $220.4 $ 11.0 $231.4 1994 - - - 1995 - 16.0 16.0 1996 - 18.0 18.0 1997 - 21.0 21.0 1998 - 22.0 22.0 Thereafter 200.0 202.0 402.0 ------ ------ ------ Total par value $420.4 $290.0 $710.4 ------ ------ ------ ------ ------ ------
84 Certain notes payable, not direct obligations of Conseco, were issued by subsidiaries of the Partnership to finance portions of the purchase prices of Great American Reserve, Jefferson National and Beneficial Standard. In connection with the IPO and recapitalization of CCP, a significant portion of CCP's debt was retired, resulting in an extraordinary charge for CCP of $8.8 million, net of a $4.8 million tax benefit, in 1992. Conseco's share of this charge ($3.9 million) was included as an extraordinary charge in the consolidated financial statements in 1992. The remaining outstanding debt was no longer consolidated in the Company's consolidated financial statements as described in Note 1. 9. OTHER DISCLOSURES: Leases The Company rents office space, equipment and computer software under noncancellable operating leases. Rental expense during 1993, 1992 and 1991, amounted to $11.9 million, $6.2 million and $5.1 million, respectively. Future required minimum rental payments as of December 31, 1993, were as follows (dollars in millions): 1994 $ 15.1 1995 13.9 1996 12.9 1997 12.1 1998 11.5 Thereafter 87.6 ------ Total $153.1 ------ ------
Employment Arrangements Some officers of the Company are employed pursuant to long-term employment agreements. One of these agreements provides for a base salary plus an annual bonus equal to 3 percent of the Company's consolidated defined pretax profits. This agreement renews annually for a five-year period unless either party notifies the other, in which case the agreement expires five years from the last renewal date. Additionally, a $1.9 million interest-free loan has been granted to the officer with repayment due two years after termination of the officer's employment contract. During March of 1994, the Company's Board of Directors approved a Performance-Based Compensation Bonus Plan (the "Bonus Plan") for certain officers of the Company. This Bonus Plan is intended to comply with the recently enacted Internal Revenue Code Section 162(m), which potentially limits the deductibility of amounts paid to officers of public companies. The Bonus Plan provides for the payment of bonuses based upon the Company's return on equity and pretax profits. This Bonus Plan, to meet Section 162(m), must be ratified by the Company's shareholders. The Company has a qualified defined contribution plan in which substantially all employees of the Company's wholly owned subsidiaries are eligible to participate. Company contributions, which match certain voluntary employee contributions to the plan, totaled $.3 million, $.9 million and $.1 million in the years ended December 31, 1993, 1992 and 1991, respectively, and are in the form of Conseco's common stock. In addition, a stock bonus and deferred compensation program was adopted for certain executives and directors whereby the participants may voluntarily defer a portion of their compensation. Company contributions vary based on the amount of the increase in earnings per share of the Company and the amount of compensation of each participant. Each year's contribution, which is in the form of Conseco's common stock, vests five years later or upon certain other events. The cost of the program is charged to expense over the vesting period and amounted to $2.3 million, $1.9 million and $1.8 million in 1993, 1992 and 1991, respectively. 85 Bankers has a qualified defined contribution plan in which substantially all of its employees are eligible to participate. Company contributions, which match certain voluntary contributions to the plan, totaled $1.1 million and $.1 million in 1993 and 1992, respectively. Bankers has a noncontributory unfunded deferred compensation plan for qualifying members of its career agency force. Benefits are based on years of service and career earnings. The amounts recognized in the consolidated balance sheet for the agents deferred compensation plan were as follows:
December 31, ----------------------- 1993 1992 ---- ---- (Dollars in millions) Projected benefit obligation for services rendered to date (vested benefits: 1993 - $26.5; 1992 - $22.9) $28.1 $27.2 Unrecognized net gain from effects of changes in assumptions .4 - ----- ----- Accrued liability for pension cost included in other liabilities $28.5 $27.2 ----- ----- ----- -----
Net pension costs included in other operating expenses consisted of the following:
1993 1992 ---- ---- (Dollars in millions) Service cost for benefit earned during the period $ .7 $.2 Interest cost on projected benefit obligations 2.1 .4 ---- --- Pension cost included in other operating expenses $2.8 $.6 ---- --- ---- ---
The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7 percent and 5 percent, respectively, at December 31, 1993, and 8 percent and 5 percent, respectively, at December 31, 1992. 86 During 1993, Bankers announced several changes to its postretirement plan that: (i) established a maximum annual cost-sharing amount for Bankers; (ii) eliminated Bankers' cost-sharing for certain future retirees; and (iii) effective July 1, 1993, revised certain assumptions to the plan resulting in a $41.5 million reduction to its accumulated post retirement benefit obligation ("APBO"). Such changes also resulted in a net unrecognized reduction to prior service costs of $7.8 million and a net unrecognized gain of $1.3 million. The APBO and net unrecognized amounts consist of the following:
December 31, ----------------------- 1993 1992 ---- ---- (Dollars in millions) Retirees $13.3 $33.4 Fully eligible active plan participants 7.2 16.8 Other active plan participants 4.0 12.8 ----- ----- Total APBO 24.5 63.0 Unrecognized net reduction in prior service costs 7.4 - Unrecognized net gain 1.3 - ----- ----- Accrued liability included in other liabilities $33.2 $63.0 ===== =====
The net cost of providing these benefits, included in other operating expenses, was comprised of the following:
December 31, ----------------------- 1993 1992 ---- ---- (Dollars in millions) Service cost $1.1 $ .1 Interest cost 1.4 .4 Amortization (.4) - ---- ---- Net periodic cost $2.1 $ .5 ==== ====
The discount rate used in determining the accumulated postretirement benefit obligation was 7 percent and 8 percent at December 31, 1993 and 1992, respectively. The assumed annual increase in salary levels used in determining the portion of the postretirement benefit obligation related to life benefits was 5.2 percent and 5.3 percent at December 31, 1993 and 1992, respectively. The average annual assumed rate of increase in the per capita cost of covered benefits is 12 percent for 1994 and is assumed to decrease gradually to 5 percent for 2006 and remain at that level thereafter. Increasing the assumed health care cost trend rates by 1 percentage point in each year would increase the accumulated postretirement benefit obligation by $1.7 million at December 31, 1993, and the postretirement benefit cost by $.3 million for 1993. Bankers has an incentive stock option plan which is authorized to grant employees or directors options to purchase shares of common stock, stock appreciation rights and limited rights (rights exercisable only in the event of a tender offer for or acquisition of 25 percent or more of BLH's outstanding common stock). The maximum number of shares of common stock which may be issued under options and related rights granted under the plan is 3.5 million, with an exercise price not less than the fair market value of the underlying shares on the date of the grant. Options may become exercisable immediately or over a period of time and remain exercisable for up to 10 years after grant. During 1993, options for 820,000 shares of BLH common stock were granted to employees at a price per share of $22.00 to $23.63. No rights have been granted and no options are vested at December 31, 1993. 87 Litigation From time to time, the Company and its subsidiaries are involved in lawsuits which are related to their operations. In most cases, such lawsuits involve claims under insurance policies or other contracts of the Company. Even though the Company may be contesting the validity or extent of its liability in response to such lawsuits, the Company has established reserves in its consolidated financial statements which approximate its estimated potential liability. Accordingly, none of the lawsuits currently pending, either individually or in the aggregate, is expected to have a material effect on the Company's consolidated financial condition or results of operations. Related Party Transactions A director of the Company is a principal in several entities that received a total of approximately $8.3 million from the Company during the three years ended December 31, 1993, for the sale of land and the construction of facilities and approximately $2.7 million for management and rental of offices. In 1989, the Company loaned the director $8.0 million on an eight-year note with interest at the prime interest rate plus one percentage point. The note is repayable in annual installments of $1.0 million and had a balance of $2.0 million at December 31, 1993. Minority Interest Minority interest represents the interest of investors other than Conseco in Bankers and included: (i) $295.0 million, which represented such interests in the common equity of Bankers; and (ii) $(71.2), which represented the excess of the value received by BLH for the issuance of common stock over the historical accounting bases of the net assets of Bankers as described in Note 1. 10. SHAREHOLDERS' EQUITY: Authorized preferred stock is 20,000,000 shares, of which 100,000 shares of $55 Series B Redeemable Preferred Stock with a stated value of $50.0 million ($500 per share) were issued in 1987, 400,000 shares of Series C Preferred Stock with a stated value of $10.0 million ($25 per share) were issued in 1990 and 5,750,000 shares of Series D Cumulative Preferred Stock with a stated value of $287.5 million ($50 per share) were issued in January 1993 in a public offering. The Series B and Series C preferred stocks were redeemed at their stated values in 1993 and 1991, respectively. The Series D Cumulative Preferred Stock is convertible at the holder's option into shares of common stock at a conversion price of $63.75 per share, equivalent to a ratio of approximately 0.7843 shares of common stock for each share of preferred stock. Proceeds from the offering of approximately $278.5 million (after underwriting and other associated costs) were used to redeem the Series B preferred stock and were added to the Company's general funds. During 1993, 274 Series D preferred shares were converted to 215 common shares. 88 Changes in the number of shares of common stock outstanding for the years 1993, 1992 and 1991, were as follows:
1993 1992 1991 ---- ---- ---- Balance, beginning of year 24,911,148 24,676,658 20,586,196 Shares issued in public offering - - 4,874,000 Stock options exercised 849,232 2,086,272 301,220 Common shares converted from Series D preferred shares 215 - - Shares issued under compensation plans 1,878 85,444 19,004 Treasury stock purchased (450,700) (1,937,226) (1,103,762) ---------- ---------- ---------- Balance, end of year 25,311,773 24,911,148 24,676,658 ---------- ---------- ---------- ---------- ---------- ----------
Dividends declared on common stock for 1993, 1992 and 1991, were $.30, $.085 and $.07 per common share, respectively. The Company's 1983 employee stock option plan was authorized to grant options to purchase up to 12.0 million shares of the Company's common stock at a price not less than its market value on the date the option is granted. The 1983 stock option plan expired in December 1993. A new plan was adopted in 1994, subject to shareholder approval, which authorizes the granting of options to purchase up to 6.0 million shares of the Company's common stock at a price not less than its market value on the date the option is granted. The options are exercisable for up to 10 years from date of grant and may become exercisable immediately or over a period of time. The plan also permits granting of stock appreciation rights. Stock options granted were as follows:
Number of Shares ----------------- Option Price 1993 1992 1991 ------------ ---- ---- ---- Outstanding at January 1, $2.625 to $31.125 6,402,194 8,293,832 8,490,760 Granted during the year $2.375 to $56.375 1,461,400 - - $25.375 to $31.125 - 216,490 - $6.844 to $21.375 - - 113,612 Exercised during the year $2.625 to $26.875 (849,232) (2,086,272) (301,220) Canceled during the year $3.063 to $53.250 (275,078) (21,856) (9,320) --------- --------- --------- Outstanding at December 31, $2.625 to $53.25 6,739,284 6,402,194 8,293,832 ========= ========= ========= Portion thereof that is exercisable at December 31, $2.625 to $31.125 4,062,693 3,768,970 5,728,548 ========= ========= ========= Available for future grant - 2,791,994 2,986,628 ========= ========= =========
89 In addition to 12,699,284 shares of common stock reserved for issuance under the 1983 and 1994 employee stock option plans, 711,764 shares of common stock are reserved for issuance under the defined contribution and the stock bonus and deferred compensation plans. The common stock account was reduced by $8.5 million, consisting of the unearned portion of the incentive deferred compensation program. In February 1994, Conseco implemented an option exercise program under which its chief executive officer and four of its executive vice presidents exercised outstanding options to purchase approximately 3.6 million shares of the Company's common stock. The options would otherwise have remained exercisable until the years 1999 and 2000. As a result of the exercise, the Company will be able to realize a tax deduction of approximately $200 million, equal to the aggregate tax gain recognized by the executives as a result of the exercise. The tax benefit together with the proceeds from exercise of the options will be reflected as an increase to paid-in capital. The Company withheld sufficient shares to cover federal and state taxes owed by the executives as a result of the exercise transaction. Net of withheld shares, the Company issued approximately 1.8 million shares of common stock to the executives. The Company also granted to the executive officers new options to purchase a total of 3,016,000 shares of the Company's common stock at $59.25 per share under the 1994 Stock Option and Incentive Plan to replace the shares surrendered for taxes and the exercise price on this and other recent option exercises and as the 1994 incentive grant to six executives. In addition to the 1.8 million shares retired in February as described in the preceding paragraph, the Company repurchased approximately 1.1 million shares of its common stock for $65.5 million between January 1 and March 25, 1994, as part of its previously announced stock repurchase program. 11. OTHER OPERATING STATEMENT DATA: Insurance policy income consisted of the following:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Direct premiums collected $2,169.9 $1,513.4 $ 1,899.8 Reinsurance assumed 6.0 2.2 15.2 Reinsurance ceded (35.8) (50.7) (266.3) -------- -------- -------- Premiums collected, net of reinsurance 2,140.1 1,464.9 1,648.7 Less premiums on universal life and products without mortality and morbidity risk which are recorded as additions to insurance liabilities 887.5 1,143.4 1,451.1 -------- -------- -------- Premiums on products with mortality risk, recorded as insurance policy income 1,252.6 321.5 197.6 Fees and surrender charges 38.8 55.3 82.6 Amortization of deferred policy fees 2.4 1.9 .6 -------- -------- -------- Insurance policy income $1,293.8 $ 378.7 $ 280.8 -------- -------- -------- -------- -------- --------
90 The five states with the largest shares of the subsidiaries' premiums collected in 1993 were Illinois (15 percent), Texas (7.6 percent), Michigan (6.7 percent), Indiana (5.8 percent) and New Jersey (5.8 percent). No other state accounted for more than 5 percent of total collected premiums. Premiums on reinsurance assumed of $6.0 million, $2.2 million and $15.2 million for the years 1993, 1992 and 1991, respectively, were included in direct premiums in the preceding table. Other operating costs and expenses were as follows:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Commission expense $ 31.6 $ 21.4 $ 28.7 Other 182.8 80.2 65.6 ------ ------ ----- Other operating costs and expenses $214.4 $101.6 $94.3 ------ ------ ----- ------ ------ -----
Anticipated returns from the investment of policyholder balances are considered in determining the amortization of the cost of policies purchased and cost of policies produced. Sales of fixed maturity investments change the incidence of profits on such policies because capital gains (losses) are recognized currently and the expected future yields on the investment of policyholder balances are reduced (increased). Accordingly, amortization of the cost of policies purchased was increased by $46.0 million, $63.3 million and $33.0 million in the years ended December 31, 1993, 1992 and 1991, respectively, and amortization of the cost of policies produced was increased by $43.2 million, $30.1 million and $17.4 million in the years ended December 31, 1993, 1992 and 1991, respectively. The changes in the cost of policies purchased were as follows:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Balance, beginning of year $623.5 $555.5 $460.3 Amounts acquired 3.8 527.1 169.2 Amortization: Cash flow realized (181.1) (108.0) (129.0) Interest added 115.8 69.4 98.2 Amounts related to gains on sales of investments (46.0) (63.3) (33.0) Amounts related to fair value adjustment of actively managed fixed maturities (5.3) (26.8) - Transferred to cost of policies produced related to exchanged health policies (25.4) - - Amounts related to purchase of additional shares of BLH 118.4 - - Amounts related to deconsolidation of CCP - (330.4) - Amounts related to business sold - - (10.2) ------ ------ ------ Balance, end of year $603.7 $623.5 $555.5 ------ ------ ------ ------ ------ ------
91 The changes in the cost of policies produced were as follows:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Balance, beginning of year $310.8 $212.9 $152.4 Additions 168.8 89.7 89.8 Acquired historical basis of Bankers Life - 152.9 - Amortization (69.4) (20.6) (12.6) Amortization of deferred revenue 1.3 1.0 .7 Amounts related to gains on sales of investments (43.2) (30.1) (17.4) Amounts related to fair value adjustment of actively managed fixed maturities (65.0) (56.3) - Transferred from cost of policies purchased related to exchanged health policies 25.4 - - Amounts related to purchase of additional shares of BLH (73.3) - - Amounts related to reinsurance treaty 3.2 - - Amounts related to deconsolidation of CCP - (38.7) - ------ ------ ------ Balance, end of year $258.6 $310.8 $212.9 ------ ------ ------ ------ ------ ------
Based on current conditions and assumptions as to future events on all policies in force, the Company expects to amortize in 1994 approximately 13 percent of the cost of policies purchased balance at December 31, 1993, 11 percent in 1995, 10 percent in 1996, 9 percent in 1997, and 9 percent in 1998. The average discount rate used to determine the amortization of the cost of policies purchased prior to November 19, 1992, ranged from 15 percent to 20 percent during the three-year period ended December 31, 1993. The discount rate for the cost of policies purchased thereafter is 7.5 percent. 12. CONSOLIDATED STATEMENT OF CASH FLOWS: The following non-cash items were not reflected in the consolidated statement of cash flows: in 1993, the surrender for redemption of $50.0 million stated value of ICH preferred stock in exchange for common shares of Bankers (as described in Note 2 to the consolidated financial statements) and the recapture of insurance liabilities and invested assets each totaling approximately $338.5 million in connection with the recapture of reinsurance as described in Note 6 to the consolidated financial statements. Cash flows from operations included interest paid on debt of $58.8 million, $42.7 million and $63.9 million in 1993, 1992 and 1991, respectively. Income taxes paid were $204.9 million, $108.5 million and $59.3 million in 1993, 1992 and 1991, respectively. 92 13. STATUTORY INFORMATION: Statutory accounting practices prescribed or permitted for the Company's insurance subsidiaries by regulatory authorities differ from generally accepted accounting principles. The Company's life insurance subsidiaries reported the following amounts to regulatory agencies, after appropriate eliminations of intercompany accounts among such subsidiaries:
December 31, -------------------------- 1993 1992 ---- ---- (Dollars in millions) Statutory capital and surplus $ 768.8 $434.7 Asset valuation reserve 94.7 84.7 Interest maintenance reserve 272.0 83.7 -------- ------ Total $1,135.5 $603.1 ======== ======
In connection with the acquisition of Bankers, the capital of one of the life insurance subsidiaries (Bankers Life Insurance Company of Illinois) was increased by providing cash in exchange for a surplus debenture. The remaining balance of the surplus debenture of $485.0 million at December 31, 1993, is considered a part of statutory capital and surplus of the life insurance subsidiary. Payments to BLH of principal and interest on the surplus debenture may be made from available funds only with the approval of the Illinois Department of Insurance when its Director is satisfied that the financial condition of the subsidiary warrants that action. Such approval may not be withheld provided the surplus of the subsidiary exceeds, after such payment, approximately $128 million. Such subsidiary's surplus at December 31, 1993, was $331 million. Statutory accounting practices require that portions of surplus, called the asset valuation reserve ("AVR") and the interest maintenance reserve ("IMR"), be appropriated and reported as liabilities. The purpose of these reserves is to stabilize statutory surplus against fluctuations in the market value of investments. The IMR captures all investment gains and losses on debt instruments resulting from changes in interest rates and provides for subsequent amortization of such amounts into statutory net income on a basis reflecting the remaining life of the assets sold. The AVR captures investment gains and losses related to changes in creditworthiness and is also adjusted each year based on a formula related to the quality and loss experience of the Company's investment portfolio. 93 Included in statutory capital and surplus shown above are the following investments in affiliates, all of which are eliminated in the consolidated financial statements prepared in accordance with generally accepted accounting principles:
1993 1992 --------------------- --------------------- Admitted Admitted Asset Asset Cost Value Cost Value ---- ----- ---- ----- (Dollars in millions) 9,098,476 shares of common stock of Conseco purchased in open market transactions $ 30.7 $ - $30.7 $19.5 Notes of Conseco and its non-life subsidiaries 63.0 42.4 88.9 80.6 2,314,737 shares of common stock of BLH acquired from ICH in exchange for preferred stock of ICH previously held 50.0 49.8 - - Preferred stock of a non-life subsidiary 900.0 - - -
The following table compares the consolidated pretax income determined on a statutory accounting basis with such income reported herein in accordance with generally accepted accounting principles:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Life insurance subsidiaries: Pretax income as reported on a statutory accounting basis before deduction of expenses paid to affiliates and transfers to and from and amortization of the IMR $566.8 $383.7 $376.4 Net effect of adjustments for generally accepted accounting principles (48.1) (72.0) (76.1) ------ ------ ------ Pretax income, generally accepted accounting principles 518.7 311.7 300.3 Non-life companies: Interest expense (58.0) (46.2) (69.9) Net gain on sale of stock of Life Re - 36.4 - Equity in earnings of CCP Insurance, Inc. 37.4 15.8 - Incentive earnings allocation from Partnership 36.6 9.3 - Gain on sale of stock by subsidiaries 101.5 11.1 - All other income and expense, net (excluding amounts received from affiliates) (26.0) (8.1) (7.2) ------ ------ ------ Consolidated pretax income, generally accepted accounting principles $610.2 $330.0 $223.2 ====== ====== ======
State insurance laws generally restrict the ability of insurance companies to pay dividends or make other distributions. Net assets of the Company's wholly owned life insurance subsidiaries, determined in accordance with generally accepted accounting principles, aggregated approximately $1.0 billion at December 31, 1993, of which approximately $18.7 million is available for distribution to Conseco in 1994 without the permission of state regulatory authorities. 94 Most states have adopted risk-based capital ("RBC") rules, effective December 31, 1993, to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The RBC formula is designed as an early warning tool to help state regulators identify possible weakly capitalized companies for the purpose of initiating regulatory action. At December 31, 1993, the ratios of total adjusted capital to RBC, as defined by the rules, for all of Conseco's primary subsidiaries and investees were greater than twice the level at which regulatory attention is triggered. 14. BUSINESS SEGMENT AND DISTRIBUTION CHANNELS: Conseco's earnings result from three different activities: (i) the operation of life insurance companies; (ii) services provided to both affiliates and others for fees; and (iii) the acquisition and restructuring of life insurance companies. Conseco's life insurance operations are primarily conducted through BLH (which distributes Medicare supplement policies and other life and health products to the senior citizens market through career agents, most of whom sell only Bankers' products), Western National (which distributes single premium deferred annuities through financial institutions and other annuity products through personal producing general agents), CCP (which distributes: (i) tax qualified annuities and certain employee benefit-related products primarily to school teachers and administrators through educator market specialists; and (ii) annuities and life insurance products through other diversified cost effective distribution channels) and Conseco's other wholly owned subsidiaries (which have profitable blocks of in-force life business, although new sales are currently not being emphasized). 95 Financial information related to these activities is as follows:
1993 1992 1991 ---- ---- ---- (Dollars in millions) Premiums collected, net of reinsurance BLH $ 1,436.9 $ 235.1 $ - Western 561.0 833.3 1,118.3 CCP - 320.5 440.3 Conseco's other wholly owned insurance subsidiaries 142.2 76.0 90.1 --------- --------- --------- Total $ 2,140.1 $ 1,464.9 $ 1,648.7 ========= ========= ========= Revenues: Insurance operations: BLH $ 1,450.5 $ 222.5 $ - Western 774.2 653.2 580.6 CCP 37.4 297.6 539.1 Conseco's other wholly owned insurance subsidiaries 207.4 288.1 276.2 Life Re - 11.3 9.3 --------- --------- --------- Subtotal 2,469.5 1,472.7 1,405.2 Services provided for fees 49.0 30.2 22.4 Acquisition and restructuring of life insurance companies 138.1 54.9 - Corporate and other 14.1 9.3 10.9 Eliminations (34.7) (43.2) (46.7) --------- --------- --------- Total $ 2,636.0 $ 1,523.9 $ 1,391.8 ========= ========= ========= Income before income taxes, minority interest and extraordinary charge: Insurance operations: BLH $ 208.1 $ 37.2 $ - Western 204.5 156.8 149.0 CCP 37.4 64.7 85.9 Conseco's other wholly owned insurance subsidiaries 55.0 38.1 29.5 Life Re - 11.3 9.3 --------- --------- --------- Subtotal 505.0 308.1 273.7 Services provided for fees 22.5 22.2 17.1 Acquisition and restructuring of life insurance companies 138.1 54.9 - Corporate and other (52.4) (50.6) (61.1) Eliminations (3.0) (6.2) (6.5) --------- --------- --------- Total $ 610.2 $ 328.4 $ 223.2 ========= ========= ========= Assets: Insurance operations: BLH $ 4,146.1 $ 3,367.5 $ - Western 8,369.7 7,640.6 6,674.3 CCP 244.3 130.5 4,458.1 Conseco's other wholly owned insurance subsidiaries 993.7 2,072.7 2,121.7 --------- --------- --------- Subtotal 13,753.8 13,211.3 13,254.1 Servicing companies 34.4 11.8 4.1 Corporate and other 1,892.1 995.5 764.3 Eliminations (1,931.0) (2,445.9) (2,190.1) --------- --------- --------- Total $13,749.3 $11,772.7 $11,832.4 ========= ========= =========
96 15. QUARTERLY FINANCIAL DATA (UNAUDITED): Earnings per common share for each quarter are computed independently of earnings per share for the year. Due to the transactions affecting the weighted average number of shares outstanding in each quarter and due to the uneven distribution of earnings during the year, the sum of the quarterly earnings per share may not equal the earnings per share for the year.
1993 ---- 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. -------- -------- -------- -------- (Dollars in millions, except per share amounts) Insurance policy income $319.5 $322.8 $324.7 $326.8 Revenues 751.6 619.0 628.7 636.7 Income before income taxes, minority interest and extraordinary charge 251.1 112.8 123.0 123.3 Net income 131.5 51.4 52.2 61.9 Earnings per common share and common equivalent share: Primary: Earnings before extraordinary charge $4.69 $1.55 $1.61 $1.99 Extraordinary charge .37 - - .03 ----- ----- ----- ----- Net income $4.32 $1.55 $1.61 $1.96 ===== ===== ===== ===== Fully diluted: Earnings before extraordinary charge $4.31 $1.48 $1.53 $1.87 Extraordinary charge .33 - - .03 ----- ----- ----- ----- Net income $3.98 $1.48 $1.53 $1.84 ===== ===== ===== =====
97
1992 ---- 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. -------- -------- -------- -------- (Dollars in millions, except per share amounts) Insurance policy income $ 65.6 $ 66.6 $ 32.4 $214.1 Revenues 362.9 375.3 296.8 488.9 Income before income taxes, minority interest and extraordinary charge 69.0 64.3 70.1 126.6 Net income 35.3 35.0 39.4 59.8 Earnings per common share and common equivalent share: Primary: Earnings before extraordinary charge $1.11 $1.08 $1.40 $2.01 Extraordinary charge .05 .01 .11 - ----- ----- ----- ----- Net income $1.06 $1.07 $1.29 $2.01 ===== ===== ===== ===== Fully diluted: Earnings before extraordinary charge $1.11 $1.08 $1.40 $2.00 Extraordinary charge .05 .01 .11 - ----- ----- ----- ----- Net income $1.06 $1.07 $1.29 $2.00 ===== ===== ===== =====
Quarterly results of operations are based on numerous estimates, principally related to policy reserves, the amortization of cost of policies purchased, the amortization of cost of policies produced and income taxes. Such estimates are revised quarterly and are ultimately adjusted to year-end amounts. When such revisions are determined, they are reported as part of operations of the current quarter. 16. SUBSEQUENT EVENTS: Conseco Capital Partners II, L.P. On February 2, 1994, Conseco announced the closing of Conseco Capital Partners II, L.P., a partnership which will invest in privately negotiated acquisitions of specialized annuity, life and accident and health insurance companies and related businesses, in which 36 investors committed a total of $624 million of capital. Commitments to the new partnership include $100 million from Conseco, $25 million from Bankers, $25 million from CCP, $50 million from Western and $36 million from executive officers and directors of Conseco and its affiliates. 98 Initial Public Offering of Common Stock by Western National Corporation: On February 15, 1994, Western National Corporation ("WNC") completed the initial public offering of 37,202,500 shares of common stock, of which 2,300,000 shares were sold by WNC and 34,902,500 shares were sold by Conseco. In addition, Conseco sold 150,000 shares to the President of WNC at the initial public offering price less underwriting discounts and commissions. Prior to the initial public offering, Western National and WNC were wholly owned subsidiaries of Conseco. WNC was formed in October 1993 as a Delaware corporation to be the holding company for Western National. In connection with the organization of WNC and the transfer of the stock of Western National to WNC by Conseco, WNC issued 60,000,000 shares of its common stock and a $150.0 million, 6.75 percent senior note due March 31, 1996 (the "Conseco Note") to Conseco. On February 22, 1994, WNC completed a public offering of $150.0 million aggregate principal amount of its 7.125 percent senior notes due February 15, 2004. The net proceeds from the offering of $147.5 million (after original issue discount, underwriting discount and estimated offering expenses) and certain proceeds from WNC's initial public offering of common stock were used to repay the Conseco Note. The shares issued in the offering and the related transaction represent a 60 percent interest in WNC. The remaining common shares, which represent a 40 percent interest, are held by Conseco. Net pretax proceeds to Conseco from the repayment of the Conseco Note and the sale of WNC shares totaling $537.9 million were used to repay a $200 million senior unsecured loan and for other general corporate purposes. Effective January 1, 1994, WNC will be included in Conseco's financial statements on the equity method. In the first quarter of 1994 Conseco will report a one-time, after-tax gain of approximately $43 million as a result of the transaction. At February 15, 1994, the WNC shares owned by Conseco had a fair value of approximately $330.6 million (based on the closing price of $13.25 per share) and a net carrying value of approximately $270.0 million. The following summarizes selected account balances of Western National that are consolidated with the accounts of the Company in the accompanying consolidated financial statements:
Years ended December 31, ------------------------------- 1993 1992 1991 ---- ---- ---- (Dollars in millions) Results of operations data: Revenues: Insurance policy income $ 21.8 $ 48.0 $ 43.9 Investment activity: Net investment income 610.1 507.8 450.7 Net trading income 49.6 25.0 23.8 Net realized gains 92.7 72.4 62.2 Total revenues 774.2 653.2 580.6 Benefits and expenses: Insurance policy benefits 101.9 93.7 88.4 Interest expense on annuities and financial products 333.1 267.1 249.5 Amortization related to operations 16.5 16.3 11.3 Amortization and change in future policy benefits related to realized gains 84.3 64.6 24.3 Income before taxes 204.5 155.2 147.8 Income tax expense 74.5 53.0 50.3 Net income 130.0 102.2 97.5
99
December 31, ---------------------- 1993 1992 ---- ---- (Dollars in millions) Balance sheet data: Total investments $7,918.1 $5,787.9 Total assets 8,369.7 7,640.6 Insurance liabilities 7,379.9 6,894.3 Total liabilities 7,608.8 7,018.3 Total shareholder's equity 760.9 622.3
The following unaudited pro forma balance sheet data are presented as if the IPO of WNC and related transactions had occurred on December 31, 1993. The pro forma statement of operations data are presented as if such transactions had occurred on January 1, 1993 and assumes the net proceeds to Conseco from the IPO and related transactions were invested to earn 3 percent per year before income tax.
(Dollars in millions, except per share data) Pro forma balance sheet data as of December 31, 1993: Investment in WNC $ 254.6 Total investments 4,317.7 Total assets 6,020.1 Total liabilities 4,628.9 Shareholders' equity 1,167.4 Pro forma statement of operations data for the year ended December 31, 1993: Revenues 1,942.9 Income before extraordinary charge 230.8 Earnings before extraordinary charge per common share and common equivalent share: Primary 7.19 Fully diluted 6.79
100 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III -------- The information required by Part III is hereby incorporated by reference from the Registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after December 31, 1993, except that the information required by Item 10 regarding Executive Officers is included herein under a separate caption at the end of Part I. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. See Index to Financial Statements on page 47 for a list of financial statements included in this Report. 2. Financial Statement Schedules. The following financial statement schedules are included as part of this Report immediately following the signature page: Schedule III -- Condensed Financial Information of Registrant (Parent Company) Schedule V -- Supplementary Insurance Information Schedule VI -- Reinsurance All other schedules are omitted because they are not applicable or are not required, or because the required information is included in the consolidated financial statements or notes thereto. 3. Exhibits. See Exhibit Index immediately preceding. (b) Reports on Form 8-K. A report on Form 8-K dated September 30, 1993, was filed with the Commission to report under Item 2 the acquisition of 13.3 million common shares of Bankers Life Holding Corporation by Conseco. Form 8-K/A, Amendment No. 1 to this report, was filed December 14, 1993, to report under Item 7b pro forma consolidated financial information of Conseco, Inc. and Subsidiaries. A report on Form 8-K dated February 15, 1994 was filed with the Commission to report under Item 2 the disposition of a majority interest in Western National Corporation and to report under Item 7b pro forma financial information of Conseco and its subsidiaries. 101 SIGNATURES Pursuant to the requirements of Section 13 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, this 31st day of March, 1994. CONSECO, INC. By: /s/ STEPHEN C. HILBERT Stephen C. Hilbert, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title (Capacity) Date --------- ---------------- ---- /s/ STEPHEN C. HILBERT Chairman of the Board, March 31, 1994 Stephen C. Hilbert President and Director (Principal Executive Officer) /s/ ROLLIN M. DICK Executive Vice President and Director March 31, 1994 Rollin M. Dick (Principal Financial Officer and Principal Accounting Officer) Michael G. Browning Director March 31, 1994 /s/LOUIS P. FERRERO Director March 31, 1994 Louis P. Ferrero /s/ARTHUR M. GERBER Director March 31, 1994 Arthur M. Gerber /s/ DONALD F. GONGAWARE Director March 31, 1994 Donald F. Gongaware /s/ M. PHIL HATHAWAY Director March 31, 1994 M. Phil Hathaway
102 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Shareholders and Board of Directors Conseco, Inc. Our report on the consolidated financial statements of Conseco, Inc. and Subsidiaries is included on page 47 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page 100 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/COOPERS & LYBRAND Indianapolis, Indiana March 24, 1994 103 CONSECO, INC. AND SUBSIDIARIES
SCHEDULE III Condensed Financial Information of Registrant (Parent Company) Balance Sheet as of December 31, 1993 and 1992 (Dollars in millions) ASSETS 1993 1992 ---- ---- Short-term investments $ 17.7 $ 7.3 Actively managed fixed maturities 31.8 - Equity securities 4.7 6.6 Trading account securities 6.6 - Other invested assets 8.5 - Investment in CCP Insurance, Inc. 244.3 130.5 Investment in Western (eliminated in consolidation) 760.9 622.3 Investment in wholly owned subsidiaries excluding Western (eliminated in consolidation) 207.8 5.0 Investment in Bankers Life Holding Corporation (eliminated in consolidation) 518.8 147.0 Receivable from subsidiaries (eliminated in consolidation) 15.1 11.6 Other assets 45.1 34.4 -------- ------ Total assets $1,861.3 $964.7 ======== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Income tax liabilities $ 92.4 $ 17.3 Notes payable 413.0 156.9 Note payable to affiliate - 6.3 Notes payable to subsidiaries (eliminated in consolidation) 58.2 80.6 Other liabilities due subsidiaries (eliminated in consolidation) 97.7 64.7 Other liabilities 57.4 44.6 -------- ------ Total liabilities 718.7 370.4 -------- ------ Shareholders' equity: Preferred stock 287.5 50.0 Common stock and additional paid-in capital (no par value, 500,000,000 shares authorized, shares issued and outstanding: 1993 - 25,311,773; 1992 - 24,911,148) 102.8 115.4 Unrealized appreciation of securities (net of applicable deferred income taxes: 1993 - $41.8; 1992 - $17.3) 97.5 42.9 Retained earnings 654.8 386.0 -------- ------ Total shareholders' equity 1,142.6 594.3 -------- ------ Total liabilities and shareholders' equity $1,861.3 $964.7 ======== ====== The accompanying note is an integral part of the condensed financial information.
104 CONSECO, INC. AND SUBSIDIARIES SCHEDULE III Condensed Financial Information of Registrant (Parent Company) Statement of Operations for the years ended December 31, 1993, 1992 and 1991 (Dollars in millions)
1993 1992 1991 ---- ---- ---- Revenues: Net investment income $ 8.4 $ 3.6 $ 3.8 Dividends from subsidiaries (eliminated in consolidation) 18.6 82.2 70.6 Equity in earnings of CCP Insurance, Inc. 37.4 15.8 - Equity in earnings of Life Re - 11.3 9.3 Fee and interest income from subsidiaries (eliminated in consolidation) 12.0 46.5 49.8 Gain on sale of stock of Life Re - 36.4 - Gain on sale of stock by subsidiaries 101.5 9.2 - Incentive earnings allocation 36.6 9.3 - Other income 1.7 4.1 .9 ------ ------ ------ Total revenues 216.2 218.4 134.4 ------ ------ ------ Expenses: Interest expense on long-term debt 22.8 22.8 36.2 Interest expense to subsidiaries (eliminated in consolidation) 7.8 10.9 13.3 Operating costs and expenses 40.4 29.0 25.0 Operating expenses of subsidiaries (eliminated in consolidation) .5 .5 .5 ------ ------ ------ Total expenses 71.5 63.2 75.0 ------ ------ ------ Income before income taxes, equity in undistributed earnings of subsidiaries and extraordinary charge 144.7 155.2 59.4 Income tax expense (benefit) 44.2 31.5 (4.6) ------ ------ ------ Income before equity in undistributed earnings of subsidiaries and extraordinary charge 100.5 123.7 64.0 Equity in undistributed earnings of subsidiaries 208.4 51.1 57.0 ------ ------ ------ Income before extraordinary charge 308.9 174.8 121.0 Extraordinary charge on extinguishment of debt, net of tax 11.9 5.3 5.0 ------ ------ ------ Net income 297.0 169.5 116.0 Less preferred stock dividends 20.6 5.5 6.8 ------ ------ ------ Earnings applicable to common stock $276.4 $164.0 $109.2 ====== ====== ====== The accompanying note is an integral part of the condensed financial information.
105 CONSECO, INC. AND SUBSIDIARIES SCHEDULE III Condensed Financial Information of Registrant (Parent Company) Statement of Cash Flows for the years ended December 31, 1993, 1992 and 1991 (Dollars in millions)
1993 1992 1991 ---- ---- ---- Cash flows from operating activities: Net income $297.0 $169.5 $116.0 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of consolidated subsidiaries (208.4) (51.1) (57.0) Equity in undistributed earnings of equity investments (36.6) (26.9) (9.3) Gain on sale of stock by subsidiaries (101.5) (9.2) - Incentive earnings allocation from the Partnership (36.6) (9.3) - Income taxes 39.3 1.1 .2 Extraordinary gain on extinguishment of debt 11.9 5.3 5.0 Other 11.8 3.0 (4.9) ------ ------- ------ Net cash provided (used) by operating activities (23.1) 82.4 50.0 ------ ------- ------ Cash flows from investing activities: Redemption of debt and preferred stock by subsidiaries 118.3 53.5 12.4 Sales and maturities of investments 45.5 10.1 - Sale of investment in Life Re - 42.6 - Investments in consolidated subsidiaries (391.4) (129.7) (69.5) Purchases of investments (76.2) - - Investments in equity investments (59.5) - - ------ ------- ------ Net cash used by investing activities (363.3) (23.5) (57.1) ------ ------- ------ Cash flows from financing activities: Issuance of equity securities, net 281.7 6.3 133.1 Issuance of debt, net 393.4 - - Payments on debt (180.0) (24.8) (101.2) Payments to retire equity securities (75.3) (49.4) (19.5) Dividends paid (23.0) (7.6) (8.3) ------ ------- ------ Net cash provided (used) by financing activities 396.8 (75.5) 4.1 ------ ------- ------ Net decrease in short-term investments 10.4 (16.6) (3.0) Short term investments, beginning of year 7.3 23.9 26.9 ------ ------- ------ Short term investments, end of year $ 17.7 $ 7.3 $ 23.9 ====== ======= ====== The accompanying note is an integral part of the condensed financial information.
106 CONSECO, INC. AND SUBSIDIARIES SCHEDULE III Note to Condensed Financial Information Basis of Presentation The condensed financial information should be read in conjunction with the consolidated financial statements of Conseco, Inc. The condensed financial information includes the accounts and activity of the Parent Company and its non-insurance subsidiaries which act as the holding companies for the Company's life insurance subsidiaries and equity investment in CCP Insurance, Inc. 107 CONSECO, INC. AND SUBSIDIARIES SCHEDULE V Supplementary Insurance Information (Dollars in millions)
Amortization of Cost of Policies Insurance Cost of Policies Produced and Insurance Net Policy Benefits Produced and Other Cost of Policies Insurance Policy Investment and Cost of Policies Operating Segment Purchased Liabilities Income Income Expenses(1) Purchased(2) Expenses(3) - - ------- --------- ----------- ------ ------ ----------- ------------ ----------- 1993 - - ---- Bankers $680.6 $ 2,756.7 $1,200.7 $174.7 $ 900.8 $143.5 $198.1 Western 146.8 7,379.9 21.8 610.1 454.3 63.7 51.7 CCP - - - - - - - Conseco's other wholly owned subsidiaries 34.9 661.7 72.3 110.2 121.2 17.6 13.6 Services provided for fees - - - - - - 25.1 Corporate and other - - - 12.4 - - 66.5 Eliminations - - (1.0) (11.2) - (.9) (29.4) ------ --------- -------- ------ -------- ------ ------ Total $862.3 $10,798.3 $1,293.8 $896.2 $1,476.3 $223.9 $325.6 ====== ========= ======== ====== ======== ====== ====== 1992 - - ---- Bankers $661.2 $ 2,490.2 $191.5 $ 21.1 $125.4 $ 25.2 $ 34.7 Western 165.2 6,894.3 48.0 507.8 397.3 80.9 18.2 CCP - - 67.1 187.0 159.1 26.1 47.7 Conseco's other wholly owned subsidiaries 107.9 1,996.9 81.4 181.3 199.9 29.9 20.2 Services provided for fees - - - - - - 7.6 Corporate and other - - - 8.4 - - 59.9 Eliminations - (1,342.4) (9.3) (17.0) - (9.5) (28.7) ------ --------- ------ ------ ------ ------ ------ Total $934.3 $10,039.0 $378.7 $888.6 $881.7 $152.6 $159.6 ====== ========= ====== ====== ====== ====== ====== 1991 - - ---- Bankers $ - $ - $ - $ - $ - Western 43.9 450.7 375.4 35.6 20.6 CCP 161.9 318.1 311.8 40.5 100.9 Conseco's other wholly owned subsidiaries 79.6 162.5 203.0 22.1 21.6 Services provided for fees - - - - 5.0 Corporate and other - 10.0 - - 72.0 Eliminations (4.6) (19.9) (.1) (4.4) (35.4) ----- ------ ------ ------ ----- Total $280.8 $921.4 $890.1 $93.8 $184.7 ====== ====== ====== ===== ====== (1) Includes insurance policy benefits, change in future policy benefits and interest expense on annuities and financial products. (2) Includes additional amortization related to gains on sales of investments. (3) Includes interest expense on long-term debt, interest expense on short-term investment borrowings, change in future policy benefits related to realized gains and other operating costs and expenses.
108 CONSECO, INC. AND SUBSIDIARIES SCHEDULE VI Reinsurance for the years ended December 31, 1993, 1992 and 1991 (Dollars in millions)
1993 1992 1991 ---- ---- ---- Life insurance in force: Direct $21,554.5 $22,916.9 $22,522.1 Assumed 89.8 108.0 1,693.5 Ceded (1,754.1) (2,383.9) (3,784.8) --------- --------- --------- Net insurance in force $19,890.2 $20,641.0 $20,430.8 ========= ========= ========= Percentage of assumed to net .5% .5% 8.3% ========= ========= ========= Premiums recorded as revenue for generally accepted accounting principles: Direct $1,282.4 $361.2 $246.2 Assumed 6.0 2.2 15.2 Ceded (35.8) (41.9) (63.8) -------- ------ ------ Net premiums $1,252.6 $321.5 $197.6 ======== ====== ====== Percentage of assumed to net .5% .7% 7.7% ======== ====== ======
109 EXHIBIT INDEX Annual Report on Form 10-K of Conseco, Inc.
Exhibit No. Document - - ------- -------- 2.1 Stock Purchase and Redemption Agreement dated September 11, 1993 by and between I.C.H. Corporation and Bankers National Life Insurance Company was filed with the Commission as Exhibit 2.1 to the Registrant's Report on Form 8-K dated September 30, 1993, and is incorporated herein by this reference. 2.2 Letter Agreement dated September 11,1993 between the Registrant and I.C.H. Corporation was filed with the Commission as Exhibit 2.2 to the Registrant's Report on Form 8-K dated September 30, 1993, and is incorporated herein by this reference. 3.1 Amended and Restated Articles of Incorporation of the Registrant were filed with the Commission as Exhibit 3.1 to the Registration Statement on Form S-2, No. 33-8498; Articles of Amendment thereto, as filed September 9, 1988 with the Indiana Secretary of State, were filed with the Commission as Exhibit 3.1.1 to the Registrant's Annual Report on Form 10-K for 1988; and Articles of Amendment thereto, as filed June 13, 1989 with the Indiana Secretary of State, were filed with the Commission as Exhibit 3.1.2 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1989, and Articles of Amendment thereto, as filed June 29, 1993 with the Indiana Secretary of State, were filed with the Commission as Exhibit 3.1.3 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1993, and is incorporated herein by this reference. 3.2 Amended and Restated By-Laws of the Registrant effective February 10, 1986 were filed with the Commission as Exhibit 3.2 to its Registration Statement on Form S-1, No. 33-4367, and an Amendment thereto was filed with the Commission as Exhibit 3.2.1 to Amendment No. 2 to its Registration Statement on Form S-1, No. 33-4367; and are incorporated herein by this reference. 4.8 Indenture dated as of February 18, 1993, between the Registrant and Shawmut Bank Connecticut, National Association, as Trustee, for the 8 1/8 percent Senior Notes due 2003, was filed with the Commission as Exhibit 4.8 to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated herein by this reference. 4.11 Articles of Amendment to the Registrant's Articles of Incorporation as filed January 22, 1993, with the Indiana Secretary of State establishing the designations, rights and preferences of the Series D Cumulative Convertible Preferred Stock were filed with the Commission as Exhibit 4.11 to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated herein by this reference. 10.1.2 Employment Agreement dated January 1, 1987, between the Registrant and Stephen C. Hilbert was filed with the Commission as Exhibit 10.1.2 to the Registrant's Annual Report on Form 10-K for 1986, and Amendment No. 1 thereto were filed with the Commission as Exhibit 10.1.2 to the Registrant's Annual Report on Form 10-K for 1987; and are incorporated herein by this reference. 10.1.3 Employment Agreement dated July 1, 1991, between the Registrant and Rollin M. Dick was filed with the Commission as Exhibit 10.1.3 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1991, and is incorporated herein by this reference. 10.1.4 Employment Agreement dated July 1, 1991, between the Registrant and Donald F. Gongaware was filed with the Commission as Exhibit 10.1.4 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1991, and is incorporated herein by this reference. 10.1.5 Employment Agreement dated July 1, 1991, between the Registrant and Lawrence W. Inlow was filed with the Commission as Exhibit 10.1.5 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1991, and is incorporated herein by this reference.
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Exhibit No. Document - - ------- -------- 10.1.7 Employment Agreement dated July 1, 1991, between the Registrant and Walter T. Kirkbride was filed with the Commission as Exhibit 10.1.7 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1991 and is incorporated herein by this reference. 10.1.9 Secured Promissory Note of Stephen C. Hilbert and Pledge Agreement between the Registrant and Stephen C. Hilbert dated February 25, 1988, were filed with the Commission as Exhibit 10.1.9 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1988, and are incorporated herein by this reference. 10.1.10 Employment Agreement dated August 17, 1992, between the Registrant and Ngaire E. Cuneo was filed with the Commission as Exhibit 10.1.10 to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1992, and is incorporated herein by this reference. 10.8 The Registrant's Stock Option Plan was filed with the Commission as Exhibit B to its definitive Proxy Statement dated December 10, 1983; Amendment No. 1 thereto was filed with the Commission as Exhibit 10.8.1 to its Report on Form 10-Q for the quarter ended June 30, 1985; Amendment No. 2 thereto was filed with the Commission as Exhibit 10.8.2 to its Registration Statement on Form S-1, No. 33-4367; Amendment No. 3 thereto was filed with the Commission as Exhibit 10.8.3 to the Registrant's Annual Report on Form 10-K for 1986; Amendment No. 4 thereto was filed with the Commission as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for 1987; Amendment No. 5 thereto was filed with the Commission as Exhibit 10.8 to the Registrants's Report on Form 10-Q for the quarter ended September 30, 1991; and are incorporated herein by this reference. 10.8.2 ConsecoSave Plan dated as of January 1, 1993, was filed with the Commission as Exhibit 10.8.2 to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated herein by this reference. 10.8.3 The Registrant's Cash Bonus Plan was filed with the Commission as Exhibit 10.8.3 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1989, and is incorporated herein by this reference. 10.8.4 Amended and Restated Conseco Stock Bonus and Deferred Compensation Program was filed with the Commission as Exhibit 10.8.4 to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated herein by this reference. *10.8.5 Amendment of ConsecoSave Plan. *10.8.6 Conseco Performance - Based Compensation Bonus Plan for Executive Vice Presidents. 10.18.6 Assignment of Real Estate Purchase Agreement dated April 20, 1992 between Lincoln Income Life Insurance Company and Browning Construction, Inc. was filed with the Commission as Exhibit 10.8.6 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1992, and is incorporated herein by this reference. 10.18.7 Assignment of Real Estate Purchase Agreement dated April 20, 1992 between Lincoln Income Life Insurance Company and Browning Construction, Inc. was filed with the Commission as Exhibit 10.8.7 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1992, and is incorporated herein by this reference.
111
Exhibit No. Document - - ------- -------- 10.18.9 Promissory Note of Michael Browning dated January 1, 1990 in the principal amount of $8,000,000 and Collateral Assignment of Corporate Stock evidencing a collateralized loan from Lincoln Income Life Insurance Company were filed with the Commission as Exhibit 10.18.9 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1990, and are incorporated herein by this reference. 10.18.10 Construction agreement dated April 2, 1992 between Lincoln Income Life Insurance Company and Browning Construction, Inc. was filed with the Commission as Exhibit 10.8.10 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1992, and is incorporated herein by this reference. 10.18.18 Contract for Purchase of Real Estate dated December 1, 1992, between Lincoln Income Life Insurance Company and Technology Center Associates, L.P. was filed with the Commission as Exhibit 10.18.18 to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated herein by this reference. 10.18.19 Contract for Purchase of Real Estate and Building dated December 1, 1992, between Lincoln Income Life Insurance Company and Technology Center Associates, L.P. was filed with the Commission as Exhibit 10.18.19 to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated herein by this reference. *10.18.20 Construction Agreement dated February 7, 1994 between the Registrant and Browning Construction, Inc. *10.18.21 Agency Agreement dated December 17, 1993 between Bankers National Life Insurance Company and Browning Investments, Inc. *10.18.22 Agreement to Assign Contract for Purchase of Real Estate dated January 7, 1994 between Bankers National Life Insurance Company and Carmel Drive Realty, Inc. *10.18.23 Contract for Purchase of Real Estate dated January 7, 1994 between Bankers National Life Insurance Company and Meridian Mile Associates, L.P. *10.18.24 Development Agreement dated January 7, 1994 between Bankers National Life Insurance Company and Browning Investments, Inc. *10.18.25 Construction Agreement dated July 29, 1993 between Bankers National Life Insurance Company and Browning Construction, Inc. 10.23 Aircraft Lease Agreement dated December 22, 1988, between General Electrical Capital Corporation and Conseco Investment Holding Company was filed with the Commission as Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for 1988, and is incorporated herein by this reference. *10.23.1 Amendment to Aircraft Lease Agreement dated December 22, 1988, between General Electric Capital Corporation and Conseco Investment Holding Company. 10.24 Aircraft Lease Agreement dated April 26, 1991 between General Electric Capital Corporation and Conseco Investment Holding Company was filed with the Commission as Exhibit 10.29 to the Registrant's Report on Form 10-Q for the quarter ended September 31, 1991, and is incorporated herein by this reference. *10.24.1 Amendment to Aircraft Lease Agreement dated April 26, 1991, between General Electric Capital Corporation and Conseco Investment Holding Company. *10.25 Aircraft Lease Purchase Agreement dated December 28, 1993, between MetLife Capital Corporation and Conseco Investment Holding Company.
112
Exhibit No. Document - - ------- -------- 10.30 Stock Acquisition Agreement dated February 20, 1992, relating to Bankers Life and Casualty Company was filed with the Commission, as Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for 1991 and Amendments thereto were filed with the Commission as Exhibit 2 to the Registrant's Report on Form 8-K dated November 20, 1992; and are incorporated herein by this reference. 10.31 Helicopter Lease Agreement dated April 9, 1992 between General Electric Capital Corporation and Conseco Investment Holding Company was filed with the Commission as Exhibit 10.31 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1992, and is incorporated herein by this reference. *10.32 Aircraft Lease Agreement dated October 6, 1993, between General Electric Capital Corporation and Conseco Investment Holding Company and the associated Assignment Agreement dated October 25, 1993, between General Electric Capital Corporation and Nationsbanc Leasing Corporation. *10.33.1 U.S. Purchase Agreement dated February 8, 1994 among Western National Corporation, Conseco Investment Holding Company, Conseco, Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Dean Witter Reynolds Inc., Goldman, Sachs & Co. and Ladenburg, Thalmann and Co., Inc. as representatives of the several underwriters named therein. *10.33.2 International Purchase Agreement dated February 8, 1994 among Western National Corporation, Conseco Investment Holding Company, Conseco, Inc., and Merrill Lynch International Limited, Dean Witter International Ltd., Goldman Sachs International Limited and Ladenburg, Thalmann & Co. Inc., as Lead Managers of the several managers named therein. *10.34 Separation Agreement dated February 8, 1994 between Conseco, Inc. and Western National Corporation *11.1 Computation of Earnings Per Share - Primary. *11.2 Computation of Earnings Per Share - Fully Diluted. *12.1 Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends. *12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends for Which Conseco is Directly Liable. *21 List of Subsidiaries. *23 Consent of Independent Accountants *Filed herewith
113
Exhibit No. Document - - ------- -------- Executive Compensation Plans and Arrangements 10.1.2 Employment Agreement dated January 1, 1987, between the Registrant and Stephen C. Hilbert was filed with the Commission as Exhibit 10.1.2 to the Registrant's Annual Report on Form 10-K for 1986, and Amendment No. 1 thereto were filed with the Commission as Exhibit 10.1.2 to the Registrant's Annual Report on Form 10-K for 1987; and are incorporated herein by this reference. 10.1.3 Employment Agreement dated July 1, 1991, between the Registrant and Rollin M. Dick was filed with the Commission as Exhibit 10.1.3 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1991, and is incorporated herein by this reference. 10.1.4 Employment Agreement dated July 1, 1991, between the Registrant and Donald F. Gongaware was filed with the Commission as Exhibit 10.1.4 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1991, and is incorporated herein by this reference. 10.1.5 Employment Agreement dated July 1, 1991, between the Registrant and Lawrence W. Inlow was filed with the Commission as Exhibit 10.1.5 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1991, and is incorporated herein by this reference. 10.1.7 Employment Agreement dated July 1, 1991, between the Registrant and Walter T. Kirkbride was filed with the Commission as Exhibit 10.1.7 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1991 and is incorporated herein by this reference. 10.1.9 Secured Promissory Note of Stephen C. Hilbert and Pledge Agreement between the Registrant and Stephen C. Hilbert dated February 25, 1988, were filed with the Commission as Exhibit 10.1.9 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1988, and are incorporated herein by this reference. 10.1.10 Employment Agreement dated August 17, 1992, between the Registrant and Ngaire E. Cuneo was filed with the Commission as Exhibit 10.1.10 to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1992, and is incorporated herein by this reference. 10.8 The Registrant's Stock Option Plan was filed with the Commission as Exhibit B to its definitive Proxy Statement dated December 10, 1983; Amendment No. 1 thereto was filed with the Commission as Exhibit 10.8.1 to its Report on Form 10-Q for the quarter ended June 30, 1985; Amendment No. 2 thereto was filed with the Commission as Exhibit 10.8.2 to its Registration Statement on Form S-1, No. 33-4367; Amendment No. 3 thereto was filed with the Commission as Exhibit 10.8.3 to the Registrant's Annual Report on Form 10-K for 1986; Amendment No. 4 thereto was filed with the Commission as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for 1987; Amendment No. 5 thereto was filed with the Commission as Exhibit 10.8 to the Registrants's Report on Form 10-Q for the quarter ended September 30, 1991; and are incorporated herein by this reference. 10.8.2 ConsecoSave Plan dated as of January 1, 1993, was filed with the Commission as Exhibit 10.8.2 to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated herein by this reference. 10.8.3 The Registrant's Cash Bonus Plan was filed with the Commission as Exhibit 10.8.3 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1989, and is incorporated herein by this reference. 10.8.4 Amended and Restated Conseco Stock Bonus and Deferred Compensation Program was filed with the Commission as Exhibit 10.8.4 to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated herein by this reference. *10.8.5 Amendment of ConsecoSave Plan. *10.8.6 Conseco Performance - Based Compensation Bonus Plan for Executive Vice Presidents.
EX-10.8.5 2 EXHIBIT 10.8.5 TO CONSECO, INC. 1993 FORM 10-K 1 AMENDMENT TO CONSECOSAVE PLAN Effective as of January 1, 1994, the ConsecoSave Plan is hereby amended by: 1. Amending Section 7.1 by: (i) Revising the first sentence to read as follows: Employer Matching Contributions shall be invested and reinvested in the Conseco Matching Stock Fund. (ii) Changing subsection (b) to read as follows: (b) CCP Insurance, Inc. Stock Fund (iii) Adding a new subsection (h) immediately following subsection (g): (h) Bankers Stock Fund 2. Adding a new sentence immediately following the last sentence of Section 7.3 to read as follows: The Administrator may, in its sole discretion, designate more frequent investment transfer dates if the Administrator deems it appropriate in light of the market volatility to which the investment alternatives may reasonably be expected to be subject. 3. Adding a new Section 8.4, immediately following section 8.3, to read as follows: 8.4 Voting of Company, Bankers Life Holding Corporation and CCP Insurance, Inc. Stock. Voting, tender and similar rights shall be passed through to Participants and beneficiaries pursuant to the provisions of the Trust. 4. Revising the first sentence of the second paragraph of Section 10.7(c) to read as follows: Lump sum distributions will be made in cash; provided, however, Participants who elect immediate lump sum distributions pursuant to (a)(1) above whose Accounts are vested in the Conseco Stock Fund, the Bankers Stock Fund or the CCP Insurance, Inc. Stock Fund at the time distribution is to commence may elect to receive cash or the number of shares equal to the value of the selected Investment Fund. EX-10.8.6 3 EXHIBIT 10.8.6 TO CONSECO, INC. 1993 FORM 10-K 1 CONSECO PERFORMANCE-BASED COMPENSATION BONUS PLAN FOR EXECUTIVE VICE PRESIDENTS Each of the Executive Vice Presidents shall receive annually a performance-based cash bonus. The bonus shall be determined by multiplying the applicable percentages (defined below) times the Company's consolidated pre-tax net profits for the year. Such percentage is to be based on the following table.
If the ratio of the average return on Then the current year's performance-based equity ("ROE")(1) of Conseco to the bonus for each such executive shall be the average ROE of all publicly-held life sum of the following percentages multiplied and health insurance companies is times the designated portion of the consol- at least the following percentage idated pre-tax profits of the current year - - -------------------------------------- ------------------------------------------- Non-Recurring Remaining Portion(2) Portion -------------- ---------- 80% 0.0% 0.0% 100% 1.0% .1% 120% 1.0% .2% 140% 1.0% .4% 160% 1.0% .6% 180% 1.0% .8% 200% 1.0% 1.0% Upon the recommendation of Conseco's Chief Executive Officer, the Compensation Committee may reduce the amount of the bonus that would have been payable under the preceding formula to any of the affected executives. Such reduction shall be at the sole discre- tion of the Compensation Committee after taking into account such subjective factors or other matters as they believe are appropri- ate in the best interests of Conseco and its shareholders. The Compensation Committee shall have the sole authority to administer the Plan and make all decisions to interpret and apply its provisions. Written interpretations not inconsistent with the terms hereof may be issued from time to time by the Compensation Committee as guidance for interpreting and applying the Plan's provisions. 1. Average ROE for Conseco and for all companies is to be calculated for the five years prior to the current year as reported by Firemark Insurance Perspectives or comparable independent publication. No year prior to 1993 shall be included in computing such average ROE; therefore, until five years have been completed after 1993, the ratio of the average ROE for Conseco to the average ROE for all companies shall be computed as follows: - For 1994 and 1995, the ratio shall be deemed to be 200% - For 1996, 1997 and 1998, the ratio shall be computed using results for two, three or four years, respectively, commencing with the results of the year 1994. 2. For purposes of this calculation, the non-recurring portion includes the total of gains from sale of subsidiaries or affiliates; sale of investments made or monitored by the Conseco Private Capital Group; 20% carried interest earned on acquisition partnership investments; and acquisition; arrangement and investment banking fees earned from acquisition partnerships.
EX-10.18.20 4 EXHIBIT 10.18.20 TO CONSECO, INC. 1993 FORM 10-K 1 ADDITION TO CONSECO FLIGHT OPERATIONS 7811 HEADWIND DRIVE CONSTRUCTION AGREEMENT THIS AGREEMENT, made and entered into by and between Conseco, inc., 11815 North Pennsylvania Street, Carmel, In 46032, an Indiana corporation (hereinafter referred to as the "Owner"), and BROWNING CONSTRUCTION, INC., an Indiana corporation (hereinafter referred to as the "Contractor"), WITNESSETH THAT: WHEREAS, the Owner desires to design and construct an aircraft hangar expansion to the east of the existing hangar at 7815 Headwind Drive, Indianapolis, Indiana, (the "Project"). WHEREAS, Cuppy, Graef & Turner, Architects, as design architects (the "Design Architects"), heretofore has completed preliminary plans and requirements based upon which it has begun to develop and prepare or cause to be prepared, complete drawings, plans and specifications for the Project, subject to final approval by the Owner and the Contractor, which approval will not unreasonably be withheld (such approved drawings being hereinafter referred to as the "Drawings" and such plans and specifications being hereinafter referred to as the "Specification"); and WHEREAS, with the Owner's approval, the Contractor has commenced work on the Project, and has expended funds and incurred borrowing costs in connection therewith prior to the date hereof; WHEREAS, the Owner and the Contractor have agreed that the contract price will be paid to the Contractor as construction progresses and costs are incurred in the manner provided herein; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained and each act performed pursuant hereto, the parties now enter into the following Agreement: ARTICLE I Contract Documents; Definitions Section 1.1. Contract Documents and Amendments. The "Contract Documents" shall mean and include (a) this Agreement, (b) the Drawings and Specifications upon completion and approval thereof by the Owner and the Contractor and (c) any duly authorized and executed Contract Change Orders pursuant to Section 4.3, and any written interpretations of the Drawings and Specifications signed by the Owner and by the Contractor. It is agreed that the Contract Documents contain the entire agreement of the parties, that in the event there is any conflict between the provisions of this Agreement and the provisions of the Specifications and/or the Drawings, then the provisions of this Agreement shall prevail; and that in the event there is any conflict between the Specifications and the Drawings, the Drawings shall prevail. The Contract Documents otherwise may be amended by written instruments signed by the Owner and by the Contractor, and any provision or provisions of the Contract Documents may be so amended without affecting the other provisions of the Contract Documents. Section 1.2. Architect and Engineer. The term "Design Architect," as used in the Contract Documents, shall mean Cuppy, Graef & Turner Architects, and the term "Engineer" shall mean the inspecting architect or engineer designated by the Owner's construction lender (or by the Owner in the absence of such designation by the lender) to make periodic inspections and certify as to the progress of construction for purposes of progress payments to the Contractor. 2 Section 1.3. Subcontractor. The term "subcontractor," as used in the Contract Documents, except where otherwise specified, means only those persons, firms or corporations having a direct contract with the Contractor and includes any person, firm or corporation who or which performs any part of the Work (as defined herein), or leases equipment or tools (whether or not an operator is provided by the lessor), or who furnishes material worked to a special design according to the Drawings or Specifications, but does not include any person, firm or corporation who or which merely furnishes material not so worked to a special design (herein called a "supplier"), nor does it include the Design Architect or Inspector. Section 1.4. Completion Date. The term "Completion Date," as used in the Contract Documents, means the date when the Work (as defined herein) is certified by the Contractor as substantially completed in accordance with the Contract Documents, subject to any additional or corrective work reasonably required by the Engineer's final inspection pursuant to Section 4.6. For this purpose, the hangar shall be substantially complete and ready for use, notwithstanding any minor or insubstantial details of construction, that remain to be done, so long as (a) ready access to the Project, are available to the Owner, all utilities to be provided to the Project are installed and in working order (subject to minor adjustments and to the Owner's responsibilities regarding utilities as provided in Section 5.4. For the purposes of the Agreement, there will be a "Completion Date" for the hangar. Section 1.5. Day and Working Day. As used in the Contract Documents, the term "day" shall mean a calendar day of twenty-four (24) hours beginning at 12:00 midnight, and the term "working day" shall mean each calendar day except a Saturday, Sunday or legal holiday. ARTICLE II Scope of the Work Section 2.1. The Work. The term "Work" as used in the Contract Documents shall mean the Contractor shall furnish all of the labor, supervision, materials, supplies and equipment and perform all labor and other work shown on, and in accordance with the Drawings and Specifications as finally approved by the Owner and Contractor. Section 2.2. Time of Completion. In the absence of circumstances beyond its control, the Contractor agrees to complete the Work prior to June 30, 1994 for the hangar, except as such period to complete the Work may be extended pursuant to the provisions of Sections 4.2, 4.3 or 4.5 of this Agreement. ARTICLE III Contract Price and Payment Section 3.1. Contract Price. The Owner agrees to pay the Contractor for the performance of this Agreement cost plus twelve eight five percent (12.85%) for the Project, including all of the Work, as the contract price for the hangar subject to additions and deductions by Contract Change Order pursuant to Section 4.3. Section 3.2. Method of Payment. The Owner hereby agrees to pay to the Contractor the Contract Price in the following manner: (b) Progress Payments. (i) For all work except as identified in clause (ii) of this paragraph, (b)after the initial payment, the Contractor shall make a monthly request for payment by the Owner, for construction costs incurred for work during the preceding month, plus the earned portion of the Contractor's overhead and fee allocable to such Work, less any retainage withheld from the Contractor and Subcontractors as hereinafter provided. In no event shall the total of all such progress payments under this clause (i) of this paragraph (b) at any time, when added to the initial payment and any retainage then held, exceed the agreed total Contract Price, plus any additions or less any deletions for Contract Change Orders; and 3 (ii) Contractor shall make a monthly request for payment equal to the cost of work in place as of the end of the preceding month, plus an amount equal to 12.85% of such costs for overhead and profit minus retainage as per 3.2 (iii). Each request for payment shall be submitted at least five (5) business days before the date payment is desired, and payments shall, insofar as possible, be scheduled for the 28th day of each calendar month. Owner agrees to make payments no later than six (6) business days after receipt of the Contractor's request. Contractor shall provide copies of invoices or such other cost backup as the Owner may reasonably request from time to time as follows: (a) payment request on form acceptable to Owner, (b) copies of invoices, (c) affidavits of lien waivers from all subcontractors and supplies covering prior disbursements. (c) All payments by the Owner are subject to the following: (i) Construction Costs. As used herein, the term "construction costs" means and includes all costs and expenses incurred by the Contractor in the performance of the Work, including but not limited to amounts payable under subcontracts and other costs for labor, materials, equipment and fixtures, including sales taxes and freight and transportation charges, costs for architectural and engineering work, expenses for workers' compensation insurance and other insurance coverage required by the terms of this Agreement, rental costs of equipment used on the Work, utility costs and fees, and charges or other amounts payable for permits, licenses or approvals necessary to perform the Work. (ii) Overhead and Fee. The Contractor's overhead and fee is twelve eight five percent (12.85%), and shall be deemed earned for purposes of payment as follows: (1) The overhead and fee portion of the Contract price for the hangar shall be deemed earned in proportion to costs incurred for which payment is requested from time to time, in increments equal to 12.85% minus retainage as in (iii) below, of the costs so incurred; the full balance shall be deemed earned on the Completion Date. (iii) Retainage. (1) Retainage shall be withheld only as to amounts payable Contractor and Subcontractors and there shall be no retainage as to suppliers or other amounts payable to the Contractor; (2) retainage as to Subcontractors shall be 10% of amounts invoiced until such Subcontractor's work is 50% completed, and thereafter, unless the Contractor, in its discretion, elects to continue the 10% retainage as to one or more Subcontractors, no additional retainage shall be withheld; (3) retainage as to each Subcontractor will be released to the Contractor for payment to the Subcontractor sixty (60) days after 100% completion of the Subcontractor's work. (iv) Inspection Reports. The Owner may require, prior to payment, receipt of a report from the Engineer, dated not more than five (5) days prior to the requested disbursement, setting forth a breakdown of the Work completed to date and stating that he has inspected the construction and that all construction to the date of the certificate is in accordance with the Drawings and Specifications. It is the Owner's responsibility to schedule such inspections to ensure that the report, if requested, is received in a timely manner so as not to otherwise affect timing of payments. (b) Final Payment. Final payment to the Contractor of the entire unpaid balance of the Contract Price for the hangar including but not limited to any retainage withheld and the full balance of the Contractor's overhead and fee and any profit to the Contractor, shall be paid within thirty (30) days after the Completion Date for such hangar. The Owner shall receive prior to such payment; (i) delivery of a release or waiver of liens signed by the Contractor 4 and all Subcontractors (or a title insurance policy insuring over any such lien or possible lien), and (ii) the Owner shall be entitled to withhold an amount reasonably estimated by the Engineer to complete or correct for items of Work identified upon final inspection pursuant to Section 4.6, until completion or correction of such item, and (iii) as built drawings, maintenance and operation manuals. ARTICLE IV Other General Conditions Section 4.1. Representations and Warranties of Contractor. The Contractor represents and warrants that: (a) The Contractor has the facilities and personnel to perform the Work, and the Work shall be done in good and workmanlike manner, free from defects and in conformity with the Contract Documents, and all applicable laws, ordinances, rules and regulations of all governmental authorities having jurisdiction of the subject matter. (b) The Contractor shall supervise and direct the Work, using its best skill and attention. The Contractor shall be solely responsible for all construction means, methods, techniques, sequences and procedures and for coordinating all portions of the Work; (c) All materials and equipment incorporated in the Work will be new, unless otherwise specified in the Plans and Specifications; (d) The Contractor shall provide and pay (and provided the Owner makes all payments due to the Contractor as provided in Article III, Sections 3.2 (b) (ii) and 3.2 (d), shall hold the Owner harmless from claims for) all Subcontractors and Suppliers, and other amounts payable for all labor, materials , equipment, tools, construction equipment and machinery, water, heat, utilities, transportation and other facilities and services necessary for proper completion of the Work and shall remove all construction equipment, tools and machinery from the Project site promptly upon completion of the Work. (e) The Contractor shall inform the Owner if it becomes necessary to make any arrangements with public utilities or municipal authorities for removal or replacement on the Project site of any poles, lines, hydrants, pipes or other items required to be removed or replaced in order to complete the Work, provided that if any work or expense will be required to connection therewith, the same shall be considered an addition to the Work requiring a Contract Change Order. The Contractor knows of no such requirement as of the date of this Contract. (f) The Contractor shall secure all permits, licenses and approvals necessary for execution of the Work; (g) The Contractor at all times shall keep the Project site free from excessive accumulation of waste materials and rubbish caused by its operations. At the completion of the Work, the Contractor shall remove all waste materials and rubbish from and about the Project site, as well as his tools, construction equipment, machinery and surplus materials, and leave the Work in "broom clean" or equivalent condition except as otherwise specified. Section 4.2. Extension of Time of Completion. The contractor shall be entitled to extensions of time for completion of the Work in the event of delays caused by labor disputes, fire, unusual delay in transportation, unavoidable casualties or other causes or conditions beyond the Contractor's control. Any such extension of time shall be for the actual number of working days lost by reason of the occurrence or condition, as determined and certified by the Contractor, unless the Engineer reasonably determines that a longer or shorter extension of time should apply. 5 Section 4.3. Change in the Work. The Owner and the Contractor, without invalidating the Contract Documents or the agreement of the parties as represented thereby, but subject to the limiting provisions of Section 1.1, may make changes within the general scope of the Contract Documents by altering, adding to or deducting from the Work. No change in the Work shall be authorized except by a "Contract Change Order," signed by the Owner and the Contractor, and approved by the Owner's construction lender, if required. All extra work and changes in the Work shall be performed under the conditions of the Contract Documents. Section 4.4. Owner's Right to Terminate. In the event the Contractor violates any material provision of the Contract Documents, the Owner may, after giving thirty (30) days written notice to the Contractor setting forth the violation, if the violation is not corrected by the expiration of such thirty (30) day period, at the Owner's option, either (a) make good the deficiencies and deduct the cost thereof from any payment then or thereafter due the Contractor, and (b) terminate this Agreement, take possession of all materials and the Contractor's equipment, tools and appliances and finish the Work by any reasonable means, or (c) specifically enforce this Agreement against the Contractor and force the Contractor to complete the Work for the Fixed Contract Price in accordance with the provisions of this Agreement. If the Owner exercises such option to terminate this Agreement, and the unpaid balance of the Contract Price exceeds the reasonable cost to the Owner of completing the Work, such excess shall be paid to the Contractor in the manner provided in Section 3.2, but, if such cost exceeds such unpaid balance, then the Contractor shall pay the entire amount of the difference to the Owner. Section 4.5. Contractor's Right to Terminate. Should the Owner fail to pay the Contractor any payment when due, then the Contractor, at the Contractor's option, after giving seven (7) days written notice to the Owner, if payment is not made within seven (7) days of receipt by the Owner of such notice may stop performing the work until payment is received. Should the Work be stopped by any public authority for a period of thirty (30) days or more through no fault of the Contractor, or should the Work be stopped through act of neglect of the Owner or should the Owner fail to pay the Contractor within said seven (7) day period, then, at the Contractor's option, at any time before the condition is corrected or cured, following thirty (30) days written notice to the Owner, with a copy to the Owner's construction lender, if the condition is not cured by the end of such thirty (30) day period, and if the Contractor is not in default under the Agreement, the Contractor amy terminate this Agreement and retain or recover from the Owner so much of the Contract Price as represents payment in full for all of the Work completed, less payments previously received, including all of the Contractor's costs of the construction as set forth on the Cost Breakdown, plus a pro rata portion of the Contractor's total overhead and profit as provided for in the Cost Breakdown, based upon the proportion of the Work completed. In any event, the delay caused by the existence of any such condition shall automatically extend the time during which the Work is to be completed pursuant to Section 2.2 by an amount of time equal to two (2) days for each of the first thirty (30 days of existence of any such condition, and one day for each day of existence of the condition in excess of thirty (30) days. Section 4.6. Final Inspection. The Engineer's final inspection as regards to the hangar shall be made within fifteen (15) days after the Contractor delivers to the Owner its written certification that the Work has been completed. The making and acceptance of the final payment shall not constitute a waiver of any claims by the Owner as to any matters reasonably required by the Engineer to be completed or corrected by the Contractor after the Completion Date. Section 4.7. Warranty and Correction of Work. The Contractor guarantees to the Owner that all labor and materials incorporated in the Work shall be free from defects for a period of one year from the Completion Date. The Contractor, at its expense, shall correct any Work that fails to conform to the requirements of the Contract Documents where such failure to conform appears during the progress of the Work, and shall remedy any defects in the Work which appear within the applicable warranty period. The warranty under this Section 4.7 applies to the entire Work, (a) whether done by Contractor, any subcontractor (whether or not under a direct contract with the Contractor), or any employee of any of them or any other person performing any of the Work, or (b) any electrical or other finished manufactured equipment or product, except that the Contractor hereby assigns to the Owner the warranty, if any, of the manufacturer and/or supplier of any such equipment or product, and 6 warrants (for one year as set forth above) that such equipment and products shall be properly installed and connected in accordance with the Drawings and Specifications, and any manufacturer's instructions. Section 4.8. Inspections. The Owner, its construction lender, prospective tenants, and their authorized representatives, including the Engineer, shall, at all reasonable times, have the right of access to the Project and Work for the purpose of inspection. The Owner shall have the right to reject materials and workmanship which the Owner reasonably determines to be defective, and the Contractor, within a reasonable time after the receipt of written notice from the Owner of such rejection, take such reasonable steps as shall be necessary to correct or remove defective materials or workmanship without charge or cost to the Owner. The Engineer will make periodic visits to the site to familiarize himself generally with the progress and quality of the Work, and to determine in general if the Work is proceeding in accordance with the Plans and Specifications pursuant to Section 3.2. If the Owner becomes aware of any defect in the Work, through the Engineer or otherwise, it shall give notice of such defect to the Contractor promptly after discovery thereof. If the Owner fails to give such notice of a defect known to it, such defect may not serve as a ground for termination by the Owner pursuant to Section 4.4, unless the Contractor independently knew of such defect at or prior to the time of the Owner's discovery thereof. ARTICLE V The Owner's Responsibilities Section 5.1. Prompt Decisions. The Owner, through a designated authorized representative, shall examine Contract Documents and other documents submitted by the Contractor from time to time, and shall render decisions pertaining thereto and furnish requested information and approvals promptly and expeditiously to avoid unreasonable delay in the completion of Plans and Specifications or in the progress of the Work of the Contractor. Section 5.2. Notices. The Owner shall give prompt written notice to the Contractor of any defect in the Work or other nonconformance with the Contract Documents that may in any manner come to the Owner's attention. The Owner shall provide to the Contractor promptly, copies of any notice or other communication concerning the project received directly by the Owner from the Design Architect, the Engineer, any subcontractor or other person performing work on the project or any governmental authority (unless the Owner has knowledge that the Contractor already has received a copy thereof). Section 5.3 Payments. The Owner shall provide for the timely payment of all amounts due as anticipated by this Agreement, as and when payable as construction progresses and Work is completed and inspected, in accordance with the terms of this Agreement. The Owner shall schedule any required inspections to occur within the time periods provided for herein so as not to delay the scheduled payments to the Contractor. Section 5.4 Utilities/Governmental Fees. The Owner is solely responsible for any and all necessary approvals, consents, permits, deposits, assessments, connection or availability fees and other charges of any kind levied or required to be obtained, made or paid in order to allow, permit or otherwise obtain the right and authority to connect the buildings and improvements to the facilities of, and/or acquire the services of, any public utility or governmental agency, sewer, telephone and electric service. The Contractor shall cooperate with and assist the Owner in connection with such approvals and other matters, and shall notify the Owner in advance of the date by which any such matter must be completed in order not to cause any delay in the completion or availability of the Project. 7 ARTICLE VI Indemnity and Insurance Section 6.1. Indemnity. The Contractor shall indemnify and save the Owner harmless from and against any and all liability for any bodily injury, sickness, disease or death of any person or persons, or for damage to or destruction of tangible property (other than the Work itself) including the loss of use resulting therefrom, arising out of or connected with the performance of the Work, provided such liability or damage is caused in whole or in part by any negligent act or omission of the Contractor, any subcontractor (whether or not under a direct contract with the Contractor), or anyone directly or indirectly employed by any of them or any one for whose acts any of them may be liable, and from all cost, expenses and liabilities, including but not limited to reasonable attorney's fees incurred by the Owner in connection therewith; provided, however, that the provisions of this Section 5.1 shall not give to any person, firm or corporation not a party to this Agreement any right, claim, action or cause of action which any such person, firm or corporation would not otherwise have. Section 6.2. Contractor's Liability Insurance. Without limitation upon the Contractor's liability under the indemnity agreement in Section 5.1, the Contractor shall, at its own expense, obtain and maintain insurance that will protect the Contractor, the Owner and such other interested persons as the Owner may reasonably request from time to time, from all claims under worker's compensation acts and other employees benefit acts claims for damages because of bodily injury, including death, and from claims for damages to property which may arise out of or result from the Contractor's operations under this Agreement, including products and completed operations coverage for a period of two (2) years following the Completion Date and including operations by any subcontractor (whether or not under a direct contract with the Contractor) or anyone directly or indirectly employed at any of them. The coverages and amounts below are indicated as minimum requirements, exclusive of any additional excess umbrella liability coverage that may be reasonably required by the Owner. The Contractor may determine to carry other coverages and/or higher limits. Minimum Coverages Required Minimum Amount of Liability -------------------------- --------------------------- Workers'Compensation Applicable Statutory Limits Insurance including employer's liability Contractor's combined $1,000,000 protective bodily injury and property damage liability insurance All policies shall contain a provision that the coverages will not be canceled or changed without thirty (30) days prior written notice to the Owner and to the Owner's construction lender. If, at any time during the performance of the Work, the Contractor shall fail to maintain the minimum insurance coverages set forth above, the Owner may, at its option, procure and maintain such insurance in the name of the Contractor, and the Contractor shall pay the cost thereof and furnish all information and documents necessary to make effective and maintain such insurance. Section 6.3. Owner's Liability Insurance. The Owner may obtain, at its option, additional or other insurance to protect it from contingent liability to others arising from the Contractor's operations under this Agreement. Section 6.4. Builder's Risk Insurance. The Contractor shall purchase and maintain "all risk" builder's risk and fire insurance, with extended coverage, upon the Work and the Project on which the Work is to be performed, to approximately one hundred percent (100%) of the insurable value from time to time thereof, including items of labor and materials to be incorporated therein whether in or adjacent to the building insured. Loss under the insurance, if any, will be adjustable with and payable to the Owner (or its designee) as trustee for the Owner and the Contractor as their interests may appear. The Owner and the Contractor hereby waive all rights, 8 each against the other, for damages caused by fire or extended coverage perils or other risks covered by insurance, except such rights as they may have to the proceeds of insurance held by the Owner as trustee. The Contractor shall be solely responsible for any coverage on its tools or equipment, or those of its employees, agents or subcontractors, whether owned or rented, and for any other materials which may temporarily be located on the Project premises. Section 6.5. Blanket and Umbrella Policies. Any insurance required to be provided by Contractor pursuant to the Agreement may be provided by blanket property insurance or umbrella liability insurance covering the Project and other locations or operations of Contractor or its affiliates, provided such blanket or umbrella insurance complies with all of the other requirements of the Agreement with respect to the insurance involved. Section 6.6. Insurance Coverage and Notice. All policies shall contain a provision that the coverages will not be canceled or changed without thirty (30) days prior written notice to the Owner. Upon request, the Contractor shall provide to the Owner a certificate showing the relevant insurance coverages and amounts in force respecting the Project. if, at any time during the performance of the Work, the Contractor shall fail to maintain the minimum insurance coverages set forth above, the Owner may, at its option, procure and maintain such insurance in the name of the Contractor, and the Contractor shall pay the cost thereof and furnish all information and documents necessary to make effective and maintain such insurance. ARTICLE VII Miscellaneous Section 7.1. Bonds. If required by the Owner, the Contractor shall require one or more subcontractors performing labor under subcontract for amounts in excess of $100,000 to furnish dual-obligee payment and performance bonds, in form and substance acceptable to the Owner, covering themselves and their subcontractors. The Contract Price shall be increased in an amount equal to the reasonable cost of any such bonds. For purposes of this paragraph, the Contractor shall provide to Owner, on request, a list of the Subcontractors and their respective contract amounts. Section 7.2. Assignment. This Agreement may not be assigned or otherwise transferred by either party hereto without the written consent of the other party except for any assignment to an entity owned or controlled by such party. No such assignment shall relieve either party of its obligations unless otherwise agreed by the other party in writing at the time. Section 7.3. Nonwaiver; Other Remedies. The failure to enforce any provision of the Contract Documents shall not serve to invalidate any such provision or any other provision of the Contract Documents and shall not serve as a bar or limit to subsequent enforcement of any such provision. No remedy available to either party under this Agreement is intended to be exclusive of any other remedy. Each remedy shall be cumulative and shall be in addition to any other remedy given hereunder or existing by statute, at law or in equity. Section 7.4. Notices. Any notices required to be given under this Agreement shall be mailed, certified mail, return receipt requested. Any notice to be served upon the Owner shall be addressed to: Donald F. Gongaware Executive Vice President Conseco, inc. 11815 North Pennsylvania Street Carmel, Indiana 46032 Any notice to be served upon the Contractor shall be addressed to: Browning Construction, Inc. Suite 400, Tower Two Fidelity Plaza 11350 North Meridian Street Carmel, Indiana 46032 Attention: Richard J. Pollak 9 Section 7.5. Binding on Successors. This Agreement shall be binding upon, and inure to the benefit of, the parties, their successors, heirs, legal representatives, legatees and assigns. Section 7.6. Descriptive Headings. The descriptive headings contained herein were formulated, used and inserted for convenience only and shall not affect the meaning or construction of the provisions of this Agreement. Section 7.7. Governing Law. This Agreement, executed and to be performed in the State of Indiana, shall be governed by the law of the State of Indiana. IN WITNESS THEREOF, the parties have caused this Agreement to be executed by their duly authorized officers on the 7th day of February, 1994. "OWNER" CONSECO, INC. By: /s/ DONALD F. GONGAWARE ----------------------- Donald F. Gongaware Executive Vice President "CONTRACTOR" BROWNING CONSTRUCTION, INC. By: /s/ RICHARD J. POLLAK ---------------------- Richard J. Pollak President EX-10.18.21 5 EXHIBIT 10.18.21 TO CONSECO, INC. 1993 FORM 10-K 1 AGENCY AGREEMENT THIS AGREEMENT, entered into by and between Bankers National Life Insurance Company, a Texas corporation ("Bankers") and Browning Investments, Inc., an Indiana corporation ("Agent"), WITNESSES THAT: WHEREAS, Bankers desires to acquire certain real estate in Carmel, Indiana commonly known as 11790 North College Avenue (the "Real Estate"); WHEREAS, Agent is willing to act for and on behalf of Bankers in its efforts to acquire the Real Estate by (a) entering into a contract to purchase the Real Estate ("Purchase Contract") as agent for Bankers as an undisclosed principal, (b) obtaining such surveys, tests, examinations and/or investigations of the Real Estate as Bankers shall request or Agent deems prudent, (c) entering into an agreement with the current tenant of the Real Estate to terminate its lease and hold tenant harmless ("Lease Termination"), as agent for Bankers as an undisclosed principal, and (d) prior to Closing assigning its interest in the Purchase Contract and Lease Termination (together the "Contracts") to Bankers and assisting Bankers in closing the purchase of the Real Estate and termination of the lease, all upon the terms and conditions hereinafter set forth; NOW, THEREFORE, Bankers and Agent, in consideration of the respective promises and actions to be taken by each as hereinafter described, agree as follows: 1. Acquisition. Subject to the provisions of this Agreement, Agent shall at all times use its best efforts to secure the Purchase Contract and Lease Termination substantially upon the terms and conditions contained in Exhibit A attached hereto. Upon execution of the Purchase Agreement and Lease Termination Agreement, Agent shall promptly notify Bankers and provide it with a fully executed copy thereof. 2. Agency Capacity. In endeavoring to secure the Purchase Agreement and Lease Termination Agreement, Agent shall at all times be acting for the account of and on behalf of Bankers and not for its individual account and benefit, excepting that Bankers acknowledges and agrees that Seller under the Purchase Agreement shall pay Agent, in its capacity as broker and not as agent, a brokerage commission as provided for in the Purchase Contract attached hereto as Exhibit A. 3. Performance of Contracts. Agent shall use reasonably prudent judgment prior to waiving any conditions to the performance of its obligations under the Contracts and may in its discretion seek Bankers' prior consent. Agent shall use reasonably diligent efforts to keep Bankers informed of the progress of satisfaction of the conditions to closing. 4. Site Investigations. Agent shall cause to be performed by companies acceptable to Bankers such surveys, tests, examinations and/or investigations of the Real Estate as Agent deems prudent or as Bankers shall direct, which directions may be verbal, but shall be confirmed in writing promptly after having been given. Any such surveys or written reports of such tests, examinations or investigations shall be expressly certified to the undisclosed principal of Agent and any nominee of such principal acquiring title to the Real Estate or shall otherwise expressly acknowledge that such principal and nominee shall be entitled to rely thereon to the same extent as if such principal or nominee had obtained such surveys or reports directly. Agent shall forward to Bankers copies of all such surveys and reports or other written information with respect to such tests, examinations and/or investigations and shall furnish Bankers with copies of any and all 2 other information obtained by Agent pursuant to the Contracts. All costs and expenses payable by Agent to the companies performing such surveys, tests, examinations or investigations shall be included within Project Costs as hereinafter defined, and shall be payable by Bankers to Agent. 5. Cost Statements. Agent shall submit to Bankers twenty-four (24) hours prior to closing an itemized statement (the "Cost Statement") of all amounts due and payable at Closing under the Contracts and for Project Costs, and its good faith estimate of those Project Costs which will become due and payable after Closing. At Closing, Bankers shall pay such sums to Agent or the applicable party under the Contracts. Agent shall pay all bills and invoices which are Project Costs promptly upon payment from Bankers and shall furnish Bankers with proof of such payment upon request. If post closing Project Costs differ from Agents good faith estimate, Agent and Bankers shall reconcile such sums within sixty (60) days after Closing. "Project Costs" shall mean all costs and expenses incurred by Agent in connection with the Real Estate, the Contracts and this Agreement, including, without limitation, legal and other professional fees. 6. Agent's Compensation. In addition to reimbursement of Project Costs, as consideration for the services rendered by Agent pursuant to this Agreement, Bankers shall pay Agent, in immediately available funds at Closing, ten percent (10%) of the lease termination fee received by Bankers from the current tenant of the Real Estate. 7. Default. If Bankers or Agent fails to satisfy any of their respective obligations under this Agreement, and such failure continues for fifteen (15) days after written notice thereof from the other party, then the other party may terminate this Agreement (subject to Bankers' continued indemnity obligations pursuant to paragraph 8 below) or exercise any other right or remedy hereunder or at law or in equity. 8. Indemnification. Bankers shall defend, indemnify and hold Agent, its parents and affiliates, and its or their respective officers, directors and employees (collectively, the "Agent Indemnities"), harmless from and against any and all third- party claims or liabilities and all losses, damages, suits, costs, fees, charges, commissions and expenses in connection therewith (including, without limitation, reasonable attorneys' fees) (collectively, for purposes of this paragraph 8, the "third-party liabilities") arising out of or alleged to arise out of (a) appraisals, surveys, tests, examinations and/or investigations of the Real Estate (or any part thereof) which Agent shall cause to be performed, (b) the termination of any Contract by Agent at the direction of Bankers or the nonperformance by Agent, at the direction of Bankers, of its obligations under any Contract, (c) the nondisclosure by Agent that it is acting for the account of and on behalf of Bankers in the purchase of the Real Estate and performance of the services contemplated by this Agreement, (d) the failure of Bankers to pay any amounts to be paid by it under this Agreement, or (e) directly or indirectly, Agent's performance of its obligations under this Agreement. Such indemnity and obligation to defend shall be effective regardless of whether the third-party liabilities are caused or alleged to be caused by the negligence (including the concurrent or sole and exclusive negligence), breach of contract, strict liability or other breach of duty of any Agent Indemnitee, but shall not apply or extend to third-party liabilities caused or alleged to be caused by the reckless conduct, fraud or willful or wanton misconduct of any Agent Indemnitee. This indemnity shall survive the termination of this Agreement. 9. Assignment. Prior to Closing, Agent shall assign its interest under the Contracts to Bankers or a nominee of Bankers and Bankers or a nominee of Bankers shall assume the liabilities thereunder and take title to the Real Estate at Closing. 3 10. Governing Law. This Agreement shall be governed, construed and enforced in accordance with the laws of the State of Indiana. In the event any suit or action is brought under or in connection with this Agreement, such suit or action shall be brought in a court in the State of Indiana, and Agent hereby consents and submits itself to the jurisdiction of such court and agrees to service of process by courts located in Indiana. 11. Entire Agreement. This Agreement contains all of the agreements, representations and warranties of the parties hereto with respect to the specific subject matter hereof (but not as to any other matters) and supersedes all prior discussions, understandings or agreements with respect to the specific subject matter hereof. This Agreement may not be amended or modified except by an instrument signed by the parties hereto. 12. No Warranties. Agent, in performing its services under this Agreement, makes no representations or warranties, express or implied, with respect to the environmental, structural, mechanical or other condition or present or future value of the Real Estate. 13. Attorneys' Fees. The prevailing party in any legal proceeding brought by or against the other party under or in connection with this Agreement shall be entitled to recover court costs and reasonable attorneys' fees from the non-prevailing party. 14. Authority. The undersigned persons executing this Agreement on behalf of Agent and Bankers, respectively, represent and certify that (a) they are fully empowered and duly authorized by all necessary action of Agent or Bankers, respectively, to execute and deliver this Agreement and (b) this Agreement is the legal, valid and binding obligation of Agent or Bankers, respectively. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed this 17th day of December, 1993. BANKERS NATIONAL LIFE INSURANCE COMPANY By:/s/ DONALD F. GONGAWARE ________________________________ Printed Name: Donald F. Gongaware Title: President and Chief Operating Officer BROWNING INVESTMENTS, INC. By: /s/ F. RICHARD REMBUSCH -------------------------------- Printed Name: F. Richard Rembusch Title: Executive Vice President 4 CONTRACT FOR PURCHASE OF REAL ESTATE OFFER TO PURCHASE REAL ESTATE BROWNING INVESTMENTS, INC. on behalf of its nominee or assignee ("Purchaser"), hereby offers to purchase from CONGRESSIONAL BOULEVARD INVESTORS, INC. ("Seller") all of that certain real estate owned by Seller, commonly known as 11790 North College Avenue, Carmel, Indiana, consisting of approximately 12.970 acres (the legal description of which real estate will be subject to precise determination by survey as provided in Section 7.1 below), together with all buildings, improvements, tangible personal property and fixtures located thereon, attached to or used in connection therewith, all rights, privileges and appurtenances thereto, Seller's interest in and to that certain lease between Seller as landlord and Wal-Mart Stores, Inc. (successor to the Wholesale Club, Inc.) as tenant (the "Wal-Mart Lease"), together with any and all other leases, and all rents, security deposits, licenses and/or permits with respect thereto, seller's interest in all service, maintenance, management or other contracts (if accepted by purchaser and otherwise terminated) relating to the ownership or operation thereof and Seller's interest in all warranties or guaranties relating thereto, (collectively referred to as the "Real Estate"), for Three Million Seven Hundred Thousand Dollars ($3,700,000.00) (the "Purchase Price"), subject to and upon the following terms and conditions: 1. Earnest Money Deposit. Immediately upon acceptance of this Offer by Seller (the "Acceptance Date"), Purchaser shall deposit Five Thousand Dollars ($5,000.00) (the "Earnest Money") with Hamilton Title Security, Inc., an agent for Ticor Title Insurance Corporation (the "Title Insurer"). PURCHASER SHALL FORFEIT THE EARNEST MONEY TO SELLER IF PURCHASER FAILS OR REFUSES TO PERFORM ITS OBLIGATIONS HEREIN SPECIFIED AND ALL CONDITIONS AND REQUIREMENT OF THIS CONTRACT HAVE BEEN SATISFIED. Such forfeiture of Earnest Money shall constitute liquidated damages and shall be Seller's sole remedy at law or in equity. The Earnest Money otherwise shall be refunded or forfeited in accordance with the terms contained in this Offer, and, if all of the terms and conditions of this Offer are satisfied or waived and the transaction is closed, then the Earnest Money shall be applied to the Purchase Price. 2. Payment of Purchase Price. On closing this transaction, Purchaser shall pay Seller the Purchase Price, less the Earnest Money and any other credits, reductions or prorations for which this Contract provides. 3. Closing Date. Subject to all other terms and conditions set forth in this Contract, the transaction shall be closed not later than ten (10) days after the expiration of the period referred to in Section 7.3, with the exact date of closing (the "Closing Date") to be specified by Purchaser in a written notice delivered to Seller, it being the intent of the parties that both Purchaser and Seller shall use all good faith efforts to close this transaction prior to December 31, 1993. The closing will take place at the office of the Title Insurer or such other place as the parties may mutually agree upon in writing. 4. Closing Documents. At closing, Seller shall deliver: (a) a fully executed General Warranty Deed conveying to Purchaser merchantable and marketable fee simple title to the Real Estate free of any and all liens, encumbrances, easements, restrictions, covenants or other title defects, except the lien of nondelinquent real estate taxes and other matters, if any, disclosed in the Title Commitment (as hereinafter defined) and accepted by Purchaser in writing; (b) a vendor's affidavit in form and substance satisfactory to Purchaser and the Title Insurer; (c) a non-foreign person affidavit in form and substance satisfactory to Purchaser and the Title Insurer; (d) a Bill of Sale with warranty of title to any and all personal property comprising a portion of the Real Estate; (e) an assignment of all warranties and bonds related to the Real Estate; and (f) all other documents and/or funds, if any, required from Seller to convey the Real Estate to Purchaser. At Closing, Purchaser and tenant under the Wal-Mart Lease shall execute a Termination of Lease under terms and conditions mutually satisfactory to Purchaser and such tenant. 5 5. Date of Possession. Possession of the Real Estate shall be delivered to Purchaser on the Closing Date, free and clear of all rights and claims of any other party to the possession, use or control of the Real Estate excepting only tenant under the Wal-Mart Lease. 6. Taxes and Assessment. Purchaser assumes and agrees to pay all assessments for governmental and private improvements becoming payable after the Closing Date and installments of real estate taxes first payable in 1994 and thereafter. Seller shall pay all assessments for governmental and private improvements not assumed by Purchaser and both installments of real estate taxes payable in 1993. Seller shall pay all common area expenses attributable to the Real Estate for the period through December 31, 1993. 7. Conditions of Performance. Purchaser's obligations under this Contract are subject to the timely and complete satisfaction of the following conditions, unless waived in writing by Purchaser. 7.1 Survey. Seller, at its cost and expense and within fifteen (15) days after the Acceptance Date, shall provide Purchaser with a survey of the Real Estate satisfactory to Purchaser, conforming to the Minimum Standards for an Indiana Land Title Survey, certified as of a current date by Schneider Engineering Corporation, stating that the Real Estate is not located in a flood plain, showing no encroachments on the Real Estate, showing that the improvements are located entirely within the bounds of the Real Estate and showing all on- and offsite easements affecting the Real Estate. The survey shall establish the precise perimeter legal description of the Real Estate. In the event Seller fails to provide Purchaser with a survey as and when required under this Section 7.1, Purchaser shall have the right to obtain the survey at Seller's expense, or credit the cost thereof against the Purchase Price. 7.2 Title Insurance. Seller, at its cost and expense and within fifteen (15) days after the Acceptance Date, shall provide Purchaser with a title insurance commitment for the Real Estate issued by the Title Insurer, in which commitment the Title Insurer shall agree to (a) insure for the full amount of the Purchase Price merchantable and marketable fee simple tile to the Real Estate in the name of Purchaser, free of all exceptions (including without limitation, the standard exceptions), except only the lien of nondelinquent real estate taxes and assessments and any other matters that Purchaser may accept in writing and (b) issue such endorsements as Purchaser may reasonably request (including, without limitation endorsements insuring access to the Real Estate from and to all adjacent streets and highways, and a 3.1 zoning endorsement)(the "Title Commitment"). At closing, Seller, at its cost and expense, shall deliver to Purchaser an owner's policy of title insurance issued by the Title Insurer in conformity with the Title Commitment. In the event the Seller fails to provide Purchaser with the Title Commitment as and when required under this Section 7.2, Purchaser shall have the right to obtain the Title Commitment at Seller's expense, or credit the cost thereof against the Purchaser Price. 7.3 Condition of Real Estate. Purchaser, at its cost and expense and within twenty (20) days after receipt of the title and survey pursuant to 7.1 and 7.2 above, shall have determined, in its sole discretion, that: (a) the Real Estate enjoys rights of access to and from public ways, roads and streets which are adequate for Purchaser intended use and development; (b) the remodeling of any of the buildings and/or other improvements located on or in the Real Estate will not violate any applicable laws, statutes, ordinances, rules or regulations or require extraordinary or unusually costly techniques; (c) the Real Estate is suitable for and will support and permit Purchaser's intended use and development; (d) the prospects for the obtaining of all other permits and approvals, public and private, necessary for Purchaser's intended use and development, are satisfactory to Purchaser; (e) no tenant or any other party has any rights or claims to possession of the Real Estate; (f) the Real Estate is free and clear of any and all asbestos, toxic or hazardous material or containment and/or the material threat of contamination thereby; (g) all buildings and other improvements and all mechanical components thereof are structurally sound, in good working order and in compliance with all applicable governmental laws, ordinances, regulations, orders and requirements; and (h) all utilities useful for Purchaser's intended use and development (including, if applicable, storm and sewer drainage, water, electric, gas, and telephone) are available at the property lines in sufficient quantities, pressures and/or capacities for Purchaser's intended use, without hookup, tap in or other charges, excepting only nominal charges normally incurred and charged by the applicable public utility. 6 7.4 Litigation and Representations. As of the Closing Date, no action or proceeding before a court or other governmental agency or officer shall be pending (and to the best of either Seller's or Purchaser's knowledge, no such action or proceeding shall be threatened) that might impair the value of the Real Estate or prevent Purchaser from undertaking and completing Purchaser's intended use and development of the Real Estate. As of the Closing Date, the representation and warranties set forth in Section 9 shall be true and accurate. 7.5 Lease Termination Agreement. As of the Closing Date, Purchaser shall have a binding and enforceable agreement with tenant under the Wal-Mart Lease, pursuant to which Purchaser shall in a simultaneous closing terminate the Wal-Mart Lease for a termination fee of One Million Dollars ($1,000,000.00). 8. Nonperformance. In the event that one or more of the conditions set forth in Section 7 are not timely and completely satisfied, Purchaser may cancel this Contract and all of its obligations hereunder by written notice to Seller, in which event, all Earnest Money deposited shall be immediately refunded to Purchaser. 9. Representations and Warranties. Seller hereby represents and warrants to Purchaser that (a) there is no condemnation or similar proceeding which is pending or threatened against the Real Estate or any part thereof; (b) Seller has not received any notification from any governmental agency, authority or instrumentality of any pending or threatened assessments on or against the Real Estate for the cost of public improvements to be made with respect to the Real Estate or any part thereof; (c) after the Acceptance Date, Seller will not enter into any lease or other agreement affecting the Real Estate or the possession, use or control thereof; (d) after the Acceptance Date, Seller will not create, permit or suffer any lien or other encumbrance to attach to or affect the Real Estate and improvements thereon, except for the lien of nondelinquent real estate taxes; (e) to the best of Seller's knowledge and belief there are no underground fuel, chemical or other storage tanks located in the Real Estate; and (f) to the best of Seller's knowledge and belief the Real Estate has not been used for the treatment, storage or disposal of or otherwise contaminated by any hazardous or special wastes, substances, materials, constituents, pollutants or contaminants (as defined by federal, state or local laws, statutes, ordinances, rules or regulations). 10. Damage and Condemnation. If at any time after the Acceptance Date (a) the buildings or improvements located on the Real Estate shall be damaged or destroyed, (b) the Real Estate shall be condemned, in whole or in part, or (c) any notice of condemnation shall be given, then Purchaser, at its sole option, may cancel the Contract or proceed with closing. If Purchaser elects to proceed with closing, then Purchaser may (a) apply the proceeds of any condemnation award or insurance policy to reduce the Purchase Price or (b) accept an assignment of such proceeds. If Purchaser elects to cancel this Contract, as provided in this Contract, all Earnest Money deposited shall be immediately refunded to Purchaser. 11. Inspection. Purchaser, its employees, agents and independent contractors shall have the right from time to time to enter upon the Real Estate and conduct all surveys, tests, inspections and examinations which Purchaser deems necessary. Seller, at its cost and expense and within ten (10) days after the Acceptance Date, shall provide Purchaser with copies of all plans, specifications, contracts, warranties, service agreements, and other documents in Seller's possession or control pertaining to the construction, operation or maintenance of the Real Estate. 12. Notices. All notices shall be deemed delivered to Seller when deposited in the U.S. Mail, addressed to Seller at Mr. George X. Cannon, Congressional Boulevard Investors, Inc., 950 North Meridian Street, Suite 200, Indianapolis Indiana 46204, and to Purchaser when so deposited and addressed to Purchaser at 11550 North Meridian Street, Carmel, Indiana 46032, Attn: F. Richard Rembusch. 7 13. Specific Performance. Seller agrees that money damages are not an adequate remedy for breach of this Contract by Seller, and, in addition to any other remedies available to Purchaser in the event of a breach by Seller, Purchaser shall be entitled to (a) the remedy of specific performance to enforce the terms hereof, (b) cure Seller's breaches of any representation, warranty or other provision of this Contract, and/or expend amounts or take any other action to cure and remove any title defect created, permitted or suffered by Seller after the Acceptance Date and not permitted hereunder, and/or (c) cancel this Contract and all of its obligations hereunder by written notice to Seller, in which event all Earnest Money deposited shall be immediately refunded to Purchaser. Any and all amounts incurred by Purchaser to cure or remove Seller's breaches and/or title defects shall be credited against the Purchase Price at closing 14. Brokers. Purchaser and Seller each hereby represent and warrant that they have not dealt with any broker in connection with the sale and purchase of the Real Estate excepting only that Seller shall pay Browning Investments, Inc. a broker's fee of three percent (3%) of the Purchase Price. Purchaser and Seller hereby further represent and warrant that no fee, commission or similar compensation shall be payable by Seller or Purchaser to any Broker or any other person, as a result of the purchase and sale of the Real Estate except Seller's obligation to Browning Investments, Inc. as set forth in the preceding sentence. 15. Nominee. On or before the Closing I)ate, Purchaser shall have the right to assign all or any portion of its rights under this Contract to any nominee or assignee of Purchaser; provided, however, that Purchaser shall remain liable to perform its obligations under this Contract, and further provided that such assignment shall not include Browning Investment Inc.'s right to receive a broker's commission as provided for in paragraph 14 above.. 16. Survival and Indemnity. All representations and warranties set forth in this Contract shall survive the closing, and Seller and Purchaser shall each indemnify and hold the other harmless from and against all costs and damages (including attorneys' fees and court costs) incurred as a result of any breach of any representation or warranty by Seller or Purchaser, respectively. 17. General. The terms and provisions of this Contract shall be governed and construed in accordance with the laws of the State of Indiana. The captions and section numbers shall not be considered in any way to affect the interpretation of this Contract. This Contract shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs, and personal representatives. This Contract is the final expression of the complete and exclusive agreement between Seller and Purchaser and supersedes all prior offers, negotiations and discussions. The term "Contract" as used herein means the contract arising between the parties on the terms of this Offer after acceptance by Seller. 18. Authority. Except as expressly provided otherwise herein, each undersigned person signing on behalf of any party that is a corporation, partnership or other entity certifies that (a) he is fully empowered and duly authorized by any and all necessary action or consent required under any applicable articles of incorporation, bylaws, partnership agreement or other agreement to execute and deliver this Contract for and on behalf of said party, (b) that said party has full capacity, power and authority to enter into and carry out its obligations under this Contract, and (c) that this Contract has been duly authorized, executed and delivered and constitutes a legal, valid and binding obligation of such party, enforceable in accordance with its terms. 19. Recording. This Contract shall not be recorded. However, upon request by Purchaser, Seller shall execute a deliver to Purchaser, duplicate originals of a memorandum of this Contract, in recordable form, satisfactory to Purchaser, in its sole discretion. 20. Attorneys' Fees. Either party to this Contract who is the prevailing party in any legal or equitable proceeding against any other party to this Contract brought under or with relation to the Contract or the transaction contemplated hereby shall, in addition to any other remedy at law or provided for herein, be entitled to recover court costs and reasonable attorneys' fees from the nonprevailing party. 21. Duration of Offer. This Offer shall expire if written acceptance endorsed herein is not delivered to Purchaser at the address specified in Section 12 on or before November 30, 1993. 8 This Offer to Purchaser is hereby executed this day of 1993, as to Purchaser. PURCHASER: BROWNING INVESTMENTS, INC. By: /s/ MICHAEL G. BROWNING -------------------------- Printed: Michael G. Browning Title: President ACCEPTANCE OF OFFER Seller hereby accepts the foregoing Offer on this 30th day of November, 1993 SELLER: CONGRESSIONAL BOULEVARD INVESTORS, INC. By: /s/ JAMES C. MAY ----------------------------- Printed: James C. May Title: President 9 EXHIBIT B AGREEMENT FOR TERMINATION OF LEASE This Agreement for Termination of Lease ("Agreement") made this ____ day of December, 1993 by and between Browning Investments, Inc. ("BII"), an Indiana corporation as prospective successor in interest to Congressional Boulevard Investors, Inc. ("Existing Landlord") and The Wholesale Club, Inc. ("Tenant"), WITNESSES that: WHEREAS, BII is the contract purchaser of certain real property more particularly described on Exhibit A attached hereto and incorporated herein by this reference and commonly known as 11790 North College Avenue, Carmel, Indiana (the "Leased Premises") pursuant and subject to the terms and conditions of a certain contract for purchase of real estate between BII and Existing Landlord dated November 30, 1993 ("Purchase Contract"); WHEREAS, Existing Landlord and Tenant entered into a certain lease agreement (the "Lease") dated August 4, 1987 for the Leased Premises; WHEREAS, Tenant has vacated the Leased Premises under the Lease, but has continued to pay rent and perform its other obligations under the Lease; WHEREAS, Tenant desires to terminate and be relieved of its obligations under the Lease; WHEREAS, BII, upon consummation of its purchase of the Leased Premises, is willing to accommodate Tenant's desire upon certain terms and conditions set forth herein; NOW THEREFORE, in consideration of the premises, the mutual covenants contained herein and each act to be performed hereunder, the parties agree, subject only to the closing of the sale by Existing Landlord to BII of the Leased Premises on or prior to December 31, 1993, as follows: 1. Surrender. Tenant agrees to surrender possession of the Leased Premises in broom clean condition (including removal of freezers and coolers, an 8112 G-2 alarm panel and associated equipment, and a "cram-a-lot" compactor), together with delivery of all keys, plans, specifications, manuals, warranty information, and all other construction, maintenance and operation documents and equipment related to the Leased Premises to the extent the same is in Tenant's possession or under its control, including all fixtures, equipment and personal property attached thereto or located thereon and used in connection therewith, to BII on the same date as BII's purchase of the Leased Premises (the "Effective Date"). BII, its employees, agents and independent contractors shall have the right from time to time after the date hereof to enter upon the Leased Premises to conduct such inspections, tests and examinations as BII deems necessary, provided that BII shall indemnify, defend and hold Tenant harmless from all expenses, damages, liabilities (including attorneys fees and court costs) and third party claims associated with such inspections, tests and examinations, which indemnity shall survive the closing of the lease termination. 2. Proration. BII and Tenant agree that all items of expense regarding the use, operation and business of the Leased Premises, which cannot be or are not terminated as of the Effective Date shall be prorated between BII and Tenant as of the Effective Date with Tenant to pay all items through and including the Effective Date. Utility service shall be transferred and placed in the name of BII as of the Effective Date and Tenant shall pay all utility expenses through the Effective Date. Tenant shall identify and provide copies of all contracts and agreements affecting the Leased Premises to BII by December 20, 1993 and shall, at its cost, terminate all such contracts and agreements as of the Effective Date unless specifically requested otherwise by BII. In addition, Tenant shall, pursuant to paragraph 20 of the Lease, pay BII at closing so much of the real estate taxes for 1993 due and payable in 1994 as shall be allocable to Tenant by proration as of the Effective Date. The current tax rate shall be used for the purposes of such proration if the applicable tax rate has not been set. The Base Rent for the month of December 1993, shall not be prorated. 3. Termination Fee. In addition to other sums due BII at closing under this Agreement, Tenant shall pay BII One Million Dollars ($1,000,000). 4. Lease Termination. Upon the Effective Date, delivery of the Leased Premises pursuant to Section 1 of this Agreement, and payment to BII, in immediately available funds, of all sums due pursuant to Sections 2 and 10 3 of this Agreement, BII and Tenant shall release each other from any and all of its obligations arising under the Lease pursuant to the form of Release and Termination of Lease ("Release") attached hereto as Exhibit B. It is anticipated that the closing shall be by escrow pursuant to which Tenant shall deliver the executed Release and wire sufficient funds to Hamilton Title Security, Inc., 11711 North Pennsylvania, Suite 110, Carmel, Indiana, such Release and funds to be delivered to BII upon BII's purchase of the Leased Premises pursuant to the Purchase Contract and execution of the Release. 5. Waiver of Right of First Refusal. Tenant hereby waives its right of first refusal and right of purchase under Article XIX of the Lease as such rights pertain to BII's purchase of the Leased Premises. 6. Nominee. On or before the Effective Date, BII shall have the right to assign or transfer all of its rights under this Agreement to any nominee or assignee of its rights under the Purchase Contract. IN WITNESS WHEREOF, the parties have executed this Agreement on the date indicated above. THE WHOLESALE CLUB, INC. BROWNING INVESTMENTS, INC. By: ________________________ By: _________________________ Printed: ___________________ Printed: ____________________ Its: _______________________ Its: _________________________ 11 EXHIBIT A LEGAL DESCRIPTION Part of the Southwest Quarter of Section 36 and part of the Southeast Quarter of Section 35 in Township 18 North, Range 3 East of the Second Principal Meridian in Hamilton County, Indiana, being more particularly described as follows: Commencing at the Southwest corner of the said Southwest Quarter Section; thence North 89 degrees 07 minutes 52 seconds East (Assumed Bearing) along the South Line of the said Southwest Quarter Section 148.00 fee; thence North 00 degrees 16 minutes 22 second West, parallel with the West line of the said Southwest Quarter Section 734.0 feet; thence North 89 degrees 07 minutes 52 second East, parallel with the said South Line 450.06 feet; thence North 00 degrees 16 minutes 22 seconds West, parallel with the said West Line, 763.27 feet to the Beginning Point; thence South 89 degrees 07 minutes 52 seconds West 432.11 feet; thence South 60 degrees 05 minutes 00 seconds West 335.00 feet to a curve having a radius of 500.0 feet, the radius point of which bears South 60 degrees 05 minutes 00 seconds West; thence Northwesterly along the said curve 281.57 feet to a point which bears North 27 degrees 49 minutes 03 seconds East 343.29 feet; thence North 88 degrees 57 minutes 26 seconds East, parallel with the thence South 00 degrees 16 minutes 22 seconds East, parallel with the said west line 490.00 feet to the Beginning Point, containing 12.970 acres, more or less. 12 EXHIBIT B RELEASE AND TERMINATION OF LEASE This Release and Termination of Lease made this _____ day of December, 1993, by and between _________________________, successor in interest to Congressional Boulevard Investors, Inc. ("Landlord") and The Wholesale Club, Inc. ("Tenant"), WITNESSES THAT: WHEREAS, the predecessor in interest to Landlord and Tenant entered into a certain lease ("Lease") dated August 4, 1987 with respect to leased premises (the "Leased Premises") situated at 11790 North College Avenue, Carmel, Indiana, a memorandum of which Lease was recorded in the Recorder's Office of Hamilton County, Indiana as Instrument No. 87-29183 on August 10, 1987; and WHEREAS, Tenant has vacated the Leased Premises and desires to terminate and be relieved of its obligations under the Lease; and WHEREAS, Landlord desires to accept the Leased Premises and terminate and be relieved of its obligations under the Lease; NOW THEREFORE, in consideration of the premises Tenant surrenders possession of the Leased Premises to Landlord and Landlord accepts the surrender thereof "as is" as of the date hereof (excepting only the condition of the HVAC equipment, as to which Tenant shall have and hereby acknowledges a continuing obligation to promptly complete the workmanlike repair of such HVAC equipment to proper working order, which obligation is intended to survive this Release and Termination of Lease) and Landlord and Tenant each further agree that the Lease is canceled and terminated, all immediately as of the execution of this Release and Termination of Lease. Landlord and Tenant each mutually release the other and their respective successors and assigns and all past or present officers, directors, partners, agents and employees from any and all claims, demands, damages, causes of action, obligations, liabilities or duties to the other arising under the Lease or with respect to the ownership, use or possession of the Leased Premises pursuant thereto. Tenant hereby indemnifies and holds Landlord harmless from and against any and all claims, demands, suits, causes of action, losses, damages, costs or expenses (including attorneys fees) (collectively "Claims") relating to Tenant's use or possession of the Leased Premises prior to the date hereof. Landlord hereby indemnifies and holds Tenant harmless from and against any and all Claims relating to Landlord's ownership, use or possession of the Leased Premises on or subsequent to the date hereof, excepting only any Claims relating to Tenant's repair of the HVAC equipment. Landlord and Tenant each represent and warrant to the other that they are the landlord and tenant, respectively, under the Lease, that the undersigned persons are fully empowered and authorized by all necessary action of Landlord and Tenant, respectively, to execute and deliver this Release and Termination of Lease and that this Release and Termination of Lease is valid, binding and enforceable against Landlord and Tenant, respectively. This document is intended by the parties to be recorded in the Recorder's Office of Hamilton County, Indiana and to cross reference the Memorandum of Lease set forth above. 13 IN WITNESS WHEREOF, the parties have executed this Release and Termination of Lease as of the date first written above. LANDLORD TENANT ______________________________THE WHOLESALE CLUB, INC. By: _________________________ By: _________________________ Printed: _____________________Printed: _____________________ Its: _________________________Its: _________________________ STATE OF INDIANA ) ) SS: COUNTY OF _________) Before me, a Notary Public in and for the State of Indiana, personally appeared ____________________, the ___________, of _______________________, who acknowledged the execution of the foregoing Release and Termination of Lease for and on behalf of said _____________. WITNESS my hand and Notarial Seal this _____ day of December, 1993. ______________________________ Notary Public ______________________________ Printed I am a resident of ___________ County, Indiana. My commission expires: ________________. STATE OF _________) ) SS: COUNTY OF _______) Before me, a Notary Public in and for the State of ____________, personally appeared _________________, the ___________, of The Wholesale Club, Inc., who acknowledged the execution of the foregoing Release and Termination of Lease for and on behalf of The Wholesale Club, Inc. WITNESS my hand and Notarial Seal this _____ day of December, 1993. ______________________________ Notary Public ______________________________ Printed I am a resident of ___________ County, ___________. My commission expires: ________________. This instrument prepared by George W. Somers, Attorney-at-Law, Baker & Daniels, 300 North Meridian Street, Suite 2700, Indianapolis, Indiana 46204. EX-10.18.22 6 EXHIBIT 10.18.22 TO CONSECO, INC. 1993 FORM 10-K 1 December 1, 1993 Mr. Charles F. Laughner, General Partner Token Co. c/o Mr. Walter B. Freihofer Freihofer, Inc. 631 East New York Street Indianapolis, IN 46202 Re: Contract for Purchase of Real Estate (with counteroffers #1 through #6) as mutually approved September 3, 1993 (the "Contract") between Token Co. as Seller and Carmel Drive Realty, Inc. as Purchaser Gentlemen: This letter will confirm the mutual agreement that we understand from Walter B. Freihofer has been reached by Purchaser and Seller that the Contract be amended as follows: 1. The minimum acreage of the Real Estate shall be 7.3 acres rather than 7.8 acres. 2. The Purchase Price shall be $1,065,869.50. In reliance on the foregoing understanding, we intend to immediately deposit an additional $15,000 in Earnest Money with the Title Insurance Company. Please sign and return one copy of this letter to confirm the agreement described above. We will use our best efforts to cooperate with you in order for the effective date of the transaction to occur for the Seller in 1994 (not later than January 7, 1994) as we understand you have requested. We are requesting that closing documents be provided to your lawyer, Philip A. Nicely, for his review and comment as promptly as possible. Our lawyer on this, Mark Wright at Baker & Daniels is working with Indiana Bell to wrap up the telephone easement modification; he considers this to be routine and foresees no difficulty in resolving it. Thank you for your assistance. Sincerely, CARMEL DRIVE REALTY, INC. /s/ F. RICHARD REMBUSCH F. Richard Rembusch Vice President Approved: TOKEN CO. By: /s/ CHARLES F. LAUGHNER Charles F. Laughner General Partner 2 AGREEMENT TO ASSIGN CONTRACT FOR PURCHASE OF REAL ESTATE This Agreement to Assign Contract for Purchase of Real Estate, executed and entered into by CARMEL DRIVE REALTY, INC., an Indiana corporation ("Assignor"), and BANKERS NATIONAL LIFE INSURANCE COMPANY, a Texas corporation ("Assignee"), WITNESSES: WHEREAS, Assignor has entered into a Contract for Purchase of Real Estate with Token Co. ("Seller"), executed by Assignor on September 2, 1993, and accepted by Seller on September 3, 1993, as amended (the "Purchase Agreement"), pursuant to which Seller is selling to Assignor certain real estate located on the west side of Pennsylvania Street, in Hamilton County, Indiana, which property is more particularly described in the Purchase Agreement (the "Real Estate"); WHEREAS, Section 15 of the Purchase Agreement expressly provide that Assignor has the right to assign or transfer all or any portion of its rights under the Purchase Agreement to any assignee; WHEREAS, Assignor desires to assign to Assignee and Assignee desires to accept and assume all of Assignor's rights, title, interest, obligations and duties under the Purchase Agreement; WHEREAS, in connection for Assignor's agreement to assign the Purchase Agreement to Assignee as set forth herein, Assignee desires to agree herein to (i) reimburse Assignor for Twenty-Five Thousand Dollars ($25,000.00) of Earnest Money which Assignor has deposited pursuant to the Purchase Agreement with Hamilton Title Security, Inc. (the "Earnest Money Refund"), (ii) reimburse Assignor in the amount of Three Thousand One Hundred Fifty Dollars ($3,150.00) for costs and expenses incurred by Assignor in obtaining a minimum standard detail survey of the Real Estate (the "Survey Expense"), and (iii) reimburse Assignor for all of its other costs and expenses related to negotiating and executing the Purchase Agreement (the "General Expense Reimbursement"). NOW, THEREFORE, in consideration of the premises and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee agree as follows: 1. Assignor agrees to assign to Assignee all of its rights, title, interest, obligations and duties under the Purchase Agreement, and Assignee agrees to accept and assume all of Assignor's rights, title, interest, duties and obligations under the Purchase Agreement. 2. In consideration of Assignor's agreement to assign to Assignee of all of its rights, title, interest, duties and obligations under the Agreement, Assignor agrees to pay to Assignor the Earnest Money Refund, the Survey Expense and the General Expense Reimbursement (collectively, the "Reimbursements"). The General Expense Reimbursement shall be an amount equal to that set forth in an itemized statement to be provided by Assignor to Assignee on or about the date upon which the closing of the sale of the Real Estate from Seller to Assignee occurs (the "Closing Date"), provided that, (i) in no event shall the General Expense Reimbursement exceed Seven Thousand Dollars ($7,000.00) and (ii) the exact amount of the General Expense Reimbursement shall be subject to review and approval by Assignee, which approval shall not be unreasonably withheld. 3. Assignee shall pay the Reimbursements to Assignor outside of, and separate from, the closing of the sale of the Real Estate from Seller to Assignee. Assignor and Assignee have executed this Agreement to Assign Contract for Purchase of Real Estate on this 7th day of January, 1994. ASSIGNOR: CARMEL DRIVE REALTY, INC., an Indiana corporation. By: /s/ F. RICHARD REMBUSCH Printed: F. Richard Rembusch Title:Vice President 3 ASSIGNEE: BANKERS NATIONAL LIFE INSURANCE COMPANY, a Texas corporation By: /s/ DONALD F. GONGAWARE Printed: Donald F. Gongaware Title:President and Chief Operating Officer 4 COUNTER OFFER # 1 (A.M.) (P.M.) August 17, 1993 The undersigned hereby makes the following Counter Offer to a certain Purchase Agreement dated August 9, 1993, concerning real property commonly known as 11901 N. Meridian St. in Clay Township, Hamilton County, Carmel, Indiana between: Token Company and Charles F. Laughner as Seller(s) and Carmel Drive Realty, Inc. as Purchaser(s). 1. Purchase price to be $1,300,000.00 dollars. 2. Earnest money shall be $50,000.00. All other terms and conditions of the Purchase Agreement and all previous Counter Offers shall remain in effect except as modified by this Counter Offer. This Counter Offer # 1 is void if not accepted in writing on or before 12:00 (Midnight) on August 24, 1993. This Agreement may be executed simultaneously or in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of this document may be accomplished by electronic facsimile reproduction (FAX); if FAX delivery is utilized, the original document shall be promptly executed and/or delivered, if requested. /s/ CHARLES F. LAUGHNER 8/17/93 - - ------------------------------ ------- ------------------------------ ------ (Seller)(Purchaser) Signature Date (Seller) (Purchaser) Signature Date TOKEN CO. & CHARLES F. LAUGHNER By: Charles F. Laughner Social Security # / Federal I.D. # Social Security # / Federal I.D. # ACCEPTANCE OF COUNTER OFFER # The above Counter Offer # is hereby accepted at (A.M.) (P.M.) (Noon) (Midnight) , 19 . Receipt of a signed copy of this Counter Offer is hereby acknowledged. This Agreement may be executed simultaneously or in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of this document may be accomplished by electronic facsimile reproduction (FAX); if FAX delivery is utilized, the original document shall be promptly executed and/or delivered, if requested. - - ------------------------------ ------- ----------------------------- ------ (Seller) (Purchaser) Signature Date (Seller)(Purchaser) Signature Date Social Security # / Federal I.D. # Social Security # / Federal I.D. # 5 COUNTER OFFER # 2 11:00 (A.M.) August 23, 1993 The undersigned hereby makes the following Counter Offer to a certain Counter Offer #1 dated August 17, 1993, concerning real property commonly known as approximated 8 acres shown on Exhibit A to Offer in Clay Township, Hamilton County, Indiana between: Token Co. as Seller(s) and Carmel Drive Realty, Inc. as Purchaser(s). 1. The Purchase Price shall be One Million Dollars ($1,000,000.00). 2. The earnest Money shall be Twenty-Five Thousand Dollars ($25,000.00), of which Five Thousand Dollars shall be deposited initially, and the remaining Twenty Thousand Dollars ($20,000.00) of which shall be deposited upon expiration of the ninety day period described in section 7.3 of the Purchase Agreement. 3. The date for response to the original offer was extended through August 18, 1993. 4. Token Co. is the sole owner of the Real Estate; Token Co. is an Indiana General partnership, not a corporation; Charles F. Laughner is a general partner of Token Co. and has full authority to execute documents on behalf of Token Co., and Seller agrees to promptly provide evidence of such authority upon request by Purchaser. 5. Upon full agreement of Purchaser and Seller by way of counter offers, a binding contract shall exist; however, the parties agree that upon such full agreement, the offer and counter offers shall be promptly consolidated for convenience into a single document. All other terms and conditions of the Purchase Agreement and all previous Counter Offers shall remain in effect except as modified by this Counter Offer. This Counter Offer # 2 is void if not accepted in writing on or before 5:00 (P.M.) on August 26, 1993. CARMEL DRIVE REALTY, INC. /s/ F. RICHARD REMBUSCH 8/23/93 - - ------------------------------ ------- ------------------------------ ---- (Purchaser) Signature Date (Seller) (Purchaser) Signature Date F. Richard Rembusch, Vice President Social Security # / Federal I.D. # Social Security # / Federal I.D. # ACCEPTANCE OF COUNTER OFFER The above Counter Offer # is hereby accepted at (A.M.) (P.M.) (Noon) (Midnight) , 19 . Receipt of a signed copy of this Counter Offer is hereby acknowledged. TOKEN CO. - - ------------------------------ ------ ------------------------------ ----- (Seller) (Purchaser) Signature Date (Seller) (Purchaser) Signature Date Social Security # / Federal I.D. # Social Security # / Federal I.D. # 6 COUNTER OFFER # 3 1:00 (P.M.) August 25, 1993 The undersigned hereby makes the following Counter Offer to a certain Purchase Agreement dated August 9, 1993, concerning real property commonly known as approximately 8 acres as shown on Exhibit "A" to offer in Clay Township, Hamilton County, Carmel, Indiana between: Token Company as Seller(s) and Carmel Drive Realty, Inc. as Purchaser(s). 1. Purchase price to be $1,200,000.00 2. The earnest money shall be $25,000.00, of which $10,000.00 shall be deposited initially, and the remaining $15,000.00 of which shall be deposited upon expiration of the 90 day period described in Section 7.3 of the purchase agreement. All other terms and conditions of the Purchase Agreement and all previous Counter Offers shall remain in effect except as modified by this Counter Offer. This Counter Offer # 3 is void if not accepted in writing on or before 5:00 (P.M.) on August 30, 1993. This Agreement may be executed simultaneously or in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of this document may be accomplished by electronic facsimile reproduction (FAX); if FAX delivery is utilized, the original document shall be promptly executed and/or delivered, if requested. /s/ CHARLES F. LAUGHNER - - ----------------------------- ----- ----------------------------- ----- (Seller) Signature Date (Seller)(Purchaser) Signature Date TOKEN CO. By: Charles F. Laughner Social Security # / Federal I.D. # Social Security # / Federal I.D. # ACCEPTANCE OF COUNTER OFFER # The above Counter Offer # is hereby accepted at (A.M.) (P.M.) (Noon) (Midnight) , 19 . Receipt of a signed copy of this Counter Offer is hereby acknowledged. This Agreement may be executed simultaneously or in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of this document may be accomplished by electronic facsimile reproduction (FAX); if FAX delivery is utilized, the original document shall be promptly executed and/or delivered, if requested. - - ------------------------------ ------ ------------------------------ ----- (Seller) (Purchaser) Signature Date (Seller) (Purchaser) Signature Date CARMEL DRIVE REALTY, INC. Social Security # / Federal I.D. # Social Security # / Federal I.D. # 7 COUNTER OFFER # 4 3:00 (P.M.) August 26, 1993 The undersigned hereby makes the following Counter Offer to a certain Purchase Agreement dated August 9, 1993, concerning real property commonly known as approximately 8 acres as shown on Exhibit A to Offer in Clay Township, Hamilton County, near Carmel, Indiana between: Token Co. as Seller(s) and Carmel Drive Realty, Inc. as Purchaser(s). 1. The Purchase Price shall be One Million Seventy-Five Thousand Dollars ($1,075,000.00). All other terms and conditions of the Purchase Agreement and all previous Counter Offers shall remain in effect except as modified by this Counter Offer. This Counter Offer # 4 is void if not accepted in writing on or before 5:00 (P.M.) on August 30, 1993. CARMEL DRIVE REALTY, INC. /s/ F. RICHARD REMBUSCH 8/26/93 - - ------------------------------ ----- ------------------------------ ----- (Purchaser) Signature Date (Seller) (Purchaser) Signature Date F. Richard Rembusch Vice President Social Security # / Federal I.D. # Social Security # / Federal I.D. # ACCEPTANCE OF COUNTER OFFER The above Counter Offer # is hereby accepted at (A.M.) (P.M.) (Noon) (Midnight) , 19 . Receipt of a signed copy of this Counter Offer is hereby acknowledged. TOKEN CO. - - ------------------------------ ---- ------------------------------ ---- (Seller) (Purchaser) Signature Date (Seller) (Purchaser) Signature Date Charles F. Laughner General Partner Social Security # / Federal I.D. # Social Security # / Federal I.D. # 8 COUNTER OFFER # 5 1:00 (P.M.) August 30, 1993 The undersigned hereby makes the following Counter Offer to a certain Purchase Agreement dated August 9, 1993, concerning real property commonly known as approximately 8 acres as shown on Exhibit "A" in Clay Township, Hamilton County, near Carmel, Indiana between: Token Co. as Seller(s) and Carmel Drive Realty, Inc. as Purchaser(s). 1. The Purchase price shall be one million one hundred fifty thousand dollars and 00/100. ($1,150,000.00) All other terms and conditions of the Purchase Agreement and all previous Counter Offers shall remain in effect except as modified by this Counter Offer. This Counter Offer # 5 is void if not accepted in writing on or before 5:00 (P.M.) on September 2, 1993. This Agreement may be executed simultaneously or in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of this document may be accomplished by electronic facsimile reproduction (FAX); if FAX delivery is utilized, the original document shall be promptly executed and/or delivered, if requested. /s/ CHARLES F. LAUGHNER Aug. 30/93 - - ----------------------------- ----- ------------------------------ ------ (Seller) Signature Date (Seller) (Purchaser) Signature Date Token Co. By: Charles F. Laughner Social Security # / Federal I.D. # Social Security # / Federal I.D. # ACCEPTANCE OF COUNTER OFFER # The above Counter Offer # is hereby accepted at (A.M.) (P.M.) (Noon) (Midnight) , 19 . Receipt of a signed copy of this Counter Offer is hereby acknowledged. This Agreement may be executed simultaneously or in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of this document may be accomplished by electronic facsimile reproduction (FAX); if FAX delivery is utilized, the original document shall be promptly executed and/or delivered, if requested. (Purchaser) Signature Date (Seller)(Purchaser) Signature Date F. Richard Rembusch, Vice President Social Security # / Federal I.D. # Social Security # / Federal I.D. # 9 COUNTER OFFER # 6 4:00 (P.M.) September 2, 1993 The undersigned hereby makes the following Counter Offer to a certain Purchase Agreement dated August 9, 1993, concerning real property commonly known as approximately 8 acres as shown on Exhibit A to Offer in Clay Township, Hamilton County, near Carmel, Indiana between: Token Co. as Seller(s) and Carmel Drive Realty, Inc. as Purchaser(s). The Purchase Price shall be One Million One Hundred Thousand Dollars ($1,100,000.00). All other terms and conditions of the Purchase Agreement and all previous Counter Offers shall remain in effect except as modified by this Counter Offer. This Counter Offer # 6 is void if not accepted in writing on or before 5:00 (P.M.) on September 3, 1993. CARMEL DRIVE REALTY, INC. /s/ F. RICHARD REMBUSCH 9/2/93 - - ---------------------------- ---- ----------------------------- ----- (Purchaser) Signature Date (Seller)(Purchaser) Signature Date F. Richard Rembusch Vice President Social Security # / Federal I.D. # Social Security # / Federal I.D. # ACCEPTANCE OF COUNTER OFFER The above Counter Offer # 6 is hereby accepted at 3:00 (A.M.) (P.M.) (Noon) (Midnight) September 3 , 1993 . Receipt of a signed copy of this Counter Offer is hereby acknowledged. TOKEN CO. /s/ CHARLES F. LAUGHNER 9/3/93 - - ------------------------------ ---- ------------------------------ ----- (Seller) Signature Date (Seller) (Purchaser) Signature Date Charles F. Laughner General Partner Social Security # / Federal I.D. # Social Security # / Federal I.D. # 10 CONTRACT FOR PURCHASE OF REAL ESTATE Offer to Purchase Real Estate Carmel Drive Realty, Inc. or its assignee ("Purchaser"), hereby offers to purchase from TOKEN COMPANY, INC. and CHARLES F. LAUGHNER (collectively "Seller"), all of that certain real estate owned by Seller, and located on the west side of Pennsylvania Street north of and adjacent to property owned by Meridian Mile Associates, L.P., in Hamilton County, Indiana, as depicted on Exhibit A hereto, consisting of approximately 8 acres (the legal description of which real estate will be subject to precise determination by survey as provided in Section 7.1 below), together with all rights pertaining thereto, (all referred to as the "Real Estate"), for Nine Hundred Fifty Thousand Dollars ($950,000) (the "Purchase Price"), subject to the following terms and conditions: 1. Earnest Money Deposit. Immediately upon acceptance of this offer by Seller, Purchaser shall deposit Five Thousand Dollars ($5,000) (the "Earnest Money") with Hamilton Title Security, Inc. PURCHASER SHALL FORFEIT THE EARNEST MONEY TO SELLER IF PURCHASER FAILS OR REFUSES TO PERFORM ITS OBLIGATIONS HEREIN SPECIFIED AND ALL CONDITIONS AND REQUIREMENTS OF THIS CONTRACT HAVE BEEN SATISFIED. Such forfeiture of Earnest Money shall constitute liquidated damages and shall be Seller's sole remedy at law or in equity. The Earnest Money otherwise shall be refunded or forfeited in accordance with the terms contained in this Offer, and if all of the terms and conditions of this Offer are satisfied or waived and the transaction is closed, the Earnest Money shall be applied to the Purchase Price. 2. Payment of Purchase Price. On closing this transaction, the Purchaser shall pay the full Purchase Price to Seller in cash. 3. Closing Date. Subject to all other terms and conditions set forth in this Contract, the transaction shall be closed on or before thirty (30) days after the expiration of the ninety day period referred to in Section 7.3 (the "Closing Date"). 4. Closing Documents. At closing, Seller shall deliver: (a) a fully executed general Warranty Deed conveying to Purchaser title to the Real Estate and improvements thereon subject only to the lien for non-delinquent assessments and real estate taxes, and to Permitted Exceptions (as defined in Section 7.2); (b) a vendor's affidavit in form and substance reasonably satisfactory to Purchaser; (c) the unconditional written agreement by the Title Insurer (as defined in Section 7.2) to issue pursuant to the Title Commitment (as defined in Section 7.2) a final title policy insuring fee simple title to the Real Estate in Purchaser subject only to the lien for non-delinquent taxes and assessments and the Permitted Exceptions (as defined in Section 7.2); and (d) such other documents as are required by law in connection with the sale of real estate in Indiana. 5. Date of Possession. Possession of the Real Estate shall be delivered to Purchaser on or before the Closing Date, subject only to the rights of tenants, if any, approved by Purchaser. Rents, if any, shall be prorated to the Closing Date. 6. Taxes and Assessments. Purchaser shall assume and agree to pay all installments of real estate taxes due and payable in May, 1994 and thereafter, and all assessments for municipal improvements becoming a lien after the Closing Date. 7. Conditions of Performance. Purchaser's obligations hereunder are subject to the timely and complete satisfaction of the following conditions, unless waived in writing by Purchaser: 11 7.1 Survey. Purchaser shall obtain a staked survey of the Real Estate satisfactory to Purchaser, conforming to the Minimum Standards for an Indiana Land Title Survey, certified as of a current date by a registered Indiana land surveyor of Purchaser's choice. The survey shall establish the precise legal description of the Real Estate and that the net acreage of the Real Estate is not less than 7.8 acres. The Purchaser shall pay the cost and expense of the survey and shall receive a credit against the Purchase Price in the amount of such cost and expense but not more than Two Thousand Dollars ($2,000). 7.2 Title Insurance. Purchaser, at Seller's cost and expense, shall obtain a title insurance commitment (the "Title Commitment") for the Real Estate issued by a title insurance company selected by Purchaser (the "Title Insurer"), in which commitment the Title Insurer shall agree to insure for the full amount of the Purchase Price merchantable and marketable title to the Real Estate in the name of the Purchaser with such endorsements as Purchaser shall reasonably require, free of all exceptions (including without limitation, the standard exceptions), except only (i) the lien of taxes and assessments, if any, that Purchaser has agreed to pay, (ii) such other exceptions shown thereon to which Purchaser does not object in writing within ten (10) days after receipt thereof (the "Permitted Exceptions"), and (iii) any existing mortgage lien which shall be released at closing. 7.3 Development. Within ninety (90) days after complete agreement between Purchaser and Seller as to this Contract, Purchaser, at Purchaser's cost and expense, shall have determined and satisfied itself that: (a) the Real Estate is an acceptable site for Purchaser's prospective tenant; (b) the Real Estate does not contain any subterranean or other soil defects or conditions which would impair or adversely affect Purchaser's intended use and development or require extraordinary or unusually costly development techniques or measures; (c) the storm drainage water retention requirement for the real estate will not significantly interfere with Purchaser's intended use and development of the Real Estate, and an outlet pipe is available near the property line of sufficient size and ready accessibility to accommodate storm drainage runoff from the Real Estate; (d) the Real Estate is free of any environmental defects or hindrances to its use or development; and (e) the Real Estate is in all other respects suitable for and will support and permit Purchaser's intended use and development. 8. Seller's Representations and Warranties. Seller hereby represents and warrants to Purchaser (and shall be deemed to represent and warrant on the Closing Date) that: (a) there is no condemnation or similar proceeding which is pending or, to Seller's knowledge, threatened against the Real Estate or any part thereof; (b) Seller has not received any notification from any governmental agency, authority or instrumentality of any pending or threatened assessments on or against the Real Estate for the cost of public improvements to be made with respect to the Real Estate or any part thereof; (c) Seller will not permit any lien or other encumbrance to attach to or affect the Real Estate and improvements thereon after the acceptance of this Offer, except for the lien of non-delinquent real estate taxes and any existing mortgage lien to be released at closing; (d) to the best of Seller's knowledge, there are no underground fuel, chemical or other storage tanks located in the Real Estate; and (e) to the best of Seller's knowledge, the Real Estate has not been used for the treatment, storage or disposal of or otherwise contaminated by any hazardous or special wastes, substances, materials, constituents, pollutants or contaminates (as defined by federal, state or local laws, statutes, ordinances, rules or regulations). 9. Nonperformance. In the event that one or more of the conditions set forth in Section 7 are not timely and completely satisfied, Purchaser may cancel this Contract and all of its obligations hereunder by written notice to Seller, in which event the Earnest Money shall be immediately refunded to Purchaser. 10. Damage and Condemnation. If the Real Estate shall be damaged, destroyed or condemned, in whole or in part, or if any notice of condemnation shall be given at any time after acceptance of this Offer, Purchaser, at its sole option, may (a) cancel the Contract or (b) proceed with closing, in which event Purchaser may apply the proceeds of any condemnation award or insurance policy to reduce the Purchase Price. If Purchaser elects to cancel this Contract for such cause, the Earnest Money shall be immediately refunded to Purchaser. 12 11. Inspection; Review of Documents. (a) Purchaser shall have the right to enter upon the Real Estate and conduct all tests and examinations which Purchaser reasonably deems necessary. In the event Purchaser conducts tests and/or examinations of the Real Estate and changes its present condition and provided further that Purchaser fails or refuses to close this purchase, Purchaser shall return the Real Estate to its original condition; (b) Seller shall furnish to Purchaser, within ten (10) days after acceptance of this Contract, copies of any and all material agreements and written instruments not of record and in Seller's possession that are binding upon the Real Estate or the owner thereof. 12. Notices. All notices shall be deemed delivered to Seller when deposited in the U.S. mail, addressed to Seller c/o Walter B. Freihofer, 5745 Broadway, Indianapolis, Indiana 46220 (or such other address as Seller may designate to Purchaser in writing) and to Purchaser when so deposited and addressed to Purchaser c/o Browning Investments, Inc., 11550 North Meridian Street, Suite 150, Carmel, Indiana 46032. 13. Specific Performance. Seller agrees that money damages is not an adequate remedy for breach of this Contract by Seller, and, in addition to any other remedies available to Purchaser, in the event of a breach by Seller, Purchaser shall be entitled to the remedy of specific performance to enforce the terms hereof. 14. Brokers. Purchaser represents and warrants that no fee, commission or similar compensation will be payable by Purchaser or Seller to any broker or other person in connection with this transaction on account of any agreement or action of Purchaser, except for the aggregate commission of six percent (6%) of the Purchase Price to be paid at closing by Seller from the proceeds of the transaction with one-half of said commission to Walter B. Freihofer as listing broker and the other half of said commission to Browning Investments, Inc. as selling broker. 15. Assignment. On or before the Closing Date, Purchaser shall have the right to assign or transfer all or any portion of its rights under the Contract to any assignee of Purchaser; provided, however, that Purchaser shall remain obligated to fulfill the terms and conditions of the Contract. 16. Survival and Indemnity. All representations, warranties and agreements contained in this Contract shall survive the closing, and Seller and Purchaser shall each indemnify and hold the other harmless from and against all costs and damages (including attorneys' fees and court costs) incurred as a result of any breach of any representation or warranty. 17. Construction. The terms and provisions of this Contract shall be governed and construed in accordance with the laws of the State of Indiana. The captions and section numbers shall not be considered in any way to affect the interpretation of this Contract. This Contract shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs, and personal representatives. This Contract is the final expression of the complete and exclusive agreement between Seller and Purchaser. The term "Contract" as used herein means the contract arising between the parties or the terms of this Offer following acceptance by Seller. 18. Authority. The individuals executing this Offer represent and warrant that they have been and are fully authorized and empowered to execute this Offer on behalf of the person or entity on whose behalf they are signing. 19. Memorandum of Contract. Upon request by Purchaser, Seller shall execute and deliver to Purchaser duplicate originals of a memorandum of this Contract, in recordable form, satisfactory to Purchaser in its sole discretion; however, such memorandum shall not disclose the Purchase Price. 20. Facsimile. Facsimile copies signed by Purchaser or Seller and transmitted by one to the other shall be binding on the parties as if they were original documents. Nevertheless, whenever any document is signed and transmitted by facsimile, the transmitting party shall promptly thereafter provide the receiving party with the original signed document. 21. Duration of Offer. This Offer shall expire if written acceptance endorsed herein is not delivered to Purchaser at the address specified in Section 12 on or before 5:00 p.m. August 11, 1993. 13 This Offer to Purchase is hereby executed this 9th day of August, 1993, as to Purchaser. PURCHASER: Carmel Drive Realty, Inc. By:/s/ F. RICHARD REMBUSCH ________________________________ Printed Name: F. Richard Rembusch Title: Vice President ACCEPTANCE OF OFFER Seller hereby accepts the foregoing Offer on this _____ day of _______________, 1993. Seller represents and warrants that no fee, commission or similar compensation will be payable by Seller or Purchaser to any broker or other person in connection with this transaction on account of any agreement or action of Seller, except as provided in section 14 hereof. SELLER: TOKEN COMPANY, INC. By:________________________________ Edward F. Karsch President CHARLES F. LAUGHNER By:________________________________ Charles F. Laughner EX-10.18.23 7 EXHIBIT 10.18.23 TO CONSECO, INC. 1993 FORM 10-K 1 CONTRACT FOR PURCHASE OF REAL ESTATE BANKERS NATIONAL LIFE INSURANCE COMPANY, a Texas corporation ("Purchaser"), hereby agrees to purchase, and MERIDIAN MILE ASSOCIATES, L.P., an Indiana limited partnership ("Seller"), hereby agrees to sell, certain real estate described below on the following terms and conditions: All rights, title and interest in and to three adjacent tracts of real estate owned by Seller and located on the west side of Pennsylvania Street in Hamilton County, Indiana, consisting in the aggregate of approximately 1.565 acres, which tracts are more particularly described on the attached Exhibit A (the "Real Estate"). 1. Purchase Price and Method of Payment. The purchase price for the Real Estate shall be Two Hundred Forty-Eight Thousand Dollars ($248,000) (the "Purchase Price"), payable in cash or in immediately available funds at closing, subject to adjustments for prorated real estate taxes as provided in Paragraph 7 hereof and to reduction by the brokerage commission payable as provided in Paragraph 15 hereof. 2. Closing Date and Location. The closing shall occur on or before January 3, 1994, with the exact date of closing to be determined by the mutual agreement of the parties; provided that in no event shall the closing occur prior to the expiration of Purchaser's objection period as set forth in Section 3 hereto (the "Closing Date"). The closing shall take place at the office of Hamilton Title Security, Inc. (the "Title Company"), or such other place as the parties may determine by mutual agreement. 3. Conditions to Closing. Purchaser's only conditions to closing are the following: (a) Title Insurance and Survey. Promptly after the date of this Contract, Seller shall provide to Purchaser a commitment for an owner's policy of title insurance and a survey, as follows: (i) Title Insurance. A commitment (the "Title Commitment") from the Title Company to insure marketable title to the Real Estate in the name of Purchaser at the time of the closing, subject to the exceptions stated therein (except for the lien of any mortgage identified therein, if applicable, which shall be released at closing). (ii) Survey. A survey (the "Survey") of the Real Estate meeting the Minimum Standards for an Indiana Land Title Survey and establishing the precise legal description of the Real Estate. Seller shall pay the expenses and premium for the owner's policy of title insurance, and the survey costs. Any objection by Purchaser to any exceptions or matters affecting title as disclosed in the Title Commitment, or matters disclosed by the Survey, shall be stated in writing to Seller within seven (7) business days after receipt of the Title Commitment and the Survey, and if not so stated, shall be deemed waived. If any objections are so stated, and Seller does not cure such objections, then Purchaser shall have the option, as its sole remedy, to waive the objections and proceed to closing or to terminate this Contract. 2 (b) No Subsequent Encumbrances or Litigation. The Real Estate shall not be subject to further encumbrances of any kind after the date of this Contract (except for the lien of real estate taxes and public and private assessments). At the time of closing, there shall be no litigation pending or, to the best of Seller's knowledge, threatened, that could impair the validity of Purchaser's title to the Real Estate. If any such litigation exists, then Purchaser shall have the option, as its sole remedy, to waive the objections and proceed to closing or to terminate this Contract. 4. Representations and Warranties of Seller. Seller represents and warrants to Purchaser that: (a) The surface and subsurface conditions of the Real Estate are suitable for the construction of office buildings and related facilities. (b) No portion of the Real Estate has ever been used by Seller as a waste storage or disposal site, and Seller is not aware of any such prior use; (c) All applicable laws, ordinances, rules, requirements and regulations of any governmental agency or body in effect with respect to the Real Estate have been complied with by Seller, and Seller is not aware of the existence of any violation of such laws or governmental regulations with respect to the Real Estate; (d) All utilities required by law and for the normal operation of an office building and related facilities are available in sufficient capacity at the boundary line of the Real Estate upon payment by Purchaser of any fees or charges for availability or connections assessed by or otherwise payable to the applicable public utilities and governmental authorities; (e) Adequate ingress to and egress from the Real Estate is available over existing public and private roads which Purchaser has the right to use; (f) Seller is a limited partnership validly existing under the laws of the State of Indiana with full power and authority to enter into this Contract and to sell the Real Estate on the terms set forth herein, and the execution and delivery of this Contract and the performance by Seller of its obligations hereunder will not violate or constitute an event of default under the terms or provisions of any agreement, document or instrument to which Seller is a party or by which Seller is bound; (g) This Contract has been duly and validly authorized, executed and delivered by Seller, and no other action, consent or waiver is required for the consummation by Seller of the transaction contemplated herein; and (h) To the best of the Seller's knowledge, there are no actions, suits, or proceedings in or before any court or administrative agency pending or threatened against Seller or affecting the Real Estate. 5. Representations and Warranties of Purchaser. Purchaser represents and warrants to Seller that: (a) Purchaser is a corporation validly existing under the laws of the State of Texas with full power and authority to enter into this Contract and to purchase the Real Estate on the terms set forth herein, and the execution and delivery of this Contract and the performance by Purchaser of its obligations hereunder will not violate or constitute an event of default under the terms or provisions of any agreement, document or instrument to which Purchaser is a party or by which Purchaser is bound; and (b) This Contract has been duly and validly authorized, executed and delivered by Purchaser, and no other action, consent or waiver is required for the consummation by Purchaser of the transaction contemplated herein. 3 6. Possession. Possession of the Real Estate shall be delivered to Purchaser at closing, free and clear of any and all claims (except as may be disclosed by the Title Commitment). 7. Prorations. Real estate taxes and all public and private assessments shall be prorated as of December 31, 1993 (the "Proration Date"), with a corresponding credit at closing against the Purchase Price. Purchaser shall assume and pay all real estate taxes and public and private assessments which are levied or become a lien after the Proration Date. The current tax rate shall be used for the purposes of calculating the proration of real estate taxes if the applicable tax rate has not been set. 8. Closing Documents. At closing, assuming that all conditions set forth in Paragraph 3 (including without limitation, removal or cure of any exceptions or other matters affecting title to the Real Estate to which Purchaser has made timely objection) have been satisfied or waived by Purchaser, Seller shall deliver to Purchaser (i) a General Warranty Deed conveying to Purchaser fee simple title to the Real Estate, free and clear of all exceptions (except for current taxes and assessments not delinquent, all matters of record, matters disclosed by the Title Commitment and Survey and applicable zoning and governmental restrictions), (ii) a Vendor's Affidavit in form and substance acceptable to the Title Company to permit the Title Company to issue the final policy of title insurance without the standard exceptions or any other exception not permitted under the terms of this Contract and (iii) a Non-Foreign Person Affidavit in the form and substance required by the Internal Revenue Code and the regulations related thereto. 9. Assignment. Purchaser shall not be permitted to assign this Contract without the prior written consent of Seller (except for any assignment to an entity affiliated with Purchaser). No assignment shall relieve Purchaser of its obligations hereunder, unless otherwise agreed by Seller in writing. 10. Right of Inspection and Risk of Loss. Purchaser and its agents, employees and contractors shall have the right to enter upon the Real Estate and conduct any and all tests and examinations which Purchaser deems necessary. Purchaser shall indemnify and save Seller harmless from any and all loss and damage to any person or property occurring on or about the Real Estate prior to the Closing Date and caused by Purchaser or its agents, employees or contractors (except to the extent that the acts or conduct of Seller or its agents, employees or contractors contributes to said loss or damage). Otherwise, all liability and risk of loss shall be the sole responsibility of Seller until final closing of this transaction. All insurance policies, if any, currently in effect for the Real Estate shall be canceled as of the Closing Date. 11. Specific Performance. The parties agree that money damages are not an adequate remedy for a breach by Seller and that Purchaser shall be entitled to the remedy of specific performance in the event of such breach. 12. Parties. Except as provided in Paragraph 9, this Contract shall be binding upon and inure to the benefit of the parties hereto and their respective personal representatives, successors and assigns. 13. Notices. All notices shall be deemed delivered to Seller when deposited in the mail addressed to Seller, c/o F. Richard Rembusch, at Suite 150, 11550 North Meridian Street, Carmel, Indiana 46032, and to Purchaser when so deposited in the mail addressed to Purchaser, c/o Conseco, Inc., at 11825 North Pennsylvania Street, Carmel, Indiana 46032, Attention: Lawrence W. Inlow. 14. Governing Law. This Contract shall be governed by and in accordance with the laws of the State of Indiana. This Contract may be amended only by an agreement in writing signed by the parties hereto. 4 15. Brokerage Commission. Purchaser and Seller acknowledge and agree that Browning Investments, Inc., shall be paid at closing a brokerage commission equal to six percent (6%) of the Purchase Price, and such commission shall reduce the net proceeds of the Purchase Price received by Seller at closing. Purchaser and Seller represent and warrant that no other fee, commission or similar compensation shall be payable by Purchaser or Seller to any other broker as a result of any act or agreement of Purchaser or Seller, respectively. This Contract for Purchase of Real Estate is executed by Seller and Purchaser on this 7th of January, 1994. SELLER: MERIDIAN MILE ASSOCIATES, L.P., an Indiana limited partnership By: BROWNING REAL ESTATE PARTNERSHIP, L.P., Its Sole General Partner By: BROWNING REAL ESTATE, INC., Its General Partner By: /s/ F. RICHARD REMBUSCH ______________________________________________ Printed: F. Richard Rembusch Title: Vice President PURCHASER: BANKERS NATIONAL LIFE INSURANCE COMPANY, a Texas corporation By: /s/ DONALD F. GONGAWARE _________________________________________________ Printed: Donald F. Gongaware Title: President and Chief Operating Officer 5 EXHIBIT A Part of the Northwest Quarter of Section 35, Township 18 North, Range 3 East in Hamilton County, Indiana, being more particularly described as follows: Beginning at a point on the East line of the said Northwest Quarter Section North 00 degrees 09 minutes 35 seconds West (assumed bearing) 249.00 feet from the Southeast corner of the said Northwest Quarter Section; thence North 00 degrees 09 minutes 35 seconds West along the said East line 123.00 feet; thence South 88 degrees, 45 minutes 10 seconds West parallel with the South line of the said Quarter Section, 182.00 feet; thence South 00 degrees 09 minutes 35 seconds East, parallel with the said East line, 123.00 feet; thence North 88 degrees 45 minutes 10 seconds East 182.00 feet to the Beginning Point, Together with: Tract II Part of the Northwest Quarter of Section 35, Township 18 North, Range 3 East in Hamilton County, Indiana, being more particularly described as follows: Beginning at a point on the East line of the said Northwest Quarter Section North 00 degrees 09 minutes 35 seconds West (assumed bearing) 149.00 feet from the Southeast corner of the said Northwest Quarter Section; thence North 00 degrees 09 minutes 35 seconds West along the said East line 100.00 feet; thence South 88 degrees 45 minutes 10 seconds West parallel with the South line of the said Quarter Section, 184.00 feet; thence South 00 degrees 09 minutes 35 seconds East parallel with the said East line, 98.00 feet; thence North 89 degrees 22 minutes 32 seconds East 183.97 feet to the Beginning Point, Together with: Tract III Part of the Northwest Quarter of Section 35, Township 18 North, Range 3 East in Hamilton County, Indiana, being more particularly described as follows: Beginning at the Southeast Corner of the said Northwest Quarter Section; thence South 00 degrees 45 minutes 10 seconds West along the South line of the said quarter Section 184.00 feet; thence North 00 degrees 09 minutes 35 seconds West, parallel with the East line of the said Quarter Section, 151.00 feet; thence North 89 degrees 22 minutes 32 seconds East 183.97 feet to the East line of the said Quarter Section; thence South 00 degrees 09 minutes 35 seconds East along the said East line 149.00 feet to the Beginning Point. EX-10.18.24 8 EXHIBIT 10.18.24 TO CONSECO, INC. 1993 FORM 10-K 1 DEVELOPMENT AGREEMENT THIS AGREEMENT, made and entered into this 7th day of January, 1994, by and between BANKERS NATIONAL LIFE INSURANCE COMPANY, a Texas corporation, hereinafter called the "Owner", and BROWNING INVESTMENTS, INC., an Indiana corporation, hereinafter called the "Developer"; WITNESSETH: WHEREAS, Owner has purchased in five separate transactions a total of approximately 63 acres of land in Carmel, Hamilton County, Indiana, described on Exhibits "D", "E", "I", "J" and "K" attached hereto ("Real Estate"), for purposes of future expansion of its corporate headquarters complex located in the Meridian Technology Center; WHEREAS, Developer, in addition to being a leasing agent and property manager, is also experienced and has expertise in planning and developing commercial real estate projects, including the Meridian Technology Center and other complexes of office and commercial buildings, and in rendering various services prior to the construction period; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties enter into the following: AGREEMENT 1. For the period from the date of this Agreement to December 31, 1996, Developer agrees to direct and coordinate the future development of the Real Estate; Developer's services shall include the following: (a) Upon request, Developer shall counsel and assist Owner in its selection of architects, engineers or other persons, firms or corporations Owner may want to employ at Owner's expense in developing the Real Estate with respect to the requirements set forth by Owner. (b) Upon request, Developer shall review and comment on any plans, designs or drawings obtained by Owner, at Owner's expense. Such review shall include advice regarding coordinating the development of the Real Estate with the existing development as to site plan, parking and access, landscaping, building materials and quality of construction, reasonableness of expense and aesthetics. 2. In consideration of these services, Owner agrees to pay the Developer the sum of SEVENTY FIVE THOUSAND AND NO/100 DOLLARS ($75,000.00), which amount shall be in addition to any amounts payable under any property management, construction, or any other agreement. The Developer's fee shall be paid upon execution of this agreement. 3. This Agreement may not be assigned or otherwise transferred by either party hereto without the written consent of the other party, unless the assignment or transfer is to an entity owned or controlled by such party at the time, and written notice is given to the other party. No such assignment shall release a party from primary responsibility for its obligations hereunder, without the written consent of the other party. 2 4. This Agreement shall be binding upon, and inure to the benefit of, the parties, their successors, heirs, legal representatives, legatees and assigns. 5. This Agreement, executed and to be performed in the State of Indiana, shall be governed by the laws of the State of Indiana. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. DEVELOPER: OWNER: BROWNING INVESTMENTS, INC. BANKERS NATIONAL LIFE INSURANCE COMPANY By: /s/ F. RICHARD REMBUSCH By: /s/ DONALD F. GONGAWARE ------------------------ ------------------------- Name: F. Richard Rembusch Name: Donald F. Gongaware Title: Executive Vice President Title: President and Chief Operating Officer 3 EXHIBIT "D" Part of the Southeast Quarter of Section 3.5, Township 18 North, Range 3 East of the Second Principal Meridian in Hamilton County, Indiana, being more particularly described as follows: Commencing at a railroad spike marking the Southwest corner of the said Southeast Quarter Section: thence North 00 degrees 05 minutes 40 seconds West (assumed bearing) along the West line of the said Quarter Section a distance of 728.45 feet; thence North 88 degrees 46 minutes 54 seconds East, parallel with the South line of the said Quarter Section, a distance of 387.75 feet to a curve having a radius of 750.00 feet, the radius point of which bears North 01 degrees 13 minutes 06 seconds West; thence Easterly along said curve an arc distance of 142.35 feet to an existing P.K. nail and the BEGINNING POINT (said point bears South 12 degrees 05 minutes 35 seconds East from said radius point); thence North 01 degrees 13 minutes 06 seconds West a distance of 495.38 feet to an existing rebar w/yellow cap; thence South 88 degrees 46 minutes 54 seconds West, parallel with the said South line, a distance of 464.27 feet to an existing P.K. nail and the East right-of-way line for Pennsylvania Street; thence North 00 degrees 05 minutes 40 seconds West, parallel with the West line of the said Quarter Section and along the said East right-of-way line, a distance of 573.33 feet to a P.K. nail; thence North 88 degrees 46 minutes 54 seconds East, parallel with the said South line, a distance of 1260.47 feet to a P.K. nail; thence South 00 degrees 00 minutes 00 seconds West a distance of 831.72 feet to a 5/8 inch rebar w/yellow cap and a curve having a radius of 1000.00 feet, the radius point of which bears South 12 degrees 13 minutes 54 seconds East; thence Southwesterly along said curve an arc distance of 113.12 feet to a P.K. nail which bears North 18 degrees 43 minutes 06 seconds West from said radius point; thence South 71 degrees 16 minutes 54 seconds West a distance of 625.00 feet to an existing rebar w/yellow cap and a curve having a radius of 750.00 feet, the radius point of which bears North 18 degrees 43 minutes 06 seconds West; thence Southwesterly along said curve an arc distance of 86.72 feet to the BEGINNING POINT (said point bears South 12 degrees 05 minutes 35 seconds East from said radius point). 4 EXHIBIT "E" Part of the Northeast Quarter of Section 35, Township 18 North, Range 3 East of the Second Principal Meridian in Hamilton County, Indiana, being more particularly described as follows: Commencing at a railroad spike marking the Southwest Corner of the said Northeast Quarter Section; thence North 00 degrees 07 minutes 31 seconds West (assumed bearing) along the West line of the said Quarter Section a distance of 510.08 feet to a P.K. nail and the BEGINNING POINT; thence North 88 degrees 49 minutes 16 seconds East, parallel with the South line of the said Quarter Section, a distance of 1326.90 feet to a 5/8 inch rebar w/yellow cap and the Southwest corner of Block 3 in the Conditional Secondary Plat Carmel Science and Technology Park, the plat of which is recorded in Plat Book 13, pages 65 thru 71 in the Office of the Recorder of Hamilton County, Indiana; thence North 00 degrees 06 minutes 12 seconds West along the West line of said Block 3 a distance of 572.31 feet to a 5/8 inch rebar w/yellow cap which lies South 00 degrees 06 minutes 12 seconds East 1542.00 feet from the Northeast corner of the West Half of the said Quarter Section; thence South 88 degrees 40 minutes 34 seconds West, parallel with the North line of the said Quarter Section, a distance of 1327.19 feet to an existing P.K. Nail and the West line of the Said Quarter Section; thence South 00 degrees 07 minutes 31 seconds East along the said West line a distance of 568.95 feet to the BEGINNING POINT, containing 17.381 acres more or less. 5 EXHIBIT "I" Part of the Southwest Quarter of Section 36 and part of the Southeast Quarter of Section 35 in Township 18 North, Range 3 East of the Second Principal Meridian in Hamilton County, Indiana, being more particularly described as follows: Commencing at the Southwest corner of the said Southwest Quarter Section; thence North 89 degrees 07 minutes 52 seconds East (Assumed Bearing) along the South line of the said Southwest Quarter Section 148.00 feet; thence North 00 degrees 16 minutes 22 seconds West, parallel with the West line of the said Southwest Quarter Section 734.00 feet; thence North 89 degrees 07 minutes 52 seconds East, parallel with the said South line 450.06 feet; thence North 00 degrees 16 minutes 22 seconds West, parallel with the said West line, 763.37 feet to the Beginning Point; thence South 89 degrees 07 minutes 52 seconds West 432.11 feet; thence South 60 degrees 05 minutes 00 seconds West 335.00 feet to a curve having a radius of 500.00 feet, the radius point of which bears South 60 degrees 05 minutes 00 seconds West; thence Northwesterly along the said curve 281.57 feet to a point which bears North 27 degrees 49 minutes 03 seconds East from said radius point; thence North 62 degrees 10 minutes 57 seconds West 317.60 feet; thence North 27 degrees 49 minutes 03 seconds East 343.29 feet; thence North 88 degrees 57 minutes 26 seconds East, parallel with the north line of the said Southwest Quarter Section, 1041.01 feet; thence South 00 degrees 16 minutes 22 seconds East, parallel with the said west line 490.00 feet to the Beginning Point, containing 12.970 acres, more or less. 6 EXHIBIT "J" Land Description (Token Parcel together with Part Old Highway R/W) Part of the Northwest Quarter of Section 35, Township 18 North, Range 3 East in Hamilton County, Indiana, being more particularly described as follows: Commencing at a Railroad Spike marking the Southeast Corner of the said Northwest Quarter Section; thence South 88 degrees 45 minutes 10 seconds West (Assumed Bearing) along the South Line of the said Northwest Quarter Section a distance of 184.00 feet to a 5/8 inch rebar with yellow cap marked "S" and the BEGINNING POINT; thence continue South 88 degrees 45 minutes 10 seconds West along the said South Line a distance of 402.60 feet to an existing 5/8 inch rebar with yellow cap stamped "S" and the East Limited Access right-of- way line for U.S. 31 per D.O.T. plans, project STF-222(9), sheets 16 and 17, dated 1973; thence North 00 degrees 04 minutes 52 West along said East Limited access right-of-way line a distance of 660.01 feet to a 5/8 inch rebar with yellow cap marked "Firm # 0001" (hereinafter referred to as "rebar") distant 660 feet north of the south line of the said Northwest Quarter Section; thence North 88 degrees 45 minutes 10 seconds East, parallel with the South Line of the said Northwest Quarter Section, a distance of 585.70 feet to a "railroad spike" in the East Line of the said Northwest Quarter Section; thence South 00 degrees 09 minutes 35 seconds East along the said East Line a distance of 288.00 feet to a "railroad spike" at a point distant 372.00 feet north of the Southeast Corner of said Northwest Quarter Section; thence South 88 degrees 45 minutes 10 seconds West, parallel with the said South Line, a distance of 182.00 feet to a "rebar"; thence South 00 degrees 09 minutes 35 seconds East, parallel with the said East Line, a distance of 123.00 feet to a "rebar" distant 249.00 feet north of the south line of said Northwest Quarter Section; thence South 88 degrees 45 minutes 10 seconds West, parallel with the said South Line, a distance of 2.00 feet to a "rebar"; thence South 00 degrees 09 minutes 35 seconds East, parallel with the said East Line, a distance of 249.00 feet to the BEGINNING POINT. Containing 7.314 acres, more or less. 7 EXHIBIT "K" LAND DESCRIPTION (Deed Book 345, Page 490-492) Part of the Northwest Quarter of Section 35, Township 18 North, Range 3 East in Hamilton County, Indiana, described as follows: Beginning at a point in the South line thereof distant West 184 feet of the Southeast corner thereof; thence West in and along said South line 583 feet to a point in the centerline of U. S. Highway # 31; thence North therein 255 feet; thence East 554 feet to a point 184 feet West of the East line of said Northwest Quarter Section; thence South 249 feet to the place of beginning. EXCEPT: Beginning at the intersection of the East boundary of U. S. 31 and the South line of said Quarter Section South 88 degrees 24 minutes 05 seconds West 722.00 feet from the Southeast corner of said Quarter Section; thence along the Eastern boundary of U. S. R. 31 Northeasterly 254.79 feet along an arc to the right and having a radius of 1,859.86 feet and subtended by a long chord having a bearing of North 6 degrees 07 minutes 32 seconds East and a length of 254.59 feet to the North line of the owners' land; thence North 88 degrees 46 minutes 46 seconds East 107.19 feet along said North line; thence South 0 degrees 13 minutes 30 seconds East 251.65 feet to the South line of the owners' land; thence South 88 degrees 24 minutes 05 seconds West 135.37 feet along said South line to the point of beginning. AND ALSO; A part of the Northwest Quarter of Section 35, Township 18 North, Range 3 East, more particularly described as follows: Begin 372 feet North of the Southeast corner of the Northwest Quarter of Section 35, Township 18 North, Range 3 East and run thence West 132 feet Deed (182 feet Measured); thence South 123 feet; thence West 606 feed Deed (563.18 feet Measured) to the center of State Highway No. 31, said point being 738 feet Deed (745.18 feet Measured) West of the East line of said Quarter Section; thence Northeastwardly along center of said highway 430 feet, more or less, to a point which is 660 feet North of the South line of said Quarter Section; thence East 606 feet, more or less, Deed (623.44 feet Measured) to the East line of said Quarter Section; thence South 288 feet, more or less, to the place of beginning, in Hamilton County, Indiana. EXCEPT: A part of the Northwest Quarter of Section 35, Township 18 North, Range 3 East, Hamilton County, Indiana, described as follows: Commencing at the Southeast corner of said Quarter Section; thence Northerly 249.00 feet along the East line of said Quarter Section to the prolonged South line of the owner's land; thence South 88 degrees 46 minutes 46 seconds West 687.99 feet along said prolonged South line and the South line of the owner's land to the Eastern boundary of U. S. R. 31 which is the point of beginning of this description; thence along the Eastern boundary of U. S. R. 31 Northeasterly 384.78 feet along an arc to the right and having a radius of 1,859.86 feet and subtended by a long chord having a bearing of North 15 degrees 58 minutes 37 seconds East and a length of 384.10 feet; thence South 00 degrees 13 minutes 30 seconds East 366.98 feet to the South line of the owner's land; thence South 88 degrees 46 minutes 46 seconds West 107.19 feet along the said South line to the point of beginning and containing 0.510 acres, more or less. EX-10.18.25 9 EXHIBIT 10.18.25 TO THE CONSECO, INC. 1993 FORM 10-K 1 501 CONGRESSIONAL BOULEVARD PARKING LOT EXPANSION CONSTRUCTION AGREEMENT THIS AGREEMENT, made and entered into by and between BANKERS NATIONAL LIFE INSURANCE COMPANY, a Texas corporation (hereinafter referred to as the "Owner"), and BROWNING CONSTRUCTION, INC., an Indiana corporation (hereinafter referred to as the "Contractor"), WITNESSETH THAT: WHEREAS, the Owner desires to design and construct a parking lot expansion to the west of the existing parking lot at 501 Congressional Boulevard, Carmel, Indiana, (the "Project"). WHEREAS, Schneider Engineering, as design engineer (the "Design Engineer"), heretofore has completed preliminary plans and requirements based upon which it has begun to develop and prepare or cause to be prepared, complete drawings, plans and specifications for the Project, subject to final approval by the Owner and the Contractor, which approval will not unreasonably be withheld (such approved drawings being hereinafter referred to as the "Drawings" and such plans and specifications being hereinafter referred to as the "Specification"); and WHEREAS, with the Owner's approval, the Contractor has commenced work on the Project, and has expended funds and incurred borrowing costs in connection therewith prior to the date hereof; WHEREAS, the Owner and the Contractor have agreed that the contract price will be paid to the Contractor as construction progresses and costs are incurred in the manner provided herein; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained and each act performed pursuant hereto, the parties now enter into the following Agreement: ARTICLE I Contract Documents; Definitions Section 1.1. Contract Documents and Amendments. The "Contract Documents" shall mean and include (a) this Agreement, (b) the Drawings and Specifications upon completion and approval thereof by the Owner and the Contractor and (c) any duly authorized and executed Contract Change Orders pursuant to Section 4.3, and any written interpretations of the Drawings and Specifications signed by the Owner and by the Contractor. It is agreed that the Contract Documents contain the entire agreement of the parties, that in the event there is any conflict between the provisions of this Agreement and the provisions of the Specifications and/or the Drawings, then the provisions of this Agreement shall prevail; and that in the event there is any conflict between the Specifications and the Drawings, the Drawings shall prevail. The Contract Documents otherwise may be amended by written instruments signed by the Owner and by the Contractor, and any provision or provisions of the Contract Documents may be so amended without affecting the other provisions of the Contract Documents. Section 1.2. Architect and Engineer. The term "Design Engineer," as used in the Contract Documents, shall mean Schneider Engineering, and the term "Engineer" shall mean the inspecting architect or engineer designated by the Owner's construction lender (or by the Owner in the absence of such designation by the lender) to make periodic inspections and certify as to the progress of construction for purposes of progress payments to the Contractor. Section 1.3. Subcontractor. The term "subcontractor," as used in the Contract Documents, except where otherwise specified, means only those persons, firms or corporations having a direct contract with the Contractor and includes any person, firm or corporation who or which performs any part of the Work (as defined herein), or leases equipment or tools (whether or not an operator is provided by the lessor), or who furnishes material worked to a special design according to the Drawings or Specifications, but does not 2 include any person, firm or corporation who or which merely furnishes material not so worked to a special design (herein called a "supplier"), nor does it include the Design Architect or Inspector. Section 1.4. Completion Date. The term "Completion Date," as used in the Contract Documents, means the date when the Work (as defined herein) is certified by the Contractor as substantially completed in accordance with the Contract Documents, subject to any additional or corrective work reasonably required by the Engineer's final inspection pursuant to Section 4.6. For this purpose, the parking lot shall be substantially complete and ready for use, notwithstanding any minor or insubstantial details of construction, that remain to be done, so long as (a) ready access to the Project, are available to the Owner, all utilities to be provided to the Project are installed and in working order (subject to minor adjustments and to the Owner's responsibilities regarding utilities as provided in Section 5.4. For the purposes of the Agreement, there will be a "Completion Date" for the parking lot. Section 1.5. Day and Working Day. As used in the Contract Documents, the term "day" shall mean a calendar day of twenty-four (24) hours beginning at 12:00 midnight, and the term "working day" shall mean each calendar day except a Saturday, Sunday or legal holiday. ARTICLE II Scope of the Work Section 2.1. The Work. The term "Work" as used in the Contract Documents shall mean the Contractor shall furnish all of the labor, supervision, materials, supplies and equipment and perform all labor and other work shown on, and in accordance with the Drawings and Specifications as finally approved by the Owner and Contractor. Section 2.2. Time of Completion. In the absence of circumstances beyond its control, the Contractor agrees to complete the Work prior to September 1, 1993 for the parking lot, except as such period to complete the Work may be extended pursuant to the provisions of Sections 4.2, 4.3 or 4.5 of this Agreement. ARTICLE III Contract Price and Payment Section 3.1. Contract Price. The Owner agrees to pay the Contractor for the performance of this Agreement cost plus twelve eight five percent (12.85%) for the Project, including all of the Work, as the contract price for the parking lot subject to additions and deductions by Contract Change Order pursuant to Section 4.3. Section 3.2. Method of Payment. The Owner hereby agrees to pay to the Contractor the Contract Price in the following manner: (a) Initial Payment. Upon execution and delivery of this Agreement, the owner shall pay to the Contractor an initial payment in an amount equal to the Contractor's construction costs incurred through July 31, 1993, less any retainage withheld from the Contractor and subcontractors as hereinafter provided, plus (i) interest costs incurred by the Contractor (or affiliate) for funds borrowed in order to fund such costs incurred prior to the date of the initial payment, as certified by the Contractor, and (ii) the earned portion of the Contractor's overhead and fee allocable to such Work, determined as hereinafter described. (b) Progress Payments. (i) For all work except as identified in clause (ii) of this paragraph, (b)after the initial payment, the Contractor shall make a monthly request for payment by the Owner, for construction costs incurred for work during the preceding month, plus the earned portion of the Contractor's overhead and fee allocable to such Work, less any retainage withheld from the Contractor and Subcontractors as hereinafter provided. In no event shall the total of all such progress payments under this clause (i) of this paragraph (b) at any time, when added to the initial payment and any retainage then held, exceed the agreed total Contract Price, plus any additions or less any deletions for Contract Change Orders; and 3 (ii) Contractor shall make a monthly request for payment equal to the cost of work in place as of the end of the preceding month, plus an amount equal to 12.85% of such costs for overhead and profit minus retainage as per 3.2 (iii). Each request for payment shall be submitted at least five (5) business days before the date payment is desired, and payments shall, insofar as possible, be scheduled for the 28th day of each calendar month. Owner agrees to make payments no later than six (6) business days after receipt of the Contractor's request. Contractor shall provide copies of invoices or such other cost backup as the Owner may reasonably request from time to time as follows: (a) payment request on form acceptable to Owner, (b) copies of invoices, (c) affidavits of lien waivers from all subcontractors and supplies covering prior disbursements. (c) All payments by the Owner are subject to the following: (i) Construction Costs. As used herein, the term "construction costs" means and includes all costs and expenses incurred by the Contractor in the performance of the Work, including but not limited to amounts payable under subcontracts and other costs for labor, materials, equipment and fixtures, including sales taxes and freight and transportation charges, costs for architectural and engineering work, expenses for workers' compensation insurance and other insurance coverage required by the terms of this Agreement, rental costs of equipment used on the Work, utility costs and fees, and charges or other amounts payable for permits, licenses or approvals necessary to perform the Work. (ii) Overhead and Fee. The Contractor's overhead and fee is twelve eight five percent (12.85%), and shall be deemed earned for purposes of payment as follows: (1) The overhead and fee portion of the Contract price for the parking lot shall be deemed earned in proportion to costs incurred for which payment is requested from time to time, in increments equal to 12.85% minus retainage as in (iii) below, of the costs so incurred; the full balance shall be deemed earned on the Completion Date. (iii) Retainage. (1) Retainage shall be withheld only as to amounts payable Contractor and Subcontractors and there shall be no retainage as to suppliers or other amounts payable to the Contractor; (2) retainage as to Subcontractors shall be 10% of amounts invoiced until such Subcontractor's work is 50% completed, and thereafter, unless the Contractor, in its discretion, elects to continue the 10% retainage as to one or more Subcontractors, no additional retainage shall be withheld; (3) retainage as to each Subcontractor will be released to the Contractor for payment to the Subcontractor sixty (60) days after 100% completion of the Subcontractor's work. (iv) Inspection Reports. The Owner may require, prior to payment, receipt of a report from the Engineer, dated not more than five (5) days prior to the requested disbursement, setting forth a breakdown of the Work completed to date and stating that he has inspected the construction and that all construction to the date of the certificate is in accordance with the Drawings and Specifications. It is the Owner's responsibility to schedule such inspections to ensure that the report, if requested, is received in a timely manner so as not to otherwise affect timing of payments. (b) Final Payment. Final payment to the Contractor of the entire unpaid balance of the Contract Price for the parking lot including but not limited to any retainage withheld and the full balance of the Contractor's overhead and fee and any profit to the Contractor, shall be paid within thirty (30) days after the Completion Date for such parking lot. The Owner shall receive prior to such payment; (i) delivery of a release or waiver of liens signed by the Contractor and all Subcontractors (or a title insurance policy insuring over any such lien or possible lien), and (ii) the Owner shall be entitled to withhold an amount reasonably estimated by the Engineer to complete or correct for items of Work identified upon 4 final inspection pursuant to Section 4.6, until completion or correction of such item, and (iii) as built drawings, maintenance and operation manuals. ARTICLE IV Other General Conditions Section 4.1. Representations and Warranties of Contractor. The Contractor represents and warrants that: (a) The Contractor has the facilities and personnel to perform the Work, and the Work shall be done in good and workmanlike manner, free from defects and in conformity with the Contract Documents, and all applicable laws, ordinances, rules and regulations of all governmental authorities having jurisdiction of the subject matter. (b) The Contractor shall supervise and direct the Work, using its best skill and attention. The Contractor shall be solely responsible for all construction means, methods, techniques, sequences and procedures and for coordinating all portions of the Work; (c) All materials and equipment incorporated in the Work will be new, unless otherwise specified in the Plans and Specifications; (d) The Contractor shall provide and pay (and provided the Owner makes all payments due to the Contractor as provided in Article III, Sections 3.2 (b) (ii) and 3.2 (d), shall hold the Owner harmless from claims for) all Subcontractors and Suppliers, and other amounts payable for all labor, materials , equipment, tools, construction equipment and machinery, water, heat, utilities, transportation and other facilities and services necessary for proper completion of the Work and shall remove all construction equipment, tools and machinery from the Project site promptly upon completion of the Work. (e) The Contractor shall inform the Owner if it becomes necessary to make any arrangements with public utilities or municipal authorities for removal or replacement on the Project site of any poles, lines, hydrants, pipes or other items required to be removed or replaced in order to complete the Work, provided that if any work or expense will be required to connection therewith, the same shall be considered an addition to the Work requiring a Contract Change Order. The Contractor knows of no such requirement as of the date of this Contract. (f) The Contractor shall secure all permits, licenses and approvals necessary for execution of the Work; (g) The Contractor at all times shall keep the Project site free from excessive accumulation of waste materials and rubbish caused by its operations. At the completion of the Work, the Contractor shall remove all waste materials and rubbish from and about the Project site, as well as his tools, construction equipment, machinery and surplus materials, and leave the Work in "broom clean" or equivalent condition except as otherwise specified. Section 4.2. Extension of Time of Completion. The contractor shall be entitled to extensions of time for completion of the Work in the event of delays caused by labor disputes, fire, unusual delay in transportation, unavoidable casualties or other causes or conditions beyond the Contractor's control. Any such extension of time shall be for the actual number of working days lost by reason of the occurrence or condition, as determined and certified by the Contractor, unless the Engineer reasonably determines that a longer or shorter extension of time should apply. Section 4.3. Change in the Work. The Owner and the Contractor, without invalidating the Contract Documents or the agreement of the parties as represented thereby, but subject to the limiting provisions of Section 1.1, may make changes within the general scope of the Contract Documents by altering, adding to or deducting from the Work. No change in the Work shall be authorized except by a "Contract Change Order," signed by the Owner and the 5 Contractor, and approved by the Owner's construction lender, if required. All extra work and changes in the Work shall be performed under the conditions of the Contract Documents. Section 4.4. Owner's Right to Terminate. In the event the Contractor violates any material provision of the Contract Documents, the Owner may, after giving thirty (30) days written notice to the Contractor setting forth the violation, if the violation is not corrected by the expiration of such thirty (30) day period, at the Owner's option, either (a) make good the deficiencies and deduct the cost thereof from any payment then or thereafter due the Contractor, and (b) terminate this Agreement, take possession of all materials and the Contractor's equipment, tools and appliances and finish the Work by any reasonable means, or (c) specifically enforce this Agreement against the Contractor and force the Contractor to complete the Work for the Fixed Contract Price in accordance with the provisions of this Agreement. If the Owner exercises such option to terminate this Agreement, and the unpaid balance of the Contract Price exceeds the reasonable cost to the Owner of completing the Work, such excess shall be paid to the Contractor in the manner provided in Section 3.2, but, if such cost exceeds such unpaid balance, then the Contractor shall pay the entire amount of the difference to the Owner. Section 4.5. Contractor's Right to Terminate. Should the Owner fail to pay the Contractor any payment when due, then the Contractor, at the Contractor's option, after giving seven (7) days written notice to the Owner, if payment is not made within seven (7) days of receipt by the Owner of such notice may stop performing the work until payment is received. Should the Work be stopped by any public authority for a period of thirty (30) days or more through no fault of the Contractor, or should the Work be stopped through act of neglect of the Owner or should the Owner fail to pay the Contractor within said seven (7) day period, then, at the Contractor's option, at any time before the condition is corrected or cured, following thirty (30) days written notice to the Owner, with a copy to the Owner's construction lender, if the condition is not cured by the end of such thirty (30) day period, and if the Contractor is not in default under the Agreement, the Contractor amy terminate this Agreement and retain or recover from the Owner so much of the Contract Price as represents payment in full for all of the Work completed, less payments previously received, including all of the Contractor's costs of the construction as set forth on the Cost Breakdown, plus a pro rata portion of the Contractor's total overhead and profit as provided for in the Cost Breakdown, based upon the proportion of the Work completed. In any event, the delay caused by the existence of any such condition shall automatically extend the time during which the Work is to be completed pursuant to Section 2.2 by an amount of time equal to two (2) days for each of the first thirty (30 days of existence of any such condition, and one day for each day of existence of the condition in excess of thirty (30) days. Section 4.6. Final Inspection. The Engineer's final inspection as regards to the parking lot shall be made within fifteen (15) days after the Contractor delivers to the Owner its written certification that the Work has been completed. The making and acceptance of the final payment shall not constitute a waiver of any claims by the Owner as to any matters reasonably required by the Engineer to be completed or corrected by the Contractor after the Completion Date. Section 4.7. Warranty and Correction of Work. The Contractor guarantees to the Owner that all labor and materials incorporated in the Work shall be free from defects for a period of one year from the Completion Date. The Contractor, at its expense, shall correct any Work that fails to conform to the requirements of the Contract Documents where such failure to conform appears during the progress of the Work, and shall remedy any defects in the Work which appear within the applicable warranty period. The warranty under this Section 4.7 applies to the entire Work, (a) whether done by Contractor, any subcontractor (whether or not under a direct contract with the Contractor), or any employee of any of them or any other person performing any of the Work, or (b) any electrical or other finished manufactured equipment or product, except that the Contractor hereby assigns to the Owner the warranty, if any, of the manufacturer and/or supplier of any such equipment or product, and warrants (for one year as set forth above) that such equipment and products shall be properly installed and connected in accordance with the Drawings and Specifications, and any manufacturer's instructions. 6 Section 4.8. Inspections. The Owner, its construction lender, prospective tenants, and their authorized representatives, including the Engineer, shall, at all reasonable times, have the right of access to the Project and Work for the purpose of inspection. The Owner shall have the right to reject materials and workmanship which the Owner reasonably determines to be defective, and the Contractor, within a reasonable time after the receipt of written notice from the Owner of such rejection, take such reasonable steps as shall be necessary to correct or remove defective materials or workmanship without charge or cost to the Owner. The Engineer will make periodic visits to the site to familiarize himself generally with the progress and quality of the Work, and to determine in general if the Work is proceeding in accordance with the Plans and Specifications pursuant to Section 3.2. If the Owner becomes aware of any defect in the Work, through the Engineer or otherwise, it shall give notice of such defect to the Contractor promptly after discovery thereof. If the Owner fails to give such notice of a defect known to it, such defect may not serve as a ground for termination by the Owner pursuant to Section 4.4, unless the Contractor independently knew of such defect at or prior to the time of the Owner's discovery thereof. ARTICLE V The Owner's Responsibilities Section 5.1. Prompt Decisions. The Owner, through a designated authorized representative, shall examine Contract Documents and other documents submitted by the Contractor from time to time, and shall render decisions pertaining thereto and furnish requested information and approvals promptly and expeditiously to avoid unreasonable delay in the completion of Plans and Specifications or in the progress of the Work of the Contractor. Section 5.2. Notices. The Owner shall give prompt written notice to the Contractor of any defect in the Work or other nonconformance with the Contract Documents that may in any manner come to the Owner's attention. The Owner shall provide to the Contractor promptly, copies of any notice or other communication concerning the project received directly by the Owner from the Design Architect, the Engineer, any subcontractor or other person performing work on the project or any governmental authority (unless the Owner has knowledge that the Contractor already has received a copy thereof). Section 5.3 Payments. The Owner shall provide for the timely payment of all amounts due as anticipated by this Agreement, as and when payable as construction progresses and Work is completed and inspected, in accordance with the terms of this Agreement. The Owner shall schedule any required inspections to occur within the time periods provided for herein so as not to delay the scheduled payments to the Contractor. Section 5.4 Utilities/Governmental Fees. The Owner is solely responsible for any and all necessary approvals, consents, permits, deposits, assessments, connection or availability fees and other charges of any kind levied or required to be obtained, made or paid in order to allow, permit or otherwise obtain the right and authority to connect the buildings and improvements to the facilities of, and/or acquire the services of, any public utility or governmental agency, sewer, telephone and electric service. The Contractor shall cooperate with and assist the Owner in connection with such approvals and other matters, and shall notify the Owner in advance of the date by which any such matter must be completed in order not to cause any delay in the completion or availability of the Project. ARTICLE VI Indemnity and Insurance Section 6.1. Indemnity. The Contractor shall indemnify and save the Owner harmless from and against any and all liability for any bodily injury, sickness, disease or death of any person or persons, or for damage to or destruction of tangible property (other than the Work itself) including the loss of use resulting therefrom, arising out of or connected with the performance of the Work, provided such liability or damage is caused in whole or in part by any negligent act or omission of the Contractor, any subcontractor (whether or not under a direct contract with the Contractor), or anyone directly or indirectly employed by any of them or any one for whose acts any of them may be liable, and from all cost, expenses and liabilities, including but not limited to reasonable attorney's fees incurred by the Owner in connection therewith; provided, however, that the provisions of this Section 7 5.1 shall not give to any person, firm or corporation not a party to this Agreement any right, claim, action or cause of action which any such person, firm or corporation would not otherwise have. Section 6.2. Contractor's Liability Insurance. Without limitation upon the Contractor's liability under the indemnity agreement in Section 5.1, the Contractor shall, at its own expense, obtain and maintain insurance that will protect the Contractor, the Owner and such other interested persons as the Owner may reasonably request from time to time, from all claims under worker's compensation acts and other employees benefit acts claims for damages because of bodily injury, including death, and from claims for damages to property which may arise out of or result from the Contractor's operations under this Agreement, including products and completed operations coverage for a period of two (2) years following the Completion Date and including operations by any subcontractor (whether or not under a direct contract with the Contractor) or anyone directly or indirectly employed at any of them. The coverages and amounts below are indicated as minimum requirements, exclusive of any additional excess umbrella liability coverage that may be reasonably required by the Owner. The Contractor may determine to carry other coverages and/or higher limits. Minimum Coverages Required Minimum Amount of Liability -------------------------- --------------------------- Workers'Compensation Applicable Statutory Limits Insurance including employer's liability Contractor's combined $1,000,000 protective bodily injury and property damage liability insurance All policies shall contain a provision that the coverages will not be canceled or changed without thirty (30) days prior written notice to the Owner and to the Owner's construction lender. If, at any time during the performance of the Work, the Contractor shall fail to maintain the minimum insurance coverages set forth above, the Owner may, at its option, procure and maintain such insurance in the name of the Contractor, and the Contractor shall pay the cost thereof and furnish all information and documents necessary to make effective and maintain such insurance. Section 6.3. Owner's Liability Insurance. The Owner may obtain, at its option, additional or other insurance to protect it from contingent liability to others arising from the Contractor's operations under this Agreement. Section 6.4. Builder's Risk Insurance. The Contractor shall purchase and maintain "all risk" builder's risk and fire insurance, with extended coverage, upon the Work and the Project on which the Work is to be performed, to approximately one hundred percent (100%) of the insurable value from time to time thereof, including items of labor and materials to be incorporated therein whether in or adjacent to the building insured. Loss under the insurance, if any, will be adjustable with and payable to the Owner (or its designee) as trustee for the Owner and the Contractor as their interests may appear. The Owner and the Contractor hereby waive all rights, each against the other, for damages caused by fire or extended coverage perils or other risks covered by insurance, except such rights as they may have to the proceeds of insurance held by the Owner as trustee. The Contractor shall be solely responsible for any coverage on its tools or equipment, or those of its employees, agents or subcontractors, whether owned or rented, and for any other materials which may temporarily be located on the Project premises. Section 6.5. Blanket and Umbrella Policies. Any insurance required to be provided by Contractor pursuant to the Agreement may be provided by blanket property insurance or umbrella liability insurance covering the Project and other locations or operations of Contractor or its affiliates, provided such blanket or umbrella insurance complies with all of the other requirements of the Agreement with respect to the insurance involved. 8 Section 6.6. Insurance Coverage and Notice. All policies shall contain a provision that the coverages will not be canceled or changed without thirty (30) days prior written notice to the Owner. Upon request, the Contractor shall provide to the Owner a certificate showing the relevant insurance coverages and amounts in force respecting the Project. if, at any time during the performance of the Work, the Contractor shall fail to maintain the minimum insurance coverages set forth above, the Owner may, at its option, procure and maintain such insurance in the name of the Contractor, and the Contractor shall pay the cost thereof and furnish all information and documents necessary to make effective and maintain such insurance. ARTICLE VII Miscellaneous Section 7.1. Bonds. If required by the Owner, the Contractor shall require one or more subcontractors performing labor under subcontract for amounts in excess of $100,000 to furnish dual-obligee payment and performance bonds, in form and substance acceptable to the Owner, covering themselves and their subcontractors. The Contract Price shall be increased in an amount equal to the reasonable cost of any such bonds. For purposes of this paragraph, the Contractor shall provide to Owner, on request, a list of the Subcontractors and their respective contract amounts. Section 7.2. Assignment. This Agreement may not be assigned or otherwise transferred by either party hereto without the written consent of the other party except for any assignment to an entity owned or controlled by such party. No such assignment shall relieve either party of its obligations unless otherwise agreed by the other party in writing at the time. Section 7.3. Nonwaiver; Other Remedies. The failure to enforce any provision of the Contract Documents shall not serve to invalidate any such provision or any other provision of the Contract Documents and shall not serve as a bar or limit to subsequent enforcement of any such provision. No remedy available to either party under this Agreement is intended to be exclusive of any other remedy. Each remedy shall be cumulative and shall be in addition to any other remedy given hereunder or existing by statute, at law or in equity. Section 7.4. Notices. Any notices required to be given under this Agreement shall be mailed, certified mail, return receipt requested. Any notice to be served upon the Owner shall be addressed to: Thomas G. Mills Vice President of Operations Bankers National Life Insurance Company 560 College Drive Carmel, Indiana 46032 Any notice to be served upon the Contractor shall be addressed to: Browning Construction, Inc. Suite 400, Tower Two Fidelity Plaza 11350 North Meridian Street Carmel, Indiana 46032 Attention: Richard J. Pollak Section 7.5. Binding on Successors. This Agreement shall be binding upon, and inure to the benefit of, the parties, their successors, heirs, legal representatives, legatees and assigns. Section 7.6. Descriptive Headings. The descriptive headings contained herein were formulated, used and inserted for convenience only and shall not affect the meaning or construction of the provisions of this Agreement. Section 7.7. Governing Law. This Agreement, executed and to be performed in the State of Indiana, shall be governed by the law of the State of Indiana. 9 IN WITNESS THEREOF, the parties have caused this Agreement to be executed by their duly authorized officers on the 29th day of July, 1993. "OWNER" BANKERS NATIONAL LIFE INSURANCE CO. By: /s/ THOMAS G. MILLS -------------------- Thomas G. Mills Vice President of Operations "CONTRACTOR" BROWNING CONSTRUCTION, INC. By: /s/ RICHARD J. POLLAK --------------------- Richard J. Pollak President EX-10.23.1 10 EXHIBIT 10.23.1 TO CONSECO, INC. 1993 FORM 10-K 1 AMENDMENT TO AIRCRAFT LEASE AGREEMENT DATED AS OF DECEMBER 22, 1988 THIS AMENDMENT amends and supplements the above Aircraft Lease Agreement (the "Lease"), between GENERAL ELECTRIC CAPITAL CORPORATION ("Lessor") and CONSECO INVESTMENT HOLDING COMPANY ("Lessee") and is hereby incorporated into the Lease as though fully set forth therein. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Lease. The Lease is hereby amended as follows: 1. Annex B of the Lease is replaced with the attached Annex B-2 and Amendment #1 to Annex F. Except as expressly modified hereby, all terms and provisions of the Lease shall remain in full force and effect. This Amendment is not binding or effective with respect to the Lease or the Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee. IN WITNESS WHEREOF, Lessee and Lessor have caused this Amendment to be executed by their duly authorized representatives as of the date first above written. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL CONSECO INVESTMENT HOLDING CORPORATION COMPANY By: /s/WILLIAM J. McELROY By: /s/MARK A. FERRUCCI --------------------- -------------------- Name: William J. McElroy Name: Mark A. Ferrucci Title: Region Credit Analyst Title: President Attest: By: /s/KIM E. LUTTHANS ------------------- Name: Kim E. Lutthans 2 GUARANTOR: Agree, Acknowledge and Accept Amendment to Aircraft Lease Agreement as set forth herein. CONSECO, INC. By: /s/LAWRENCE W. INLOW --------------------- Name: Lawrence W. Inlow Title: Executive Vice President 3 GENERAL ELECTRIC CAPITAL CORPORATION ANNEX B-2 Financial Terms (178 month Basic Lease Term) Basic Term Commencement Date: January 1, 1989 Basic Term: One Hundred Seventy Eight (178) Months Advance Rent: (a) Amount: $87,631.97 (b) Due Date: Lease Commencement Date Interim Rent: Due Date: Lease Commencement Date Original Lessors' Cost: $4,700,000.00 First Basic Rent Date: January 2, 1989 Basic Rent Dates: Monthly in Advance First Termination Date: January 2, 1992 Last Basic Rent Date: October 1, 2003 Expiration Date: October 1, 2003 Daily Lease Rate Factor: .0321% Basic Term Rental Payment: Dollar Amount Rental No. ------------- ---------- (First Rental Period) $87,631.97 #1 (Second Rental Period) $45,287.790 #2 through #58 (Third Rental Period) $33,625.18 #59 through #178 Primary Hangar Location: Indianapolis International Airport Indianapolis, Indiana 4 GENERAL ELECTRIC CAPITAL CORPORATION ANNEX B-2 Financial terms (178 month Basic Lease Term) Last Deliver Date: December 31, 1988 Tax Benefits: Method: 200% declining balance method over the Recovery Period, switching to straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance. Recovery Period: Five (5) Years Basis: 100% of Equipment Cost LESSOR: General Electric Capital Corporation By: /s/WILLIAM J.McELROY -------------------- Name: William J. McElroy Title: Region Credit Analyst LESSEE: Conseco Investment Holding Company By: /s/MARK A FERRUCCI ------------------ Name: Mark A Ferruci Title: President 5 GENERAL ELECTRIC CAPITAL CORPORATION AMENDMENT #1 to ANNEX F Page 1 of 6 Stipulated Loss and Termination Values The stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payment.
*Capitalized Lessor's Cost: $4,700,000.00 Interim Period and Basic Rent Stipulated Termination Payment Number Loss Value Value Interim Basic Term 107.957% 101.573% 1 107.957 101.573 2 107.014 100.654 3 106.963 100.628 4 106.896 100.586 5 106.816 100.530 6 106.723 100.462 7 106.618 100.382 8 106.507 100.296 9 106.384 100.197 10 106.247 100.086 11 106.106 99.969 12 105.952 99.840 13 105.784 99.698 14 105.612 99.550 15 105.431 99.394 16 105.238 99.227 17 105.037 99.051 18 104.827 98.867 19 104.610 98.675 20 104.387 98.477 21 104.156 98.272 22 103.916 98.058 23 103.671 97.838 24 103.418 97.611 25 103.156 97.375 26 102.889 97.134 27 102.615 96.886 28 102.335 96.631 29 102.049 96.371 30 101.757 96.106
6 GENERAL ELECTRIC CAPITAL CORPORATION AMENDMENT #1 to ANNEX F Page 2 of 6 Stipulated Loss and Termination Values The stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payment.
*Capitalized Lessor's Cost: $4,700,000.00 Interim Period and Basic Rent Stipulated Termination Payment Number Loss Value Value Basic Term 31 101.460 95.835 32 101.158 95.559 33 100.850 95.278 34 100.537 94.991 35 100.218 94.699 36 99.894 94.401 37 99.564 94.097 38 99.228 93.789 39 98.887 93.474 40 98.540 93.154 41 98.188 92.829 42 97.830 92.498 43 97.466 92.162 44 97.097 91.820 45 96.722 91.472 46 96.342 91.119 47 95.955 90.760 48 95.563 90.395 49 95.166 90.025 50 94.762 89.649 51 94.353 89.267 52 93.940 88.882 53 93.523 88.493 54 93.103 88.101 55 92.680 87.706 56 92.250 87.304 57 91.817 86.900 58 91.380 86.491 59 87.754 81.779 60 87.406 81.456
7 GENERAL ELECTRIC CAPITAL CORPORATION AMENDMENT #1 to ANNEX F Page 3 of 6 Stipulated Loss and Termination Values The stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payment.
*Capitalized Lessor's Cost: $4,700,000.00 Interim Period and Basic Rent Stipulated Termination Payment Number Loss Value Value Basic Term 61 87.056 81.131 61 86.702 80.802 63 86.345 80.470 64 85.988 80.138 65 85.629 79.804 66 85.270 79.470 67 84.910 79.135 68 84.546 78.796 69 84.182 78.457 70 83.817 78.117 71 83.448 77.773 72 83.078 77.428 73 82.707 77.082 74 82.333 76.733 75 81.956 76.381 76 81.580 76.030 77 81.201 75.676 78 80.821 75.321 79 80.440 74.965 80 80.056 74.606 81 79.671 74.246 82 79.284 73.884 83 78.895 73.520 84 78.504 73.154 85 78.112 72.787 86 77.718 72.418 87 77.321 72.046 88 76.924 71.674 89 76.524 71.299 90 76.122 70.922
8 GENERAL ELECTRIC CAPITAL CORPORATION AMENDMENT #1 to ANNEX F Page 4 of 6 Stipulated Loss and Termination Values The stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payment.
*Capitalized Lessor's Cost: $4,700,000.00 Interim Period and Basic Rent Stipulated Termination Payment Number Loss Value Value Basic Term 91 75.719 70.544 92 75.314 70.164 93 74.907 69.782 94 74.498 69.398 95 74.087 69.012 96 73.674 68.624 97 73.259 68.234 98 72.842 67.842 99 72.424 67.449 100 72.003 67.053 101 71.581 66.656 102 71.157 66.257 103 70.730 65.855 104 70.302 65.452 105 69.872 65.047 106 69.439 64.639 107 69.005 64.230 108 68.569 63.819 109 68.130 63.405 110 67.690 62.990 111 67.247 62.572 112 66.803 62.153 113 66.356 61.731 114 65.908 61.308 115 65.457 60.882 116 65.004 60.454 117 64.549 60.024 118 64.092 59.592 119 63.633 59.158 120 63.172 58.722
9 GENERAL ELECTRIC CAPITAL CORPORATION AMENDMENT #1 to ANNEX F Page 5 of 6 Stipulated Loss and Termination Values The stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payment.
*Capitalized Lessor's Cost: $4,700,000.00 Interim Period and Basic Rent Stipulated Termination Payment Number Loss Value Value Basic Term 121 62.708 58.283 122 62.243 57.843 123 61.775 57.400 124 61.305 56.955 125 60.833 56.508 126 60.359 56.059 127 59.882 55.607 128 59.403 55.153 129 58.922 54.697 130 58.439 54.239 131 57.953 53.778 132 57.466 53.316 133 56.976 52.851 134 56.483 52.383 135 55.989 51.914 136 55.492 51.442 137 54.992 50.967 138 54.491 50.491 139 53.987 50.012 140 53.481 49.531 141 52.972 49.047 142 52.461 48.561 143 51.948 48.073 144 51.432 47.582 145 50.913 47.088 146 50.393 46.593 147 49.870 46.095 148 49.344 45.594 149 48.816 45.091 150 48.285 44.585
10 GENERAL ELECTRIC CAPITAL CORPORATION AMENDMENT #1 to ANNEX F Page 6 of 6 Stipulated Loss and Termination Values The stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payment.
*Capitalized Lessor's Cost: $4,700,000.00 Interim Period and Basic Rent Stipulated Termination Payment Number Loss Value Value Basic Term 151 47.752 44.077 152 47.217 43.567 153 46.679 43.054 154 46.138 42.538 155 45.595 42.020 156 45.050 41.500 157 44.502 40.977 158 43.951 40.451 159 43.397 39.922 160 42.841 39.391 161 42.283 38.858 162 41.722 38.322 163 41.158 37.783 164 40.591 37.241 165 40.022 36.697 166 39.450 36.150 167 38.876 35.601 168 38.299 35.049 169 37.719 34.494 170 37.136 33.936 171 36.551 33.376 172 35.963 32.813 173 35.372 32.247 174 34.778 31.678 175 34.181 31.106 176 33.582 30.532 177 32.980 29.955 178 32.375 29.375
EX-10.24.1 11 EXHIBIT 10.24.1 CONSECO, INC. 1993 FORM 10-K 1 AMENDMENT TO AIRCRAFT LEASE AGREEMENT DATED AS OF APRIL 26, 1991 THIS AMENDMENT amends and supplements the above Aircraft Lease Agreement (the "Lease"), between GENERAL ELECTRIC CAPITAL CORPORATION ("Lessor") and CONSECO INVESTMENT HOLDING COMPANY ("Lessee") and is hereby incorporated into the lease as though fully set forth therein. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Lease. The Lease is hereby amended as follows: 1. Annex B of the Lease is replaced with the attached Annex B-1 and Amendment #1 to Annex F. Except as expressly modified hereby, all terms and provisions of the Lease shall remain in full force and effect. This Amendment is not binding or effective with respect to the Lease or the Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee. IN WITNESS WHEREOF, Lessee and Lessor have caused this Amendment to be executed by their fully authorized representatives as of the date first above written. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL CORPORATION CONSECO INVESTMENT HOLDING COMPANY By: /s/WILLIAM J. McELROY By: /s/MARK A FERRUCCI ________________________ ______________________ Name: William J. McElroy Name: Mark A. Ferrucci Title: Region Credit Analyst Title: President Attest: By: /s/KIM E. LUTTHANS _____________________ Name: Kim E. Lutthans GUARANTOR: Agree, Acknowledger and Accept Amendment to Aircraft Lease Agreement as set forth herein. CONSECO, INC. By: /s/LAWRENCE W. INLOW ______________________________ Name: Lawrence W. Inlow Title: Executive Vice President 2 GENERAL ELECTRIC CAPITAL CORPORATION ANNEX B-1 __________ Financial Terms _______________ (150 month Basic Lease Term) Basic Term Commencement Date: May 1, 1991 Basic Term: One Hundred Fifty (150) months Advance Rent: (a) Amount: $43,380.55 (b) Due Date: Lease Commencement Date Interim Rent: Due Date: Lease Commencement Date Original Lessors' Cost: $4,500,000.00 First Basic Rent Date: May 1, 1991 Basic Rent Dates: Monthly in Advance First Termination Date: May 1, 1994 Last Basic Rent Date: October 1, 2003 Expiration Date: October 31, 2003 Daily Lease Rate Factor: .032059% Basic Term Rental Payment: Dollar Amount Rental No. ------------- ---------- (First Rental Period) $43,280.55 #1 through #30 (Second Rental Period) $39,322.32 #31 through #150 Primary Hanger Location: Indianapolis International Airport Indianapolis, Indiana 3 GENERAL ELECTRIC CAPITAL CORPORATION ANNEX B-1 Financial Terms (150 month Basic Lease Term) Last Delivery Date: April 30, 1991 Tax Benefits: Depreciation Deductions: Method: 200% declining balance method over the Recovery Period, switching to straight line method for the first taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance. Recovery Period: Five (5) Years Basis: 100% of Equipment Cost LESSOR: LESSEE: General Electric Capital Corporation Conseco Investment Holding Company By: /s/WILLIAM J. McELROY By: /s/MARK A. FERRUCCI __________________________ ________________________ Title: Region Credit Analyst Title: President 4 GENERAL ELECTRIC CAPITAL CORPORATION AMENDMENT #1 to ANNEX F Page 1 of 5 Stipulated Loss and Termination Values The Stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payment. *Capitalized lessor's Cost: $4,500,000.00
Interim Period and Basic Rent Stipulated Termination Payment Number Loss Value Value ________________ __________ ___________ Interim 106.303% 103.351% Basic Term 1 106.303 103.351 2 106.258 103.330 3 106.203 103.299 4 106.143 103.263 5 106.075 103.219 6 105.996 103.164 7 105.914 103.106 8 105.822 103.038 9 105.720 102.960 10 105.614 102.878 11 105.501 102.789 12 105.374 102.686 13 105.234 102.570 14 104.082 102.442 15 104.917 102.301 16 104.747 102.155 17 104.565 101.997 18 104.371 101.827 19 104.171 101.651 20 103.959 101.463 21 103.735 101.263 22 103.505 101.057 23 103.267 100.843 24 103.018 100.618 25 102.761 100.385 26 102.497 100.145 27 102.224 99.896 28 101.946 99.642 29 101.661 99.381 30 101.367 99.111
5 GENERAL ELECTRIC CAPITAL CORPORATION AMENDMENT #1 to ANNEX F Page 2 of 5 Stipulated Loss and Termination Value The Stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payable. Capitalized Lessor's Cost: $4,500,000.00
Interim Period and Basic Rent Stipulated Termination Payment Number Loss Value Value ________________ __________ ___________ Basic Term 31 98.469 92.494 32 98.101 92.151 33 97.727 91.802 34 97.348 91.448 35 96.964 91.089 36 96.576 90.726 37 96.183 90.358 38 95.785 89.985 39 95.382 89.607 40 94.975 89.225 41 94.563 88.838 42 94.146 88.446 43 93.725 88.050 44 93.298 87.648 45 92.867 87.242 46 92.431 86.831 47 91.991 86.416 48 91.545 85.995 49 91.095 85.570 50 90.640 85.140 51 90.179 84.704 52 89.715 84.265 53 89.245 83.820 54 88.770 83.370 55 88.290 82.915 56 87.806 82.456 57 87.316 81.991 58 86.821 81.521 59 86.322 81.047 60 85.820 80.570
6 GENERAL ELECTRIC CAPITAL CORPORATION AMENDMENT #1 to ANNEX F Page 3 of 5 Stipulated Loss and Termination Value The Stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payable. Capitalized Lessor's Cost: $4,500,000.00
Interim Period and Basic Rent Stipulated Termination Payment Number Loss Value Value ________________ __________ ___________ Basic Term 61 85.314 80.089 62 84.806 79.606 63 84.294 79.119 64 83.777 78.627 65 83.257 78.132 66 82.734 77.634 67 82.206 77.131 68 81.674 76.624 69 81.140 76.115 70 80.600 75.600 71 80.056 75.081 72 79.510 74.560 73 78.963 74.038 74 78.414 73.514 75 77.863 72.988 76 77.307 72.457 77 76.750 71.925 78 76.191 71.391 79 75.627 70.852 80 75.061 70.311 81 74.493 69.768 82 73.920 69.220 83 73.344 68.669 84 72.767 68.117 85 72.188 67.563 86 71.608 67.008 87 71.025 66.450 88 70.437 65.887 89 69.848 65.323 90 69.257 64.757
7 GENERAL ELECTRIC CAPITAL CORPORATION AMENDMENT #1 to ANNEX F Page 4 of 5 Stipulated Loss and Termination Value The Stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payable. Capitalized Lessor's Cost: $4,500,000.00
Interim Period and Basic Rent Stipulated Termination Payment Number Loss Value Value ________________ __________ ___________ Basic Term 91 68.660 64.185 92 69.062 63.612 93 67.461 63.036 94 66.855 62.455 95 66.246 61.871 96 65.636 61.286 97 65.023 60.698 98 64.409 60.109 99 63.793 59.518 100 63.171 58.921 101 62.548 58.323 102 61.922 57.722 103 61.291 57.116 104 60.658 56.508 105 60.022 55.897 106 59.382 55.282 107 58.737 54.662 108 58.091 54.041 109 57.443 53.418 110 56.793 52.793 111 56.141 52.166 112 55.483 51.533 113 54.823 50.898 114 54.161 50.261 115 53.493 49.618 116 52.823 48.973 117 52.151 48.326 118 51.473 47.673 119 50.791 47.016 120 50.107 46.357
8 GENERAL ELECTRIC CAPITAL CORPORATION AMENDMENT #1 to ANNEX F Page 5 of 5 Stipulated Loss and Termination Value The Stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payable. Capitalized Lessor's Cost: $4,500,000.00
Interim Period and Basic Rent Stipulated Termination Payment Number Loss Value Value ________________ __________ ___________ Basic Term 121 49.421 45.696 122 48.733 45.033 123 48.043 44.368 124 47.347 43.697 125 46.648 43.023 126 45.947 42.347 127 45.240 41.665 128 44.531 40.981 129 43.819 40.294 130 43.101 39.601 131 42.379 38.904 132 41.656 38.206 133 40.933 37.508 134 40.214 36.814 135 39.491 36.116 136 38.765 35.415 137 38.035 34.710 138 37.301 34.001 139 36.564 33.289 140 35.823 32.573 141 35.079 31.854 142 34.330 31.130 143 33.578 30.403 144 32.822 29.672 145 32.063 28.938 146 31.299 28.199 147 30.532 27.457 148 29.761 26.711 149 28.986 25.961 150 28.207 25.207
EX-10.25 12 EXHIBIT 10.25 TO CONSECO, INC. 1993 FORM 10-K 1 AIRCRAFT LEASE PURCHASE AGREEMENT THIS AIRCRAFT LEASE PURCHASE AGREEMENT (this "Lease") is entered into the 28th day of December, 1993 by and between METLIFE CAPITAL CORPORATION, a Delaware corporation, as lessor ("Lessor") and CONSECO INVESTMENT HOLDING COMPANY, a Delaware corporation, as lessee ("Lessee"). 1. Request to Purchase. Lessee hereby requests Lessor to purchase from C.I.T. Leasing Corporation ("CIT") the following described aircraft and related equipment and accessories (hereinafter referred to individually as a "Component" and collectively as the "Aircraft"). Lessee hereby represents and warrants to Lessor that the Aircraft and Components are as described below, and that Lessee is presently in possession of the Aircraft under the terms of a lease (the "CIT Lease") from CIT to Lessee. Lessee has provided Lessor with the specifications (the "Specifications") of the Aircraft, which appear below. Lessee assumes full responsibility with respect to the selection of the Aircraft and the Specifications thereof; Lessor shall have no liability or responsibility with respect thereto regardless of whether the Specifications prove inadequate for Lessee's intended purpose or use. Name and Address of Seller: C.I.T. Leasing Corporation Complete Description of Equipment: One (1) 1989 Canadair Ltd. CL-600-2B16 Aircraft, N652CN, S/N 5040 , two (2) General Electric CF34 Engines, S/N 350325 and 350328, Honeywell and Dual Collins Avionics, Airshow 200 System, Wulfsberg Flitefone, cabin video system, Sony CD player, security system, together with all parts and accessories, accessions, additions and attachments thereto and replacements thereof. Price: $15,586,933.08 TOTAL PRICE $15,586,933.08 EXCISE/SALES TAX $ TRANSPORTATION $ OTHER $ TOTAL COST: $15,586,933.08 2. Agreement to Lease; Fees. Lessor agrees to lease the Aircraft to see, and Lessee agrees to lease the Aircraft from Lessor, on the terms and subject to the conditions set forth herein. (a) Lease Fee. Concurrently with execution of this Lease, Lessee shall deliver to Lessor a lease fee (the "Lease Fee") in an amount equal to .229% of the Total Cost (as set forth in the chart above). (b) Expenses Lessee has paid to Lessor a $250.00 non-refundable documentation fee to cover Lessor's usual and customary administrative expenses in processing this transaction. If Lessor engages outside counsel for the purpose of closing this transaction (including Federal Aviation Administration counsel), or if Lessor is required to obtain appraisals or to incur other extraordinary expenses, Lessee shall pay such costs to Lessor upon demand. (c) Deposit. Lessee has paid to Lessor a non-interest bearing deposit (the "Deposit) in the amount of 1% of the Total Cost. This Deposit, less the $250 documentation fee, will be returned to Lessee on the Closing Date. 3. Inspection; Acceptance. Lessee shall inspect and test each Component and the Aircraft prior to execution by Lessee of this Agreement. Lessee shall give Lessor written notice of acceptance of each Component and the Aircraft concurrently with execution of this Lease. As between Lessee and Lessor, the giving of such written notice shall constitute Lessee's irrevocable acceptance of the Component and the Aircraft, regardless of whether the Component or the Aircraft is defective in any respect, and notwithstanding any failure of the Component or the Aircraft to conform to the Specifications, without prejudice however to rights, if any, that Lessor and Lessee or either of them may have against any other person, whether with respect to design, manufacture, condition or otherwise. 2 4. Purchase Cut-Off Date. If Lessee shall not have given Lessor written notice of acceptance of a Component or the Aircraft concurrently with or before execution of this Lease by Lessee (the "Purchase Cut-Off Date"), Lessor shall have no obligation to lease the Component or the Aircraft to Lessee. In such event, Lessee shall immediately pay all accrued Interim Rental and reimburse Lessor for all sums Lessor may have paid for or with respect to the Component or the Aircraft and for all of Lessor's costs and expenses with respect thereto, and Lessee shall indemnify and defend Lessor against and hold Lessor harmless from any and all cost, expense, loss, liability and damage that Lessor may suffer or that may be asserted against Lessor by reason of Lessor's failure or refusal to lease such Component. 5. Conditions Precedent. Lessee shall deliver to Lessor such further instruments, documents and certifications as Lessor reasonably may request, including without limitation evidences of authority (e.g., corporate certificates, resolutions and authorizations) evidence of insurance in accordance with Section 12, purchase orders and acceptances thereof, purchase and sale agreements and financial information, and instruments and documents to implement, perfect or continue the perfection of Lessor's rights and remedies as lessor of the Aircraft, including Uniform Commercial Code forms. Any obligation of Lessor to (a) make any commitments to make payment for the Aircraft or any Component, and (b) lease the Aircraft and any Component to Lessee are conditioned upon (i) Lessee's delivery of the Lease Fee, (ii) release of the CIT Lease on the records of the Federal Aviation Administration (the "FAA"), (iii) registration of the Aircraft with the FAA with no other encumbrance on the Aircraft, and (iv) Lessee's delivery to Lessor or its agent of the following documents: a signed corporate resolution of Lessee, authorizing execution and delivery of this Lease and all related documents; an executed Uniform Commercial Code financing statement reflecting Lessor as secured party and Lessee as debtor; an executed Guaranty of Conseco, Inc.; an executed Letter of Acceptance; an executed Pay Proceeds Letter; and an executed Closing Schedule. 6. Term. The Term of this Lease ("Term") shall consist of a "Basic Term," and may in addition consist of an "Interim Term." The Interim Term, if any, shall begin on the date Lessor makes any disbursement directly to Lessee from escrow of a portion of the Total Cost (as shown in Section 1), and shall continue until the time the Basic Term begins. The Basic Term shall begin on the Closing Date, as defined in Section 9 below, and shall continue for ninety-six (96) months. 7. Interim Rental. During the Interim Term, if any, Lessee shall pay rent ("Interim Rental") in an amount calculated daily, payable monthly (including any partial month), and determined by applying the Interim Rental Rate (as defined below) to the portion of the Total Cost disbursed by Lessor and remaining outstanding. "Interim Rental Rate" shall mean the average weekly yield of 30-day Commercial Paper (as published in the Federal Reserve Statistical Release H.15[519]) as published immediately prior to the date Lessor makes a partial disbursement of funds hereunder plus 1.45%. 8. Periodic Rental. Lessee shall pay monthly rent ("Periodic Rental") for the Basic Term in the amounts set forth below. Periodic Rental payments are payable monthly in arrears beginning upon the Closing Date, as defined in Section 9. (a) Initial Periodic Rental. The Periodic Rental for each of the first twelve (12) months of the Basic Term shall be a level amount equal to the product of the Total Cost times 0.81456%. (b) Adjustment of Periodic Rental; Subsequent Years. On each anniversary of the Closing Date (each such date being an "Adjustment Date"), the Periodic Rental payable for the next twelve months shall be re-calculated in accordance with the following formula: treating the Stipulated Loss Value (as defined in Section 17) as of the Adjustment Date as though it were an outstanding principal balance under a loan (the "Hypothetical Remaining Principal"), amortize the Hypothetical Remaining Principal over the then remaining term of this Lease, assuming a hypothetical end of term balloon payment of 50% of Total Cost, at a rate equal to the weekly average yield of 30-day Commercial Paper (as published in the Federal Reserve Statistical Release H.15[519]) (each such weekly average yield being referred to herein as the "Commercial Paper Rate") for the complete week immediately preceding the Adjustment Date plus 1.45%. 3 (c) Supplemental Rent; Rent Rebate; Preceding Year. On each Adjustment Date, the Periodic Rental for the preceding year shall be adjusted in accordance with the following formula: (i) calculate the average of the Commercial Paper Rate for the preceding 52 weeks (the "Average Yield"); (ii) on the first Adjustment Date, subtract 3.14% from the Average Yield, and on each Adjustment Date after the first Adjustment Date, subtract from the Average Yield the Commercial Paper Rate as published for the complete week immediately preceding the previous Adjustment Date. The result of the calculation so made shall be referred to herein as the "Adjustment Factor." If the Adjustment Factor is a positive number, Lessee shall immediately remit to Lessor upon demand the Supplemental Rent, as defined below. If the Adjustment Factor is a negative number, Lessor shall immediately remit to Lessee the Rent Rebate, as defined below. "Supplemental Rent" shall be equal to the product of the positive Adjustment Factor times the Stipulated Loss Value for the month that is six (6) months prior to the relevant Adjustment Date. "Rent Rebate" shall be equal to the product of the negative Adjustment Factor times the Stipulated Loss Value for the month that is six (6) months prior to the relevant Adjustment Date. 9. Closing. The "Closing Date" shall be the later of (i) the date Lessee gives Lessor written notice of acceptance of the last Component, (ii) the Purchase Cut-Off Date, (iii) the date a release of the CIT Lease has been filed with the FAA and this Lease has been filed with the FAA, or (iv) such other date as is mutually agreed between Lessor and Lessee. On or before the Closing Date, Lessor shall send Lessee a Closing Schedule ("Schedule"), setting forth any adjustments to descriptions and costs, and confirming the Closing Date, the amount of Periodic Rental installments, the payment schedule, and insurance requirements. On the Closing Date, Lessee shall execute and return to Lessor the Schedule. Lessee's signature on the Schedule shall signify Lessee's agreement that the Schedule is correct. Notwithstanding any discrepancies or disagreements between Lessor and Lessee regarding the Schedule, Lessee shall pay all rentals as they become due in accordance with the terms and conditions of this Lease. The Schedule is incorporated herein by this reference. 10. Purchase Options/Sale Obligations. (A) End of Lease Term. (i) Purchase Option. On the last day of the Term, Lessee shall have the option to purchase the Aircraft for a price (the "Purchase Option Price") equal to fifty percent (50%) of the Total Cost. If Lessee elects to purchase the Aircraft, Lessee shall deliver to Lessor the Purchase Option Price, in cash, on the last day of the Term. Upon receipt of the Purchase Option Price, Lessor shall deliver to Lessee a bill of sale, transferring title from Lessor to Lessee. If Lessee fails to deliver the Purchase Option Price to Lessor on the last day of the Term, Lessee shall be deemed to have waived its right to exercise this purchase option. (ii) Sale of Aircraft. If Lessee fails to exercise, or waives its right to exercise, the purchase option described in Section 10(A)(i) above, then Lessee shall, on the last day of the Term, sell the Aircraft in a commercially reasonable manner; provided, however, that Lessee shall not sell the Aircraft for less than twenty percent (20%) of the Total Cost without Lessor's prior written consent. If Lessee requests permission from Lessor to sell the Aircraft for less than twenty percent (20%) of the Total Cost, or if Lessee fails to sell the Aircraft on or before the last day of the Term, Lessor may, at its sole option, sell the Aircraft as agent for Lessee. The net proceeds of any sale under this Section 10(A)(ii) shall be paid to Lessor; provided, however, that if the net proceeds of any sale hereunder exceed fifty percent (50%) of the Total Cost, then Lessee shall be entitled to that portion of the price received for the Aircraft in excess of fifty percent (50%) of the Total Cost; and provided further that if the net proceeds received from any sale hereunder are less than fifty percent (50%) of the Total Cost, then Lessee shall immediately pay to Lessor the difference between the price received and the amount that is equal to fifty percent (50%) of the Total Cost, up to a maximum amount equal to thirty five and 75/100 percent (35.75%) of the Total Cost. If Lessee sells the Aircraft pursuant to the terms of this Section 10, upon Lessor's receipt of the total amount owed to Lessor under this section, Lessor shall deliver to the purchaser of the Aircraft a bill of sale transferring title to the Aircraft from Lessor to such purchaser. 4 (iii) Interest Prior to Sale of Aircraft. If Lessee fails to exercise, or waives its right to exercise, the purchase option described in Section 10(A)(i) above, and Lessee does not complete the sale required by Section 10(A)(ii) above and does not transfer the net sale proceeds therefrom to Lessor on or before the last day of the Term, then Lessee, in lieu of any payment pursuant to Section 24, shall pay Lessor interest on the minimum allowable sales price at the then current prime rate until the sale is consummated and Lessor has received the net sales proceeds and deficiency payment, if any. Partial payments hereunder shall reduce the balance against which interest is accrued. (B) Purchase During Lease Term. Lessee shall have the option, at any time after the first year of the Basic Term, upon not less than thirty (30) days prior written notice to Lessor, to purchase the Aircraft prior to the end of the Term. If Lessee wishes to purchase the Aircraft prior to the end of the Term, it shall deliver to Lessor written notice of its intent to purchase the Aircraft not less than thirty (30) days prior to the date Lessee proposes to purchase the Aircraft, specifying the proposed purchase date. After delivery of such notice, Lessee shall on or before the proposed purchase date deliver to Lessor, in cash or other funds immediately available in Bellevue, Washington, the Stipulated Loss Value of the Aircraft as of the proposed purchase date, together with a prepayment premium equal to the product of the Total Cost times the relevant premium factor set forth in Exhibit A attached hereto and by this reference incorporated herein. (The product of the Total Cost times the premium factor set forth in Exhibit A for the date any such calculation may be, or is required to be, made under the terms of this Lease is referred to in this Lease as the "Prepayment Premium.") If Lessee purchases the Aircraft pursuant to the terms of this section, upon receipt by Lessor of the purchase amount, together with the prepayment premium and all other amounts owed by Lessee under this section, Lessor shall deliver to Lessee a bill of sale transferring title to the Aircraft from Lessor to Lessee. (C) Special Purchase Option. If the Internal Revenue Service determines that, for tax purposes, Lessee is not entitled to depreciation on the Aircraft, then, for a period of thirty (30) days after such determination Lessee shall have the right to purchase the Aircraft for the then Stipulated Loss Value, plus a Prepayment Premium, calculated as set forth above, plus or minus any Supplemental Rent or Rent Rebate, respectively, accrued to such dates, plus any and all other amounts then due hereunder. If Lessee exercises the right to purchase the Aircraft pursuant to the terms of this section, upon receipt by Lessor of the purchase amount, together with the prepayment premium and all other amounts owed by Lessee under this section, Lessor shall deliver to Lessee a bill of sale transferring title to the Aircraft from Lessor to Lessee. 11. Lessee's Warranties. (A) Lessee represents and warrants to Lessor that it is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and that it is qualified to do business in the jurisdiction where the Aircraft is to be kept when not in use as provided in Subsection (B) below; it has taken all corporate action which may be required to authorize the execution, delivery and performance of this Lease, and such execution, delivery and performance will not conflict with or violate any provision of its Charter or Articles or Certificate of Incorporation, By-Laws or any provisions thereof, or result in a default or acceleration of any obligation under any agreement, order, decree or judgment to which it is a party or by which it is bound, nor is it now in default under any of the same; there is no litigation or proceeding pending or threatened against it which may have a materially adverse effect on Lessee or which would prevent or hinder the performance by it of its obligations hereunder; this Lease and the attendant documents constitute valid obligations of Lessee, binding and enforceable against it in accordance with their respective terms, except as such enforceability may be limited by fraudulent conveyance, moratorium, bankruptcy, insolvency, reorganization or other similar laws affecting the enforceability of creditors' rights generally and by general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law); no action by or with any commission or administrative agency is required in connection herewith; it has the power to own its assets and to transact business in which it is engaged; and it will give to Lessor prompt notice of any change in its name, identity or structure. 5 (B) Lessee's written acceptance of a Component shall constitute a REPRESENTATION AND WARRANTY BY Lessee to Lessor that: (i) the Component is personal property in good order and condition; (ii) the Component conforms to Specifications; (iii) at all times when not in use Lessee shall keep the Aircraft at the following location: 7815 Headwind Drive, Indianapolis, IN 46241 unless Lessor shall otherwise consent in writing. 12. Insurance. Lessee shall at its own cost, procure, maintain and carry in full force and effect insurance policies with coverages as hereafter described in Sections (A) and (B). Prior to funding and upon request by Lessor, Lessee shall provide Lessor with certificates of insurance evidencing compliance with this Section 12. Each and every policy shall contain an agreement by the insurer that, notwithstanding the lapse of any such policy for any reason or any right of cancellation of the insurer or any cancellation by Lessee, whether voluntary or involuntary, each such policy shall continue in force for the benefit of Lessor for at least thirty (30) days after written notice of such cancellation to Lessor, and that no material alteration whatsoever in any such policy shall be made in respect of the Aircraft or any part thereof except upon thirty (30) days' written notice of such proposed alteration to Lessor. Each such policy shall insure Lessor's interest regardless of any breach or violation by Lessee of any warranties, declarations or conditions contained in such policies. Lessee covenants, warrants and represents that Lessee will not do any act or voluntarily suffer or permit any act to be done whereby any insurance required hereunder shall or may be suspended, impaired or defeated and that Lessee in no circumstances will suffer or permit the Aircraft to be used or operated during any period under this Lease without all said insurance being in full force and effect. The geographic limits, if any, in each and every such policy of insurance shall include at a minimum all territories over which Lessee will operate the Aircraft. Upon notice from Lessor, Lessee will supply Lessor with written documentation of the geographic limits of such insurance coverage. If Lessee wishes to extend such geographic limits, it may only do so upon the consent of Lessor. In the event that Lessee should for any reason fail to renew or replace any such policy or contract of insurance at least ten (10) days prior to the expiration thereof or fail to keep any such policy in full force and effect, Lessor shall have the option, unless Lessee shall have notified Lessor that it is actively investigating alternative coverage (provided that coverage has not expired), to pay the premiums on any said policy or contract of insurance or to take out new insurance in amount, type, coverage and terms satisfactory to Lessor, and any sum paid therefor by Lessor shall be immediately due and payable to Lessor by Lessee; provided, however, that no exercise by Lessor of said option shall in any way affect the provisions of this Lease, including the provision which makes failure by Lessee to maintain the prescribed insurance an Event of Default. (A) Public Liability Insurance. Lessee shall obtain and maintain aircraft liability, public liability, passenger liability and property damage insurance coverages of not less than $20,000,000 with financially responsible insurers having a Best "A" rating or better. All policies of insurance carried in accordance with this Subsection (A) shall include Lessor as an additional insured thereunder with respect to the Aircraft. Each liability policy shall expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured. Each policy shall contain a clause in which the insurance company acknowledges existence of the indemnification provided in Section 19 of this Lease. (B) Casualty Insurance. Lessee shall obtain and maintain "All Risk" type hull insurance on the Aircraft, including comprehensive ground and crash coverage both on the ground and while in flight (such insurance shall include the breach of warranty endorsement) in an amount not less than the full replacement value of the Aircraft. Notwithstanding anything else herein contained, the Aircraft shall not be used in any geographical area not covered by the prescribed policies issued to Lessee and then in effect. Lessee further covenants and agrees that any policies under this Subsection (B) shall include Lessor as an additional insured shall be made payable to Lessor to the extent of the Stipulated Loss Value and shall insure Lessor's interest regardless of any breach or violation by Lessee of any warranties, declarations or conditions contained in such policies; provided, however, that upon the payment of any Stipulated Loss Value by Lessee to Lessor with respect to a casualty, Lessor shall take all such actions as shall be required to cause Lessee to become the loss payee with respect to any and all proceeds of insurance applicable thereto. 6 (C) Proceeds. In the event that the Aircraft shall be lost, destroyed, or irreparably damaged from any cause whatsoever during the term of this Lease, Lessor and Lessee shall proceed diligently and cooperate fully with each other in the recovery of any and all proceeds of insurance applicable thereto. Unless Lessor shall have previously received payment from Lessee on account of such event under the terms of Section 16, Lessor or its assignee shall receive from the proceeds of said insurance recovery an amount equal to the sum of: (i) unpaid rentals with respect to such Aircraft, if any, to the date of such loss, destruction or irreparable damage, including any accrued Supplemental Rent or less any Rent Rebate, as the case may be, (ii) the Stipulated Loss Value with respect to such Aircraft determined as of the date of such loss, destruction or irreparable damage, and (iii) any and all other amounts then due hereunder. Upon receipt by Lessor or its assignee of the amount specified herein in respect of such Aircraft so lost, destroyed or damaged, this Lease shall be deemed terminated as to the Aircraft, and Lessee shall be entitled to receive the remainder, if any, of all insurance proceeds as compensation for loss of Lessee's leasehold interest in respect of such Aircraft. (D) Application of Proceeds. Any proceeds of insurance received by Lessor with respect to the Aircraft, the repair of which is practicable, shall, at the election of Lessee, be applied either to the reasonable cost of repairing the Aircraft or to the reimbursement of Lessee for the reasonable cost of such repair. (E) Separate Insurance. Nothing in this Section 11 shall be construed to prohibit Lessor from insuring at its own expense the Aircraft or its interest therein, and any insurance so maintained shall not provide for or result in a reduction of the coverage of the amounts payable under any of the insurance required to be maintained by Lessee. 13. Taxes. Lessee shall pay all taxes, fees, assessments and other governmental charges of whatsoever kind or character and by whomsoever payable on or relating to the Aircraft or the sale, purchase, ownership, use, value, value added, possession, shipment, transportation, delivery or operation thereof or the exercise of any option, election or performance of any obligation by Lessee hereunder, which may accrue or be levied, assessed or imposed during the Term or which remain unpaid as of the date of surrender of such Aircraft to Lessor, and all taxes of any kind imposed by any federal, state, local, or foreign taxing authority against Lessor on or measured by any amount payable by Lessee hereunder, including, without limitation, all license and registration fees and all sales, use, value, ad valorem, personal property, excise, gross receipts, stamp or other taxes, imposts, duties and charges together with any penalties, fines or interest thereon, except taxes of Lessor on net income imposed by the United States or any state. Without limiting the generality of the foregoing, Lessee shall remit to the appropriate taxing authority, within ten (10) days after the Closing Date, the excise tax that is due with respect to this transaction, and shall at the same time file with the appropriate taxing authority a Form #7695. In addition, Lessee shall deliver to Lessor at the Closing a Form ST 105 exemption certificate with respect to sales tax. Lessee shall reimburse Lessor for any payments made by Lessor which are the obligation of Lessee under this Lease, but Lessee shall not be obligated to pay any amount under this Section 13 so long as it shall in good faith and by appropriate proceedings contest the validity or the amount thereof, unless such contest would adversely affect Lessor's interest in the Aircraft or would subject the Aircraft to forfeiture or sale. Lessee shall indemnify Lessor on an after-tax basis against any loss, claim, demand and expense, including legal expense, resulting from such nonpayment or contest and further agrees to indemnify Lessor against any and all taxes, assessments and other charges imposed upon Lessor under the laws of any federal, state, local or foreign government or taxing authority, as a result of any payment made by Lessee pursuant to this Section. Upon lease termination, Lessee will, on request, advance to Lessor the amount reasonably estimated by Lessor to equal personal property taxes on the Aircraft which are not yet payable but for which Lessee will afterward become liable hereunder. Lessor shall provide to Lessee a written accounting for such advances, and shall promptly deliver to Lessee the excess, if any, of the amount advanced by Lessee over the actual amount of the personal property taxes. If Lessor's estimate as to the amount of such personal property taxes is less than the actual amount due, Lessee shall immediately upon request of Lessor deliver the shortfall to Lessor. On request of either Lessor or Lessee, the other will submit written evidence of all payments required of it under this Section. 7 14. Maintenance, Etc. (A) Lessee at its expense at all times shall: (i) keep the Aircraft in good and efficient working order, condition and repair, ordinary wear and tear excepted, and make all inspections and repairs, including replacement of worn parts, to effect the foregoing and to comply with requirements of laws, regulations, rules and provisions and conditions of insurance policies; and (ii) pay all costs, expenses, fees and charges incurred in connection with the use or operation of the Aircraft, including but not limited to repairs, maintenance, storage and servicing. Lessee shall at is sole cost and expense, maintain, service (including but not limited to the establishment of an engine oil analysis program during the Term), repair and overhaul the Aircraft as required to meet the standards of the FAA and to keep the Aircraft currently registered, certificated and air worthy under and in accordance with requirements of the FAA. In addition, Lessee shall comply with all applicable service, maintenance, repair and overhaul regulations, airworthiness directives and instructions of the FAA and all appropriate maintenance, service, repair and overhaul manuals and mandatory service bulletins published by the manufacturers of the airframe, engines, propellers, accessories and parts installed on the Aircraft. All freight records, logs, flight manuals and other materials shall be made available by Lessee to Lessor for inspection at such times and places as Lessor may reasonably request. Lessee shall not make any material alterations, substitutions, improvements or additions to the Aircraft, except those required in order to comply with laws, regulations, rules and insurance policies, unless Lessor first shall have consented thereto in writing, which consent shall not be unreasonably withheld. Notwithstanding any consent by Lessor, Lessee shall pay all costs and expenses of the foregoing. All replacements, repairs, improvements, alterations, substitutions and additions shall constitute accessions to the Aircraft and shall become the property of Lessor. (B) Lessor hereby transfers and assigns to Lessee, for so long during the Term as Lessee is not in default, Lessor's right, title and interest in, under and to any assignable factory and dealer warranty, whether express or implied, with respect to the Aircraft. All claims and actions upon any warranty shall be made and prosecuted by Lessee at its sole cost and expense. Lessor shall have no obligation to make or prosecute any claim upon or under a warranty. So long as Lessee shall not be in default, Lessor shall cooperate with Lessee with respect to a claim on a non-assignable warranty, at Lessee's expense. Lessee shall have proceeds of a warranty claim or recovery paid to Lessor. Lessor shall make such proceeds available for any repair, restoration or replacement to correct such warranted condition. Any excess proceeds shall be paid to Lessee. 15. Use. So long as Lessee shall not be in default, Lessee shall be entitled to the possession, use and quiet enjoyment of the Aircraft during the Term in accordance with the terms of this Lease. Lessee warrants that the Aircraft will at all times be used and operated for the purpose for which it was designed and intended and under and in compliance with applicable laws and all lawful acts, rules, regulations and orders of any governmental bodies or officers having power to regulate or supervise the use of such property, except that Lessee may in good faith and by appropriate proceedings contest the application of any such rule, regulation or order in any reasonable manner that will not adversely affect the interest of Lessor in the Aircraft or subject the same to forfeiture or sale. Lessee will not permit its rights or interest hereunder to be subject to any lien, charge or encumbrance and will keep the Aircraft free and clear of any and all liens, charges, encumbrances and adverse claims (except those arising from acts of Lessor). Lessee shall not use the Aircraft in any geographical area outside the geographical area specified in any policy or policies of insurance covering the Aircraft. 16. Net Lease; Loss and Damage. (A) This is a net lease. Lessee assumes all risk of and shall indemnify Lessor against all damage to and loss of the Aircraft from any cause whatsoever, whether or not such loss or damage is or could have been covered by insurance. Except as otherwise specifically provided herein, this Lease shall not terminate and there shall be no abatement, reduction, suspension or deferment of Interim or Periodic Rental for any reason, including damage to or loss of the Aircraft. Lessee promptly shall give Lessor written notice of any material loss or damage, describing completely and in detail the cause and the extent of loss and damage. At the option of Lessee, Lessee shall: (i) repair or restore the Aircraft to good condition and working order; or (ii) replace 8 the damaged Aircraft with similar aircraft in good condition and working order; or (iii) pay Lessor in cash the Stipulated Loss Value of the Aircraft plus a Prepayment Premium calculated as set forth in Section 10(B) plus any and all other amounts then due hereunder. Upon Lessee's complying with the foregoing, Lessor shall pay or cause to be paid over to Lessee the net proceeds of insurance, if any, with respect to such damage or loss. "Damage" and "loss" shall include damages and losses of any kind whatsoever including, without limitation, physical damage and partial or complete destruction, including intentionally caused damage and destruction, and theft. (B) If Lessee pays Lessor the Stipulated Loss Value of the Aircraft and all other amounts set forth in Section 16(A)(iii), then this Lease shall terminate with respect to the Aircraft and Lessee shall be entitled to retain the Aircraft. However, it is understood that Lessor makes no representation or warranty with respect to the Aircraft, and further that Lessor shall have no obligation to pay any tax with respect thereto. In the event that Lessee pays Lessor the Stipulated Loss Value for the Aircraft, together with all other amounts set forth in Section 16(A)(iii), Periodic Rental for the remainder of the Term shall be abated. 17. Stipulated Loss Value. The "Stipulated Loss Value" of the Aircraft on any given date shall be the amount set forth opposite the date that most recently precedes such given date in Exhibit B attached hereto and by this reference incorporated herein. 18. Title; Marking; Security Interest. Lessor and Lessee acknowledge and agree that title to the Aircraft shall be vested in Lessor. If so requested by Lessor, Lessee will affix tags, supplied by Lessor, reflecting Lessor's interest in the Aircraft. The size, design and requested location on the Aircraft for such tags will be subject to Lessee's consent. As security for the due and punctual payment of any and all of the present and future obligations of Lessee to Lessor, whether direct or contingent or joint and several, Lessee hereby conveys, assigns and grants to Lessor, its successors and assigns, a continuing security interest in any and all of Lessee's right, title and interest in and to the Aircraft, including all present and future additions, attachments, accessions, parts, equipment, tools, accessories, supplies and improvements thereto, all substitutions and replacements therefor and all proceeds thereof, including proceeds of insurance. 19. Lessee's Indemnities. Lessee will defend, indemnify and hold harmless Lessor from and against any claim, cause of action, damage, liability, cost or expense (including but not limited to legal fees and costs) which may be asserted against or incurred in any manner by or for the account of Lessor or Lessee: (i) relating to the Aircraft or any part thereof, including without limitation the manufacture, construction, purchase, delivery, acceptance or rejection, installation, ownership, sale, leasing, removal or return of the Aircraft, or as a result of the use, maintenance, repair, replacement, operation or the condition thereof (whether defects are latent or discoverable); (ii) by reason or as a result of any act or omission of Lessee for itself or as agent or attorney-in-fact for Lessor hereunder; (iii) as a result of claims for patent, trademark or copyright infringement relating to the Aircraft or its use; or (iv) as a result of product liability claims or claims for strict liability relating to the Aircraft or its use. 20. Late Payment. If any installment of rent or other sum owing under this Lease shall not be paid when due and shall remain unpaid for ten (10) days, Lessee shall pay Lessor a late charge equal to five percent (5%) of the amount delinquent, but in no event at a rate greater than limited by any applicable law. Such late charge is in addition to and not in lieu of other rights and remedies Lessor may have. 21. Lessor May Perform. If Lessee at any time shall fail to pay to any person any sum which Lessee is required by this Lease to pay or shall fail to do or perform any other thing Lessee is required by this Lease to do or perform, Lessor at its option may pay such sum or do or perform such thing, and Lessee shall reimburse Lessor on demand for the amount of such payment and for the cost and expense which may be incurred by Lessor for such acts or performance, together with interest thereon at the Default Rate from the date of demand until paid. 22. Events of Default and Remedies. (A) Events of Default. Each of the following shall constitute an event of default: 9 (i) Failure to perform and comply with the provisions and conditions of Section 12 hereof; or (ii) Failure to pay on the date when due, any sum, including installments of rental, owed by Lessee or any affiliate of Lessee at anytime to Lessor; or (iii) Failure to perform and comply with any other provision or condition of this Lease within thirty (30) days after Lessor shall have given Lessee written notice of default with respect thereto; or (iv) If any representation or warranty made by Lessee herein or in any statement or certificate furnished by Lessee in connection with this Lease proves untrue in any material respect as of the date of making thereof, and shall not be made good within thirty (30) days after written notice thereof to Lessee; or (v) Lessee becomes insolvent or is generally not paying its debts as they become due or makes an assignment for benefit of creditors; or (vi) Proceedings are commenced by Lessee under the Federal Bankruptcy Code or any similar Federal or State laws for the relief of debtors or such proceedings are commenced against Lessee and are not dismissed within ninety (90) days after such commencement, or a trustee or receiver is appointed for Lessee or a major part of its property and is not discharged within sixty (60) days after such appointment; or (vii) The Aircraft is seized or levied on under legal or governmental process against Lessee; or (viii) The merger, consolidation, reorganization or dissolution of Lessee which has a materially adverse effect upon Lessor's position under this Lease; provided, however, that the merger, consolidation or reorganization of Lessee within its consolidated group shall not be an Event of Default if the consolidated financial position of the consolidated group is not materially adversely affected by such merger, consolidation or reorganization. (B) Remedies. The occurrence of an Event of Default shall terminate any obligation of Lessor to lease the Aircraft to Lessee. When an Event of Default has occurred and is continuing, Lessor at its option may: (i) Proceed by appropriate court action or actions, either at law or in equity, to enforce performance by the Lessee of the applicable covenants of this Lease or to recover damages for the breach thereof; and/or (ii) Without notice or demand declare immediately due and payable the entire Stipulated Loss Value of the Aircraft as of the date of the Event of Default plus any and all amounts which under the terms of this Lease may then be due; and thereupon Lessor shall have an immediate right to pursue all remedies provided by law, including, without limitation, the following: (a) Lessee agrees to put Lessor in possession of the Aircraft on demand; (b) Lessor is authorized to enter any premises where the Aircraft is then situated and take possession thereof without notice or demand and without legal proceedings; (c) At Lessor's request, Lessee will make the Aircraft available to Lessor at a place designated by Lessor which is reasonably convenient to both parties; (d) Lessee agrees that ten (10) days after sending notice shall be a reasonable period of notification of a sale or other disposition of the Aircraft; (e) Lessee agrees to pay on demand the amount of all expenses reasonably incurred by Lessor in protecting or realizing on the Aircraft; (f) If Lessor disposes of the Aircraft, Lessee agrees to pay any deficiency remaining after application of the net proceeds to the amounts due hereunder. If, upon the occurrence of an Event of Default, Lessor brings suit or otherwise incurs expenses for protection of Lessor's rights, Lessee will pay Lessor its legal fees, in a reasonable amount, together with Lessor's collection expenses and court costs. In addition, from and after an Event of Default, Lessee shall be liable for interest on amounts due Lessor hereunder at a rate per annum computed monthly which shall be five (5) percentage points above the prime rate, but not greater than the maximum rate, if any, limited by applicable law ("Default Interest"); provided however, that Lessee shall not be assessed a late charge during such period of time that Default Interest is accruing against Lessee as herein stated. The remedies herein provided in favor of Lessor shall not be deemed to be exclusive but shall be concurrent and cumulative and in addition to all other remedies available at law or equity. The exercise or partial exercise of any remedy shall not restrict Lessor from further exercise of that remedy or any other remedy. 10 23. Return of Aircraft and Records. (A) General and TBO Adjustment. If Lessor shall rightfully demand possession of the Aircraft pursuant to this Lease or otherwise, Lessee shall forthwith deliver possession of the Aircraft to Lessor at such airport within the United States as may be designed by Lessor free and clear of all liens and encumbrances of any kind whatsoever except those created by Lessor or any party (other than Lessee or parties claiming under Lessee) claiming by, through or under Lessor. The Aircraft when so delivered to Lessor shall be clean by corporate aircraft operating standards, shall have all engines, avionics and parts installed thereon at the Closing Date or replacements therefore made in accordance with this Lease, shall be in as good condition as when delivered to Lessee hereunder, ordinary wear and tear and changes or alterations properly made by Lessee as permitted under this Lease excepted, shall be in good operating condition, shall have a currently effective airworthiness certificate issued by the FAA, and the Aircraft shall not have been operated, during the period following the last powerplant, airframe and component overhaul or replacements performed to FAA standards, more than fifty percent (50%) of the allowable time between overhauls (as specified by manufacturer and approved by the appropriate aeronautics authority). If the Aircraft has been operated (during the period from the last overhaul to the date the Aircraft is returned) more than fifty percent (50%) of the allowable time, as described above, Lessee will pay Lessor a dollar amount (described below) based on the number of hours of operation in excess of fifty percent (50%) of allowable time between overhauls ("TBO") for the period immediately preceding return of the Aircraft. The dollar amount will be an amount equal to the product of: (i) the then anticipated cost of overhaul or replacement, as determined by an estimate from an FAA authorized repair facility which is mutually agreeable, times (ii) the quotient of (a) the number of hours in excess of fifty percent of allowable time divided by (b) the total allowable time between overhauls for that period. For illustrative purposes only, and not by way of limitation, if the allowable TBO is 100 hours, so that the number of hours of use between overhauls is 50 hours, and the Aircraft has been operated during the period immediately preceding return of the Aircraft for 60 hours since the last overhaul, then Lessee shall pay Lessor a dollar amount equal to (10/100) or 10% of the then anticipated cost of overhaul or replacement. (B) Servicing and Repair. If, upon return, the Aircraft requires repair work which could not reasonably be deemed to have resulted from ordinary wear and tear, or if the Aircraft shall not have been serviced in accordance with the manufacturer's specifications, then Lessee shall reimburse Lessor for the cost of such repairs and servicing. The determination of condition and cost herein contemplated shall be made by a mutually acceptable FAA certified mechanic. (C) Inspection Costs. Lessee shall pay Lessor a pro rata share of the cost of the next regularly scheduled Aircraft inspection according to the following formula: Hours Since Last X Anticipated Cost of Inspection Inspection (based on survey of 3 FAA repair ------------------ facilities) Total Hours Between Inspections. Notwithstanding the foregoing to the contrary, Lessee shall not be obligated to pay Lessor any amount under this Section 23 after Lessor shall have received all amounts payable to Lessor hereunder including any deficiency payable following the sale of the Aircraft. (D) Markings and Logbook. All special markings of Lessee as Lessor may in writing request Lessee to remove, shall be removed by Lessee by methods approved by Lessor (such approval not to be unreasonably withheld). Lessee shall also deliver to Lessor with the Aircraft the aircraft log book and all inspection, modification and overhaul records applicable to the Aircraft. 11 24. Holdover. If Lessee shall not immediately redeliver and surrender the Aircraft to Lessor when required by the terms hereof, Lessee shall pay Lessor, at such time or times as Lessor may demand, a sum equal to a one-month installment of Periodic Rental, as in effect at the time redelivery and surrender were required, for each calendar month, or fraction of a calendar month prorated daily, during which such failure to redeliver and surrender continues. 25. Inspection; Reports. Lessor, its agents and employees shall have the right to enter upon any premises where the Aircraft is then located to inspect and examine the same during normal business hours and at any other times if Lessor reasonably believes the Aircraft or Lessor's rights are in jeopardy of damage or loss. So long as Lessee is not in default, Lessor shall give Lessee not less than twenty-four (24) hours notice of such inspection; provided, however, that Lessee shall not be required to remove the Aircraft from scheduled operations in order to satisfy Lessor's request for inspection. Lessee shall immediately give Lessor written notice of any material damage to or loss of the Aircraft any cause, including without limitation damage or loss caused by accident, the elements, intentional acts and theft. Such notice shall set forth an itemization of the damage and a detailed account of the event, including names of any injured persons and a description of any damaged property arising from any such event or from any use or operation of the Aircraft, and of any attempt to take, distrain, levy upon, seize or attach the Aircraft. All rights granted to Lessor herein are for the benefit of Lessor and shall not be construed to impose any obligation on Lessor, whether or not Lessor makes any inspections or receives any reports. 26. Financial and Other Data. During the Term Lessee: (a) shall furnish Lessor annual consolidated balance sheets and profit and loss statements of Lessee's consolidated group and any guarantor of Lessee's obligations accompanied, at Lessor's request, by the audit report of an independent certified public accountant acceptable to Lessor; and (b) at Lessor's request, shall furnish Lessor all other financial information and reports reasonably requested by Lessor at any time, including quarterly or other interim balance sheets and profit and loss statements of Lessee's consolidated group and any such guarantor. Lessee shall furnish such other information as Lessor may reasonably request at any times concerning Lessee and its affairs. 27. Warranty of Information. Lessee warrants that all information furnished and to be furnished to Lessor is accurate and that all financial statements it has furnished and hereafter may furnish Lessor, including operating statements and statements of condition, are and will be prepared in accordance with generally accepted accounting principles, consistently applied, and reasonably reflect and will reflect, as of their respective dates, results of the operations and the financial condition of Lessee and of any other entity they purport to cover. 28. Non-Waiver. Neither the acceptance by Lessor of any payment or any other performance, nor any act or failure of Lessor to act or to exercise any rights, remedies or options in any one or more instances shall constitute a waiver of any such right, remedy or option or of any other then existing or thereafter accruing right, remedy or option, or of any breach or default then existing or thereafter occurring. No purported waiver by Lessor of any right, remedy, option, breach or default shall be binding unless in writing and signed by an officer of Lessor. A written waiver by Lessor of any right, remedy, option, breach or default shall not constitute a waiver of any other then existing or thereafter accruing right, remedy or option or of any other then existing or thereafter occurring breach or default. 29. Notices; Payments. (A) A written notice may be given: (i) by delivering the same to a corporate officer of the party to whom it is directed (the "Addressee"); or (ii) by mailing the notice to the Addressee by first class mail, registered or certified, with postage prepaid, addressed to the Addressee as shown below, or to such other address as Addressee may specify by notice in writing given in accordance with this Section. A notice so mailed shall be deemed given on the third business day following the date of mailing. A "business day" shall be any day that is not a Saturday or Sunday or a legal holiday. 12 If to Lessee: Conseco Investment Holding Company 1209 Orange Street Wilmington, Delaware 19801 If to Lessor: MetLife Capital Corporation 10900 N.E. 4th St., Suite 500 P.O. Box C-97550 Bellevue, WA 98009 Attn: Vice President/Contract Administration (B) Lessee shall make all payments to Lessor at the place where notice is to be mailed to Lessor pursuant to subparagraph (A). Payments are deemed paid when received by Lessor. 30. Assignment. (A) Lessee shall not assign this Lease or any rights in or to the Aircraft, nor shall Lessee sublease the Aircraft; provided, however, that Lessee shall be entitled to sublease the aircraft to Conseco, Inc., after Lessor's approval of the form of such sublease, and provided, further, that Lessee shall be entitled to sublease the aircraft to an affiliate of Conseco, Inc. (such affiliates being described in Exhibit C attached hereto and by this reference incorporated herein) under the following conditions: (i) Lessee shall deliver to Lessor prior written notice of such sublease; (ii) the sublease shall be in substantially the form of sublease between Lessee and Conseco, Inc.; and (iii) Lessee shall deliver to Lessor, within three (3) days of execution of the sublease, an executed assignment of such sublease to Lessor for security purposes, an executed Uniform Commercial Code financing statement reflecting the sublessee as debtor, Lessee as secured party, and Lessor as assignee, and an executed Uniform Commercial Code financing statement reflecting Lessee as debtor, Lessor as secured party, and the sublease as the collateral. Any attempted assignment shall be of no effect, unless Lessor first shall have consented thereto in writing. Lessor's consent to an assignment in any one or more instances shall not impose any obligation upon Lessor to consent to any other or further assignments. Lessor's consent to an assignment shall not release Lessee from any obligations with respect to this Lease unless expressly so stated in the written consent. (B) All rights of Lessor hereunder may be assigned, pledged, mortgaged, transferred or otherwise disposed of, either in whole or in part, without notice to Lessee but subject always to the rights of Lessee under this Lease. If Lessee is given notice of any such assignment, Lessee shall acknowledge receipt thereof in writing. In the event that Lessor assigns this Lease or the rent due or to become due hereunder or any other interest herein, whether as security for any of its indebtedness or otherwise, no breach or default by Lessor hereunder or pursuant to any other agreement between Lessor and Lessee, should there be one, shall excuse performance by Lessee of any provision hereof, it being understood that in the event of such default or breach by Lessor that Lessee shall pursue any rights on account thereof solely against Lessor. No such assignee shall be obligated to perform any duty, covenant or condition requested to be performed by Lessor under the terms of this Lease. 31. Survival. The representations, warranties, indemnities and agreements of Lessee and Lessor, and their obligations under any and all provisions of this Lease, shall survive the expiration or other termination of this Lease, shall be binding upon their successors and assigns and are expressly made for the benefit of and shall be enforceable by Lessee and Lessor and their successors and assigns. 32. Miscellaneous. (A) The term "Lessor" shall mean the lessor named herein and its successors and assigns. (B) Whenever the context so requires, any pronoun gender includes all other genders, and the singular includes the plural. If more than one person constitute lessee, whether as a partnership or otherwise, all such persons are and shall be jointly and severally liable for all agreements, undertakings and obligations of the lessee. (C) All captions and section, paragraph and other divisions and subdivisions are for convenience of reference only and shall not affect the construction, interpretation or meaning of the agreement or Lease or of any of the provisions thereof. 13 (D) This Lease shall be governed by and construed according to the law of the State of Washington. (E) This Lease shall be binding upon and, except as limited in Section 30 hereof, shall inure to the benefit of Lessor and Lessee and their respective successors and assigns. (F) This Lease cannot be canceled or terminated except as expressly provided herein. (G) Wherever Lessor's consent is required hereunder, such consent will no be unreasonably withheld. (H) Lessee's obligation to pay or reimburse Lessor for expenses as provided hereunder shall be limited to reasonable expenses. 33. Lessor's Disclaimer. Lessee acknowledges and agrees that it has selected both the Aircraft of the type and quantity which is the subject of this Lease and the supplier from whom the Aircraft was purchased. LESSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE WITH SPECIFICATIONS, CONDITION, QUALITY, WORKMANSHIP, OR THE SUITABILITY, ADEQUACY, OPERATION, USE OR PERFORMANCE OF THE AIRCRAFT OR AS TO ITS MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND LESSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TAX AND/OR ACCOUNTING TREATMENT OF THIS LEASE. ANY DELAY IN DELIVERY SHALL NOT AFFECT THE VALIDITY OF THIS LEASE. Lessee understands and agrees that neither the supplier nor any salesman or any agent of the supplier is an agent of Lessor. No salesman or agent of supplier is authorized to waive or alter any term or condition of this Lease, and no representation as to the Aircraft or any other matter by the supplier shall in any way affect Lessee's duty to pay the rent and perform its obligations as set forth in this Lease. Lessor shall not be liable to Lessee for any incidental, consequential, or indirect damages or for any act, neglect, omission, breach or default by any third party. 34. No Affiliation with Suppliers. Lessee warrants that neither it nor any of its officers, directors has, directly or indirectly, a substantial financial interest in the manufacturer or supplier of the Aircraft except as previously disclosed in writing to Lessor. 35. Entire Agreement. This Lease and the Schedule(s) hereto shall constitute the entire agreement between the parties with respect to the subject matter contained herein, and shall not be altered or amended except by an agreement in writing signed by the parties hereto or their successors or assigns. Specifically, this Lease supersedes and replaces that certain proposal letter (the "Proposal Letter") dated November 4, 1993 from Lessor to Lessee, and accepted by Lessee on November 5, 1993. 36. Truth in Leasing. (A) The parties hereby certify as follows: During the twelve months (or portion thereof during which the Aircraft has been subject to United States registration) preceding the execution of this Lease, the Aircraft has been maintained and inspected under Part 91 of the Federal Aviation Regulations. The Aircraft is in compliance with applicable maintenance and inspection requirements under the Federal Aviation Regulations for the operation of the Aircraft to be conducted under this Lease. (B) The name and address of the person responsible for operational control of the aircraft under this Lease are: Name: Danny A. Rice Title: Vice President - Aviation Address: 7815 Headwind Drive Indianapolis, Indiana 46241 by the signature below, Lessee certifies that it understands its responsibilities for compliance with the applicable Federal Aviation Regulations. (C) An explanation of factors bearing on operational control and pertinent Federal Aviation Regulations can be obtained from the nearest FAA Flight Standards District Office, General Aviation District Office, or Air Carrier District Office. 14 IN WITNESS WHEREOF Lessor and Lessee have caused this Lease to be executed by their respective duly authorized officers as of the day and year first above written. LESSOR: LESSEE: METLIFE CAPITAL CORPORATION: CONSECO INVESTMENT HOLDING COMPANY By: /s/ MICHAEL E. TAFT By: /s/ MARK A. FERRUCCI ______________________ ----------------------- Title: Executive Vice President Title: President 15 Exhibit A to Aircraft Lease Purchase Agreement Prepayment Premium Factors
Conseco Prepayment Premiums Remaining Premium Months Factor 84 0.90090% 83 0.89014% 82 0.87938% 81 0.86863% 80 0.85787% 79 0.84711% 78 0.83635% 77 0.82559% 76 0.81483% 75 0.80480% 74 0.79332% 73 0.78256% 72 0.77180% 71 0.76142% 70 0.75103% 69 0.74065% 68 0.73027% 67 0.71988% 66 0.70950% 65 0.69912% 64 0.68873% 63 0.67835% 62 0.66797% 61 0.65758% 60 0.64720% 59 0.63719% 58 0.62718% 57 0.61718% 56 0.60717% 55 0.59716% 54 0.58715% 53 0.57714% 52 0.56713% 51 0.55712% 50 0.54712% 49 0.53711% 48 0.00000%
16 Exhibit B to Aircraft Lease Purchase Agreement Stipulated Loss Value Schedule
Conseco SLV Table 0 1/4/94 15,000,000.00 1 2/4/94 15,433.035.06 2 3/4/94 15,365,813.98 3 4/4/94 15,298,335.78 4 5/4/94 15,230,599.47 5 6/4/94 15,162,604.07 6 7/4/94 15,094,348.60 7 8/4/94 15,025,832.04 8 9/4/94 14,957,053.41 9 10/4/94 14,888,011.70 10 11/4/94 14,818,705.90 11 12/4/94 14,749,135.01 12 1/4/95 14,679.298.01 13 2/4/95 14,609,193.89 14 3/4/95 14,538,821.61 15 4/4/95 14,468,180.17 16 5/4/95 14,397,268.52 17 6/4/95 14,326,085.63 18 7/4/95 14,254,630.46 19 8/4/95 14,182,901.99 20 9/4/95 14,110,899.15 21 10/4/95 14,038,620.90 22 11/4/95 13,966,066.18 23 12/4/95 13,893,233.94 24 1/4/96 13,820,123.12 25 2/4/96 13,746,732.65 26 3/4/96 13,673,061.47 27 4/4/96 13,599,108.49 28 5/4/96 13,524,872.64 29 6/4/96 13,450,352.83 30 7/4/96 13,375,547.99 31 8/4/96 13,300,457.03 32 9/4/96 13,225,078.83 33 10/4/96 13,149,412.32 34 11/4/96 13,073,456.38 35 12/4/96 12,997,209.91 36 1/4/97 12,920,671.90 37 2/4/97 12,843,840.93 38 3/4/97 12,766,716.18 39 4/4/97 12,689,296.43 40 5/4/97 12,611,580.55 41 6/4/97 12,533,567.41 42 7/4/97 12,455,255.86 43 8/4/97 12,376,644.77 44 9/4/97 12,297,733.00 45 10/4/97 12,218,519.39 46 11/4/97 12,139,002.79 47 12/4/97 12,059,182.03 48 1/4/98 11,979,055.96 49 2/4/98 11,898,623.41 50 3/4/98 11,817,883.21 51 4/4/98 11,736,834.17 52 5/4/98 11,655,475.12 53 6/4/98 11,573,804.87 54 7/4/98 11,491,822.24 55 8/4/98 11,409,526.02 56 9/4/98 11,326,915.01 57 10/4/98 11,243,988.02 58 11/4/98 11,160,743.84 59 12/4/98 11,077,181.24 60 1/4/99 10,993,299.02 61 2/4/99 10,909,095.95 62 3/4/99 10,824,570.80 63 4/4/99 10,739,722,35 17 64 5/4/99 10,654.549.34 65 6/4/99 10,569,050.56 66 7/4/99 10,483,224.73 67 8/4/99 10,397,070.63 68 9/4/99 10,310,586,98 69 10/4/99 10,223,772.54 70 11/4/99 10,136,626.03 71 12/4/99 10,049,146.18 72 1/4/00 9,961,331.73 73 2/4/00 9,873,181.38 74 3/4/00 9,784,693.86 75 4/4/00 9,695,867.87 76 5/4/00 9,606,702.13 77 6/4/00 9,517,195,32 78 7/4/00 9,427,346.16 79 8/4/00 9,337,153.32 80 9/4/00 9,246,615.49 81 10/4/00 9,155,731.35 82 11/4/00 9,064,499.58 83 12/4/00 8,972,918.85 84 1/4/01 8,880,987,83 85 2/4/01 8,788,705.17 86 3/4/01 8,696,069.52 87 4/4/01 8,603,079.55 88 5/4/01 8,509,733.89 89 6/4/01 8,416,031.18 90 7/4/01 8,321,970.06 91 8/4/01 8,227,549.16 92 9/4/01 8,132,767.09 93 10/4/01 8,037,622.49 94 11/4/01 7,942,113.95 95 12/4/01 7,846,240.10 96 1/4/02 -0.47
18 Exhibit C to Aircraft Lease Purchase Agreement Organizational Chart of Conseco, Inc. Listing Affiliates
IRS Employer State of ID Number Incorporation ------------- -------------- Conseco, Inc. 35-1468632 IN Bankers National Life Insurance Company 75-1056842 TX Lincoln Fire & Casualty Insurance Company 61-0573931 KY National Fidelity Life Insurance Company 44-0367450 MO Western National Life Insurance Company 75-0770838 TX Lincoln American Life Insurance Company - TN Conseco Annuity Guarantee Company 35-1723821 TX Conseco Capital Management, Inc. 22-2403791 DE Conseco Risk Management, Inc. 35-1784981 IN Conseco Private Capital Group, Inc. 35-1882445 IN Marketing Distributions Systems Consulting Group, Inc. 22-2930182 DE 95% (1) MDS of New Jersey, Inc. 22-2898228 NJ MDS Securities Incorporated 22-3120482 DE BankMark School of Business, Inc. 22-3135005 DE Conseco Mortgage Capital, Inc. 51-0331205 DE Conseco Investment Holding Company 52-1536829 DE Western National Corp 75-2502064 DE CCP Insurance, Inc. 35-1854231 IN 39.78% GARCO Acquisition Corporation 52-1680369 DE GARCO Holding Corporation 52-1688285 DE Jefferson National Life Insurance Company of Texas 75-2351012 TX Beneficial Standard Life Insurance Company 95-0540891 CA Beneficial Assurance Company 86-6054041 AZ Jefferson National Life Insurance Company 35-0421411 IN Great American Reserve Insurance Company 75-0300900 TX GARCO Equity Sales, Inc. 75-1301573 TX Bankers Life Holding Corporation 51-0342500 DE 55.66% Bankers Life Insurance Company of Illinois 36-3851005 IL Bankers Life & Casualty Company 36-0770740 IL Certified Life Insurance Company 95-2109398 CA Conseco Partnership Management Co., L.P. 35-1793582 IN Conseco Partnership Management, Inc. 35-1793581 IN NOTES: All subsidiaries are 100% owned unless otherwise indicated. (1) Stock options and performance incentives which vest through 1995 may dilute Conseco's ownership to 84%.
EX-10.32 13 EXHIBIT 10.32 TO CONSECO, INC. 1993 FORM 10-K 1 AIRCRAFT LEASE AGREEMENT THIS AIRCRAFT LEASE AGREEMENT, dated as of October 6, 1993 (together with all supplements, annexes, exhibits and schedules hereto hereinafter referred to as the "Lease"), between General Electric Capital Corporation, with an office at 1415 W. 22nd St., Suite 800, Oak Brook IL 60521 (hereinafter called, together with its successors and assigns, if any, "Lessor") and Conseco Investment Holding Company, a corporation organized and existing under the laws of the State of Delaware with its mailing address and chief place of business at 1209 Orange Street, Wilmington, Delaware 19801 (hereinafter called "Lessee"). WITNESSETH: ---------- I. LEASING: (a) Subject to the terms and conditions set forth below, Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the aircraft, including the airframe, engines and all appurtenant equipment (together hereinafter the "Aircraft") described in Annex A. (b) The obligation of Lessor to purchase the Aircraft from the manufacturer or supplier thereof ("Supplier") and to lease the same to Lessee hereunder shall be subject to the Commencement Date of the Lease, as that term is hereinafter defined in Section II, occurring on or prior to the Last Delivery Date specified in Annex B, on the representations and warranties of Lessee contained herein being true and accurate as of the Commencement Date and further conditioned on receipt by Lessor, on or prior to the Commencement Date, of each of the following documents in form and substance satisfactory to Lessor: (i) a copy of this Lease executed by Lessee, (ii) unless Lessor shall have delivered its purchase order for such Aircraft, the Purchase Document(s) Assignment and Consent in the form of Annex G, with copies of the purchase order or other purchase documents attached thereto; (iii) copies of insurance policies or, at Lessor's option, such other evidence of insurance which complies with the requirements of Section IX, (iv) evidence of Lessee's reservation of an N number for the Aircraft together with an assignment of the rights thereto to Lessor; (v) evidence that the Aircraft has been duly certified as to type and airworthiness by the Federal Aviation Administration ("FAA"); (vi) evidence that FAA counsel has received in escrow the executed bill of sale and AC Form 8050-1 Aircraft Registration Form (except for the pink copy which shall be available to be placed on the Aircraft upon acceptance thereof), and an executed duplicate of this Lease all in proper form for filing with the FAA; (vii) resolution of Lessee authorizing this Lease substantially in the form of Annex D; and (viii) such other documents as Lessor may reasonably request. Lessor's obligation to lease the Aircraft hereunder is further conditioned upon (aa) the cost to Lessor of the acquisition of the Aircraft not exceeding the Capitalized Lessor's Cost stated on Annex A; (bb) Lessee's execution and delivery to Lessor of a Certificate of Acceptance in the form of Annex E; and (cc) filing of all necessary documents with, and the acceptance thereof by, the FAA. 2 (c) Lessor hereby appoints Lessee its agent for inspection and acceptance of the Aircraft from the Supplier. Subject to the aforestated conditions, upon execution by Lessee of the Certificate of Acceptance, the Aircraft described thereon shall be deemed to have been delivered to, and irrevocably accepted by, Lessee for lease hereunder. II. TERM, RENT AND PAYMENT: (a) The rent ("Rent') payable hereunder and Lessee's right to use the Aircraft shall commence on the date of execution by Lessee of the Certificate of Acceptance ("Commencement Date"). The term ("Term") of this Lease shall commence on the Commencement Date and shall continue, unless earlier terminated pursuant to the provisions hereof, until and including the Expiration Date stated in Annex B. If any term is extended or renewed, the word "Term" shall be deemed to refer to all extended or renewal terms, and all provisions of this Lease shall apply during any such extension or renewal terms, except as may be otherwise specifically provided in writing. (b) Rent shall be paid to Lessor at its address stated above, except as otherwise directed by Lessor. Payments of Rent shall be in the amount, payable at such intervals and shall be due in accordance with subsections (c) through (d) hereof and the provisions of Annex B. (Each payment of Rent is hereinafter referred to as a "Rent Payment'.) If one or more Advance Rent is payable, such Advance Rent shall be (i) set forth on Annex B and due in accordance with the provisions of Annex B, and (ii) when received by Lessor, applied to the first Basic Term Rent Payment and the balance, if any, to the final Rent Payment(s), in inverse order of maturity. In no event shall any Advance Rent or any other Rent Payment be refunded to Lessee. If Rent is not paid within ten (10) days of its due date, Lessee agrees to pay a late charge of five cents (5) per dollar on, and in addition to, the amount of such Rent but not exceeding the lawful maximum, if any. (c) For the period from and including the Commencement Date to the Basic Term Commencement Date ("Interim Period") stated in Annex B, Lessee shall pay as Rent ("Interim Rent") for the Aircraft, the product of the Daily Lease Rate Factor stated in Annex B times the Capitalized Lessor's Cost of same stated in Annex A times the number of days in the Interim Period. Interim Rent shall be due on the date stated in Annex B. (d) Commencing on the First Basic Rent Date stated in Annex B and thereafter as stated in Annex B (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as Rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor stated in Annex B times the Capitalized Lessor's Cost stated in Annex A. III. TAXES: Lessee shall have no liability for taxes imposed by the United States of America or any State or political subdivision thereof which are on or measured by the net income of Lessor. Lessee shall report (to the extent that it is legally permissible) and pay promptly all other taxes, fees and assessments due, imposed, assessed or levied against the Aircraft (or the purchase, ownership, delivery, leasing, possession, use or operation thereof), this Lease (or any rentals or receipts hereunder), Lessor or Lessee by any foreign, federal, state or local government or taxing authority during or related to the Term of this Lease, including, without limitation, all license and registration fees, and all sales, use, personal property, excise, gross receipts, franchise, stamp or other taxes, imposts, duties and charges, together with any penalties, fines or interest thereon (all hereinafter called 'Taxes"). Lessee shall (a) reimburse Lessor upon receipt of written request for reimbursement for any Taxes charged to or assessed against Lessor, (b) on request of Lessor, submit to Lessor written evidence of Lessee's payment of Taxes, (c) on all reports or returns show the ownership of the Aircraft by Lessor, and (d) send a copy thereof to Lessor. Lessee shall have the right to contest any Taxes and shall not be required to pay, or cause to be paid, any Taxes, if such payment is being contested diligently, in good faith, and by appropriate proceedings which will prevent foreclosure upon the Aircraft and adequate reserves for the payment of such Taxes have been established by Lessee. Lessor agrees to give Lessee prompt notice of the assessment of any Taxes for which Lessor intends to claim indemnification pursuant to this provision. 3 IV. REPORTS: Lessee will provide Lessor with the following in writing within the time periods specified: (a) notice of tax or other lien which attaches to the Aircraft within ten (10) days of Lessee's obtaining knowledge of such attachment and such additional information with respect to the tax or lien forthwith upon request of Lessor; (b) Lessee's balance sheet and profit and loss statement within ninety (90) days of the close of each fiscal year of Lessee, and any further financial information or reports, upon request; (c) notice to Lessor of the Aircraft's location, and, the location of all information, logs, documents and records regarding or in respect to the Aircraft and its use, maintenance and/or condition, immediately upon request; (d) notice to Lessor of the relocation of the Aircraft's primary hangar location, ten (10) days prior to any relocation; (e) notice of loss or damage to the Aircraft (where the estimated repair costs would exceed 10% of the Aircraft's then fair market value) within ten (10) days of such loss or damage; (f) notice of any accident involving the Aircraft causing personal injury or property damage within ten (10) days of such accident; (g) copies of the insurance policies or other evidence of insurance required by the terms hereof, promptly upon request by Lessor; (h) copies of all information, logs, documents and records regarding or in respect to the Aircraft and its use, maintenance and/or condition, within ten (10) days of such request; (i) a certificate of the authorized officer of Lessee stating that he has reviewed the activities of Lessee and that, to the best of his knowledge, there exists no default (as described in Section XI) or event which with notice or lapse of time (or both) would become such a default, within ten (10) days of such request; (j) such information as may be required to enable Lessor to file any reports required by any governmental authority as a result of Lessor's ownership of the Aircraft, promptly upon request of Lessor; (k) copies of any manufacturer's maintenance service program contract for the airframe or engines, promptly upon request; (1) evidence of Lessee's compliance with FAA airworthiness directives and advisory circulares and of compliance with other maintenance provisions of Section VI hereof and the return provisions of Section X, upon request of Lessor; and (m) such other reports as Lessor may reasonably request. V. DELIVERY, REGISTRATION, USE AND OPERATION: (a) The parties acknowledge that this is a lease transaction and the Aircraft shall be delivered directly from the Supplier to Lessee. (b) Lessee, at its own cost and expense, shall cause the Aircraft to be duly registered in the name of Lessor under the U.S. Federal Aviation Act and shall not register the Aircraft under the laws of any other country. (c) The possession, use and operation of the Aircraft shall be at the sole risk and expense of Lessee. Lessee agrees that the Aircraft will be used and operated in compliance with any and all statutes, laws, ordinances, regulations and standards or directives issued by any governmental agency applicable to the use or operation thereof, in compliance with any airworthiness certificate, license or registration relating to the Aircraft issued by any agency and in a manner that does not modify or impair any existing warranties on the Aircraft or any part thereof. Lessee will operate the Aircraft predominantly in the conduct of its business and not operate or permit the Aircraft to be operated (i) in a manner wherein the predominance of use during any consecutive twelve month period would be for a purpose other than transportation for Lessee, or in a manner, for any time period, such that Lessor or a third party shall be deemed to have "operational control" of the Aircraft, or (ii) for the carriage of persons or property for hire or the transport of mail or contraband. The Aircraft will, at all times be operated by duly qualified pilots holding at least a valid commercial airman certificate and instrument rating and any other certificate, rating, type rating or endorsement appropriate to the Aircraft, purpose of flight, condition of flight or as otherwise required by the Federal Aviation Regulations ("FAR'). Pilots shall be employed, paid and contracted for by Lessee, shall meet all recency of flight requirements and shall meet the requirements established and specified by the insurance policies required hereunder and the FAA. The primary hangar location of the Aircraft shall be as stated in Annex B. Lessee shall not relocate the primary hangar location to a hangar location outside the United States. 4 (d) The engines set forth on Annex A shall be used only on the airframe described in Annex A and shall only be removed for maintenance in accordance with the provisions hereof. So long as the Aircraft is predominantly used within the continental United States Lessee may use the Aircraft outside the continental United States provided Lessee shall not operate the Aircraft in, or otherwise permit the Aircraft to go into or over, (i) any area of hostilities, (ii) any country or jurisdiction that does not then maintain full diplomatic relations with the United States of America, (iii) in a communist block country or (iv) any geographic area which is not covered by any insurance policy required under this Lease provided, that any losses, costs, expenses, (including those losses, costs, expenses for which Lessor is indemnified hereunder) incurred as a result of or relating to such use in a non-communist block country shall be Lessee's responsibility and Lessee shall pay such amounts upon written demand by Lessor. In addition, in the event the Aircraft is confiscated by a foreign government for whatever reason and Lessee's insurance company pays the insured amount as required by Section VIII, IX and XIV hereof, Lessor shall release its interest in the Aircraft. VI. MAINTENANCE: (a) Lessee agrees that the Aircraft will be maintained in compliance with any and all statutes, laws, ordinances, regulations and standards or directives issued by any governmental agency applicable to the maintenance thereof, in compliance with any airworthiness certificate, license or registration relating to the Aircraft issued by any agency and in a manner that does not modify or impair any existing warranties on the Aircraft or any part thereof. (b) Lessee shall maintain, inspect, service, repair; overhaul and test the Aircraft (including each engine of same) in accordance with (i) all maintenance manuals initially furnished with the Aircraft, including any subsequent amendments or supplements to such manuals issued by the manufacturer from time to time, (ii) all recommended "Service Bulletins" issued, supplied, or available by or through the manufacturer and/or the manufacturer of any engine or part with respect to the Aircraft, and (iii) all airworthiness directives and advisory circulares issued by the FAA or similar regulatory agency having jurisdictional authority, and causing compliance to such directives or circulares to be completed through corrective modification in lieu of operating manual restrictions. Lessee shall maintain all records, logs and other materials required by the manufacturer thereof for enforcement of any warranties or by the FAA. All maintenance procedures required hereby shall be undertaken and completed in accordance with the manufacturer's recommended procedures, and by properly trained, licensed, and certificated maintenance sources and maintenance personnel, so as to keep the Aircraft and each engine in as good operating condition as when delivered to Lessee hereunder, ordinary wear and tear excepted, and so as to keep the Aircraft in such operating condition as may be necessary to enable the airworthiness certification of such Aircraft to be maintained in good standing at all times under the FAA. (c) Lessee agrees, at its own cost and expense, to (i) cause the Aircraft and each engine thereon to be kept numbered with the identification or serial number therefor as specified in Annex A; (ii) prominently display on the Aircraft that N number, and only that N number, specified in Annex A; (iii) notify Lessor in writing thirty (30) days prior to making any change in the configuration (other than changes in configuration mandated by the FAA), appearance and coloring of the Aircraft from that in effect at the time the Aircraft is accepted by Lessee hereunder, and in the event of such change or modification of configuration, coloring or appearance, to restore, upon request of Lessor, the Aircraft to the configuration, coloring or appearance in effect on the Commencement Date or, at Lessor's option to pay to Lessor an amount equal to the reasonable cost of such restoration, (iv) affix and maintain inside the Aircraft adjacent to the airworthiness certificate and on each engine a metal nameplate bearing the Aircraft marking specified in Annex A and such other markings or writings as from time to time may be required by law or otherwise deemed necessary by Lessor in order to protect its title to the Aircraft and its rights hereunder. Lessee will not place the Aircraft in operation or exercise any control or dominion over the same until such Aircraft marking has been placed thereon. Lessee will replace promptly any such Aircraft marking which may be removed, defaced or destroyed. 5 (d) Lessee shall be entitled from time to time during the Term of this Lease to acquire and install on the Aircraft at Lessee's expense, any additional accessory, device or equipment as Lessee may desire (each such accessory, device or equipment, an "Addition"), but only so long as such Addition (i) is ancillary to the Aircraft; (ii) is not required to render the Aircraft complete for its intended use by Lessee; (iii) does not alter or impair the originally intended function or use of the Aircraft; and (iv) can be readily removed without causing material damage. Title to each Addition which is not removed by Lessee prior to the return of the Aircraft to Lessor shall vest in Lessor upon such return. Lessee shall repair all damage to the Aircraft resulting from the installation or removal of any Addition so as to restore the Aircraft to its condition prior to installation, ordinary wear and tear excepted. (e) Any alteration or modification (each an "Alteration") with respect to the Aircraft that may at any time during the Term of this Lease be required to comply with any applicable law or any governmental rule or regulation shall be made at the expense of Lessee. Any repair made by Lessee of or upon the Aircraft or replacement parts, including any replacement engine, installed thereon in the course of repairing or maintaining the Aircraft, or any Alteration required by law or any governmental rule or regulation, shall be deemed an accession, and title thereto shall be immediately vested in Lessor without cost or expense to Lessor. (f) Except as permitted under this Section VI, Lessee will not modify the Aircraft or affix or remove any accessory to the Aircraft leased hereunder. VII. LIENS, SUBLEASE AND ASSIGNMENT: (a) Lessee shall not sell, transfer, assign or encumber the Aircraft, any engine or any part thereof, Lessor's security interest or its rights under this Lease and shall not sublet or part with possession of the Aircraft or any engine or part thereof or enter into any interchange agreement. Lessee shall not permit any engine to be used on any other Aircraft. Lessee shall keep the Aircraft each engine and any part thereof free and clear of all liens and encumbrances other than those which result from (i) the respective rights of Lessor and Lessee as herein provided; (ii) liens arising from the acts of Lessor; (iii) liens for taxes not yet due; and (iv) inchoate materialmen's, mechanics', workmen's, repairmen's, employees' or other like liens arising in the ordinary course of business of Lessee for sums not yet delinquent or being contested in good faith (and for the payment of which adequate assurances in Lessor's judgment have been provided Lessor). (b) Lessor and any assignee of Lessor may assign this Lease, or any part hereof and/or the Aircraft subject hereto. Lessee hereby waives and agrees not to assert against any such assignee, or assignee's assigns, any defense, set-off, recoupment claim or counterclaim which Lessee has or may at any time have against Lessor for any reason whatsoever. 6 VIII. LOSS, DAMAGE AND STIPULATED LOSS VALUE: Lessee hereby assumes and shall bear the entire risk of any loss, theft, confiscation, expropriation, requisition, damage to, or destruction of, the Aircraft, any engine or part thereof from any cause whatsoever. Lessee shall promptly and fully notify Lessor in writing if the Aircraft, or any engine thereto shall be or become worn out, lost, stolen, confiscated, expropriated, requisitioned, destroyed, irreparably damaged or permanently rendered unfit for use from any cause whatsoever (such occurrences being hereinafter called "Casualty Occurrences"). In the event that, in the reasonable opinion of Lessor, a Casualty Occurrence has occurred which affects only the engine(s) of the Aircraft, then Lessee, at its own cost and expense, shall replace such engine(s) with an engine(s) acceptable to Lessor and shall cause title to such engine(s) to be transferred to Lessor for lease to Lessee hereunder. Upon transfer of title to Lessor of such engine(s), such engine(s) shall be subject to the terms and conditions of this Lease, and Lessee shall execute whatever documents or filings Lessor deems necessary and appropriate in connection with the substitution of such replacement engine(s) for the original engine(s). In the event that, in the opinion of Lessor, a Casualty Occurrence has occurred in respect to the Aircraft in its entirety, on the Rent Payment Date next succeeding a Casualty Occurrence (the "Payment Date"), Lessee shall pay Lessor the sum of (a) the Stipulated Loss Value as set forth in Annex F calculated as of the Rent Payment Date immediately preceding such Casualty Occurrence; and (b) all Rent and other amounts which are due hereunder as of the Payment Date. Upon payment of all sums due hereunder, the Term of this Lease as to the Aircraft shall terminate and Lessor shall be entitled to recover possession of the salvage thereof. IX. INSURANCE: Lessee shall secure and maintain in effect at its own expense throughout the Term hereof insurance against such hazards and for such risks as Lessor may direct. All such insurance shall be with companies satisfactory to Lessor. Without limiting the generality of the foregoing, Lessee shall maintain (a) breach of warranty insurance, (b) liability insurance covering public liability and property, cargo and environmental damage, in amounts not less than fifty (50) million U.S. dollars for any single occurrence, (c) all-risk aircraft hull and engine insurance (including, without limitation, foreign object damage insurance) in an amount which is not less than the then Stipulated Loss Value, and (d) confiscation and war risk insurance. All insurance shall name the Lessor as owner of the Aircraft and as loss payee and additional insured (without responsibility for premiums) and shall provide that any cancellation or substantial change in coverage shall not be effective as to the Lessor for thirty (30) days after receipt by Lessor of written notice from such insurer(s) of such cancellation or change, shall insure Lessor's interest regardless of any breach or violation by Lessee of any warranties, declarations or conditions in such policies, shall include a severability of interest clause providing that such policy shall operate in the same manner as if there were a separate policy covering each insured, shall waive any right of set-off against Lessee or Lessor, and shall waive any rights of subrogation against Lessor. Such insurance shall be primary and not be subject to any offset by any other insurance carried by Lessor or Lessee. Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make proof of loss and claim for and to receive payment of and to execute or endorse all documents, checks or drafts in connection with all policies of insurance in respect of the Aircraft. Any expense of adjusting or collecting insurance proceeds shall be borne by Lessee. Lessor may, at its option, apply proceeds of insurance, in whole or in part, to (i) repair or replace the Aircraft or any part thereof or (ii) satisfy any obligation of Lessee to Lessor hereunder. Any balance remaining shall be retained by Lessor. 7 X. RETURN OF AIRCRAFT: (a) Upon the expiration or termination of this Lease and provided Lessee has not elected to purchase the Aircraft as provided herein, Lessee, at its own expense, will return the Aircraft and shall deliver all logs, manuals and data, including without limitation inspection, modification and overhaul records required to be maintained with respect thereto under this Lease or under the applicable rules and regulations of the FAA and under the manufacturer's recommended maintenance program, along with a currently effective FAA airworthiness certificate to Lessor to any location within the continental United States as Lessor shall direct. Lessee shall, upon request, assign to Lessor its rights under any manufacturer's maintenance service contract or extended warranty for the Aircraft, any engine or part thereof. All expenses for return of the Aircraft and delivery of the aforementioned logs, manuals and data shall be borne by Lessee. The Aircraft shall be returned in the condition in which the Aircraft is required to be maintained pursuant to Section VII hereof, but with all logos or other identifying marks of Lessee removed. Additionally, the Lessee (i) shall have had completed within thirty (30) days prior to return, the next required annual inspection on the Aircraft, and the next periodic inspection on each engine; (ii) shall assure that each engine shall have available operating hours until both the next scheduled "hot section" inspection and next scheduled major overhaul of not less than 50% of the total operating hours respectively available between such hot section inspections or major overhauls; and (iii) shall assure that the airframe shall have at least: (aa) one-half the available operating hours; and (bb) one-half the available operating months until the next scheduled major airframe inspection allowable between major airframe inspections. (b) Upon the return of the Aircraft: (i) each fuel tank shall contain the same quantity of fuel as was contained in such tanks when such Aircraft was delivered to Lessee, (which shall be presumed to be 50 percent (50%) of full capacity unless otherwise specified in the purchase order or other purchase documents or, in the case of differences in such quantity, an appropriate adjustment will be made by payment at the then current market price of fuel. (c) Upon return of the Aircraft, Lessor shall arrange for the inspection of same within one hundred and twenty (120) days of return to determine if the Aircraft has been maintained and returned in accordance with the provisions hereof. Lessee shall be responsible for the cost of such inspection and shall pay Lessor such amount as additional Rent within ten (10) days of demand for same. In the event that the results of such inspection indicate that the Aircraft, any engine thereto or part thereof, has not been maintained or returned in accordance with the provisions hereof, Lessee shall pay to Lessor within ten (10) days of demand, as liquidated damages, the estimated cost ("Estimated Cost") of servicing or repairing the Aircraft, engine or part. The Estimated Cost shall be determined by Lessor by obtaining two quotes for such service or repair work and taking the average of same. Lessee shall bear the cost, if any, incurred by Lessor in obtaining such quotes. (d) If Lessee fails to return the Aircraft on termination or expiration of the Term, Lessor shall be entitled to damages equal to the higher of (i) the Rent for the Aircraft, pro-rated on a per diem basis, for each day the Aircraft is retained in violation of the provisions hereof; or (ii) the daily fair market rental for the Aircraft at termination or expiration, as applicable. Such damages for retention of the Aircraft after termination or expiration of the Term shall not be interpreted as an extension or reinstatement of the Term. (e) If Lessee desires to return the Aircraft, it shall (i) pay to Lessor on the last day of the Basic Term of the Aircraft, in addition to the Basic Term Rent then due on such date and all other sums then due hereunder, an amount equal to 50% of the Capitalized Lessor's Cost of such Aircraft and (ii) return the Aircraft to Lessor in accordance with this Section X. Thereafter, Lessor and Lessee would arrange for the commercially reasonable sale, scrap or other disposition of such Aircraft. Upon the sale, scrap or other disposition of the Aircraft the net sales proceeds with respect to the Aircraft sold will be paid to Lessor. Lessor shall promptly hereafter pay to Lessee the Reciprocal Amount (as defined in Annex B) of such Aircraft (less all reasonable and documented costs, expenses and fees, including storage, maintenance and other remarketing fees incurred in connection with the sale, scrap, or disposition of such Aircraft) plus all net proceeds, if any, of such sale in excess of the Reciprocal Amount of the Aircraft. 8 (f) All of Lessor's rights contained in this Section shall survive the expiration or other termination of this Lease. Xi. EVENTS OF DEFAULT: The term "Event of Default", wherever used herein, shall mean any of the following events under this Lease, whatever the reason for such Event of Default and whether it shall be voluntary or involuntary, or come about or be effected by operation of law, or be pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation or any administrative or governmental body: (a) Lessee shall fail to make any payment of Rent within ten (10) days after the same shall become due; or (b) Lessee shall fail to keep in full force and effect insurance required under this Lease; or (c) Lessee shall or shall attempt to (except as expressly permitted by the provisions of this Lease) remove, sell, transfer, encumber, part with possession of, assign or sublet the Aircraft, any engine or any part thereof, use the Aircraft for an illegal purpose, or permit the same to occur; or (d) Lessee shall fail to perform or observe any covenant, condition or agreement not included within (a), (b) or (c) above which is required to be performed or observed by it under this Lease or any agreement, document or certificate delivered by Lessee in connection herewith, and such failure shall continue for twenty (20) days after written notice thereof from Lessor to Lessee; or (e) any representation or warranty made by Lessee in this Lease or any agreement, document or certificate delivered by Lessee in connection herewith or pursuant hereto shall prove to have been incorrect in any material respect when any such representation or warranty was made or given (or, if a continuing representation or warranty, at any material time); or (f) Lessee shall generally fail to pay its debts as they become due or shall file a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization in a proceeding under any bankruptcy laws (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against Lessee in any such proceeding, or Lessee shall, by voluntary petition, answer or consent, seek relief under the provisions of any other now existing or future bankruptcy or other similar law (other than a law which does not provide for or permit the readjustment or alteration of Lessee's obligations hereunder) providing for the reorganization or liquidation of corporations, or providing for an agreement, composition, extension or adjustment with its creditors; or (g) a petition is filed against Lessee in a proceeding under applicable bankruptcy laws or other insolvency laws (other than any law which does not provide for or permit any readjustment or alteration of Lessee's obligations hereunder in each case), as now or hereafter in effect, and is not withdrawn or dismissed within ninety (90) days thereafter, or if, under the provisions of any law (other than any law which does not provide for or permit any readjustment or alteration of Lessee's obligations hereunder in each case) providing for reorganization or liquidation of corporations which may apply to Lessee, any court of competent jurisdiction shall assume jurisdiction, custody or control of Lessee or of any substantial part of its property and such jurisdiction, custody or control shall remain in force unrelinquished, unstayed or unterminated for a period of sixty (60) days; or (h) Lessee breaches or is in default under any other agreement by and between Lessor and Lessee; (i) there is a material adverse change in the financial condition of Lessee from the time of execution hereof. II. REMEDIES: (a) Upon the occurrence of any Event of Default and so long as the same shall be continuing, Lessor may, at its option, at any time, thereafter, exercise one or more of the following remedies, as Lessor in its sole discretion shall lawfully elect: (i) demand that Lessee forthwith pay as liquidated damages, for loss of a bargain and not as a penalty, an amount equal to the Stipulated Loss Value of the Aircraft, computed as of the Basic Rent Date immediately preceding such demand together with all Rent and other amounts due and payable for all periods up to and including the Basic Rent Date following the date on which Lessor made its demand for liquidated damages; (ii) demand that Lessee pay all amounts due for failure to maintain or return the Aircraft as provided herein and cause Lessee to assign to Lessor Lessee's rights under any manufacturer's service program contract or any extended warranty contract in force for the Aircraft; (iii) proceed by appropriate court action, either at law or in equity, to enforce the performance by Lessee of the applicable covenants of this Lease or to recover damages for breach hereof; (iv) by notice in writing terminate this Lease, whereupon all rights of Lessee to use of the Aircraft or any part thereof shall absolutely cease and terminate, and Lessee shall forthwith return the Aircraft in accordance with Section X, but Lessee shall remain liable as provided in Section X; (v) request Lessee to return the Aircraft to a designated location in accordance with Section X; (vi) enter the premises, 9 with or without legal process, where the Aircraft is believed to be and take possession thereof; (vii) sell or otherwise dispose of the Aircraft at private or public sale, in bulk or in parcels, with or without notice, and without having the Aircraft present at the place of sale; (viii) lease or keep idle all or part of the Aircraft; (ix) use Lessee's premises for storage pending lease or sale or for holding a sale without liability for rent or costs; (x) collect from Lessee all costs, charges and expenses, including reasonable legal fees and disbursements, incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto; (xi) in the case of a failure of Lessee to comply with any provision of this Lease, Lessor may effect such compliance, in whole or in part, and collect from Lessee as additional Rent, all monies spent and expenses incurred or assumed by Lessor in effecting such compliance; and/or (xii) declare any default under the terms of this Lease to be a default under any other agreement between Lessor and Lessee, except those agreements by and between Lessor and Lessee. (b) The foregoing remedies are cumulative, and any or all thereof may be exercised in lieu of or in addition to each other or any remedies at law, in equity, or under statute. (c) Lessor shall have the right to any proceeds of sale, lease or other disposition of the Aircraft, if any, and shall have the right to apply same in the following order of priorities: (i) to pay all of Lessor's costs, charges and expenses incurred in enforcing its rights hereunder or in taking, removing, holding, repairing, selling, leasing or otherwise disposing of the Aircraft; then, (ii) to the extent not previously paid by Lessee, to pay Lessor all sums due from Lessee hereunder; then (iii) to reimburse to Lessee any sums previously paid by Lessee as liquidated damages; and (iv) any surplus shall be retained by Lessor. (d) Waiver of any default shall not be a waiver of any other or subsequent default. Lessor's effecting compliance in accordance with sub-section (a)(xi) hereof shall not constitute a waiver of an Event of Default. The failure or delay of Lessor in exercising any rights granted it hereunder upon any occurrence of any of the contingencies set forth herein shall not constitute a waiver of any such right upon the continuation or recurrence of any such contingencies or similar contingencies and any single or partial exercise of any particular right by Lessor shall not exhaust the same or constitute a waiver of any other right provided for in this Lease. XIII. NET LEASE; NO SET-OFF, ETC: This Lease is a net lease. Lessee's obligation to pay Rent and other amounts due hereunder shall be absolute and unconditional. Lessee shall not be entitled to any abatement or reduction of, or set-offs against, said Rent or other amounts, including, without limitation, those arising or allegedly arising out of claims (present or future, alleged or actual, and including claims arising out of strict tort or negligence of Lessor) of Lessee against Lessor under this Lease or otherwise. Nor shall this Lease terminate or the obligations of Lessee be affected by reason of any defect in or damage to, or loss of possession, use or destruction of, the Aircraft from whatsoever cause. It is the intention of the parties that Rent and other amounts due hereunder shall continue to be payable in all events in the manner and at the times set forth herein unless the obligation to do so shall have been terminated pursuant to the express terms hereof. XIV. INDEMNIFICATION: (a) Lessee hereby agrees to indemnify, save and keep harmless Lessor, its agents, employees, successors and assigns from and against any and all losses, damages, penalties, injuries, claims, actions and suits, including legal expenses, of whatsoever kind and nature, in contract or tort, whether caused by the active or passive negligence of Lessor or otherwise, and including, but not limited to, Lessor's strict liability in tort, arising out of (i) the selection, manufacture, purchase, acceptance or rejection of Aircraft, the ownership of Aircraft during the Term of this Lease, and the delivery, lease, possession, maintenance, use, condition, return or operation of the Aircraft (including, without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee and any claim for patent, trademark or copyright infringement), or (ii) the condition of the Aircraft sold or disposed of after use by Lessee, any sublessee or employees of Lessee. Lessee shall, upon request, defend any actions based on, or arising out of, any of the foregoing. At all times Lessee shall have the right to defend any actions based on or arising out of the foregoing, provided that Lessee has indemnified Lessor as provided for herein. 10 (b) All of Lessor's rights, privileges and indemnities contained in this Section shall survive the expiration or other termination of this Lease and the rights, privileges and indemnities contained herein are expressly made for the benefit of, and shall be enforceable by Lessor, its successors and assigns. XV. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE AIRCRAFT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES AND THAT IT IS LEASING THE AIRCRAFT IN AN "AS IS" CONDITION. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE AIRCRAFT LEASED HEREUNDER OR ANY COMPONENT THEREOF, OR ANY ENGINE INSTALLED THEREON, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO CONDITION, AIRWORTHINESS, DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without limiting the foregoing, Lessor shall have no responsibility or liability to Lessee or any other person with respect to any of the following, regardless of any negligence of Lessor (i) any liability, loss or damage caused or alleged to be caused directly or indirectly by any Aircraft, any inadequacy thereof, any deficiency or defect (latent or otherwise) therein, or any other circumstance in connection therewith; (ii) the use, operation or performance of any Aircraft or any risks relating thereto; (iii) any interruption of service, loss of business or anticipated profits or consequential damages; or (iv) the delivery, operation, servicing, maintenance, repair, improvement or replacement of any Aircraft. If, and so long as, no default exists under this Lease, Lessee shall be, and hereby is, authorized during the Term to assert and enforce, at Lessee's sole cost and expense, from time to time, in the name of and for the account of Lessor and/or Lessee, as their interests may appear, whatever claims and rights Lessor may have against any Supplier of the Equipment. XVI. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents and warrants to Lessor that on the date hereof and at all times during the Term hereof: (a) Lessee has adequate power and capacity to enter into, and perform under, this Lease and all related documents (together, the "Documents") and is duly qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Aircraft is or is to have its primary hangar location. (b) The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies therein provided may be limited under applicable bankruptcy and insolvency laws. (c) No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents except such as have already been obtained. (d) The entry into and performance by Lessee of the Documents will not: (i) violate any judgment, order, law or regulation applicable to Lessee or any provision of Lessee's Certificate of Incorporation or By-Laws; or (ii) result in any breach of, constitute a default under or result in the creation of any lien, charge, security interest or other encumbrance upon any Aircraft pursuant to any indenture, mortgage, deed of trust, bank loan or credit agreement or other instrument (other than this Lease) to which Lessee is a party. (e) There are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Lessee, which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. (f) The Aircraft is and will remain tangible personal property. (g) Each Balance Sheet and Statement of Income delivered to Lessor has been prepared in accordance with generally accepted accounting principles as to consolidated financial statements of Conseco, Inc. and in accordance with statutory accounting principles as to the financial statements of its individual insurance subsidiaries, and since the date of the most recent such Balance Sheet and Statement of Income, there has been no material adverse change. 11 (h) Lessee is and will be at all times validly existing and in good standing under the laws of the State of its incorporation (specified in the first sentence of this Lease) and Lessee is and will continue to be a "Citizen of the United States" within the meaning of Section 101(16) of the Federal Aviation Act. Lessee shall not consolidate or reorganize or sell, convey, transfer or lease all or substantially all of its property during the Term hereof. (i) The chief executive office or chief place of business (as either of such terms is used in Article 9 of the Uniform Commercial Code) of Lessee is located at the address set forth above, and Lessee agrees to give Lessor prior written notice of any relocation of said chief executive office or chief place of business from its present location. (i) A copy of this Lease, and a current and valid AC Form 8050-1 will be kept on the Aircraft at all times during the Term of this Lease. (k) Lessee has selected the Aircraft, manufacturer and vendor thereof, and all maintenance facilities required hereby. (1) Lessee shall maintain all logs, books and records (including any computerized maintenance records) pertaining to the Aircraft and engines and their maintenance during the Term in accordance with FAA rules and regulations. (m) Lessee shall not operate the Aircraft under Part 135 of the Federal Aviation Regulations without the prior written approval of Lessor. XVII. OWNERSHIP FOR TAX PURPOSES, GRANT OF SECURITY INTEREST; USURY SAVINGS: (a) For income tax purposes, Lessor will treat Lessee as the owner of the Aircraft. Accordingly, Lessor will not claim any tax benefits available to an owner of the Aircraft. (b) Lessee hereby grants to Lessor a first security interest in the Aircraft, together with all additions, attachments, accessories and accessions thereto whether or not furnished by the Supplier of the Aircraft and any and all substitutions, replacements or exchanges therefor, and any and all insurance and/or other proceeds of the property in and against which a security interest is granted hereunder. (c) It is the intention of the parties hereto to comply with any applicable usury laws to the extent that this Lease is determined to be subject to such laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Lease, in no event shall this Lease require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Lease, or in the event that all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Lease shall exceed the maximum amount of interest permitted by applicable law, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Lessee nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Lessee, at the option of the Lessor, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Lease which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Lessee or otherwise by Lessor in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of 12 the United States of America preempts any applicable state law, so that it becomes lawful for Lessor to receive a greater interest per annum rate than is presently allowed, the Lessee agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America. XVIII. PURCHASE OPTION: Provided that no default shall have occurred and be continuing and unless Lessee has exercised its option to return the Aircraft in accordance with Section X above, on the first Termination Date or any Rent Payment Date thereafter (the "Termination Date") Lessee shall have the option, upon at least ninety (90) days but not more than one hundred eighty (180) days prior written notice to Lessor, to purchase the Aircraft for the Termination Value as provided in Annex F. Lessee shall pay to Lessor in cash the Termination Value for the Aircraft (calculated as of the rental due on the Termination Date) together with all rent and other sums then due and unpaid as of the Termination Date, plus all taxes and charges upon sale and all other reasonable and documented expenses incurred by Lessor in connection with such sale. Upon satisfaction of the conditions specified in this Section XVIII, Lessor will transfer, without recourse or warranty (except that Lessor shall represent and warrant that it has whatever title Lessee conveyed to it subject to any liens, claims or encumbrances required to be removed by Lessee pursuant to the terms of the Lease) all of Lessor's right, title and interest in and to the Aircraft. Except as specified in the preceding sentence with respect to title, Lessor shall not be required to make and may specifically disclaim any representation or warranty as to the condition of such Aircraft and other matters. XIX. MISCELLANEOUS: (a) Any cancellation or termination by Lessor, pursuant to the provisions of this Lease, or any supplement or amendment hereto, or the lease of any Aircraft hereunder, shall not release Lessee from any then outstanding obligations to Lessor hereunder. All Aircraft shall at all times remain personal property of Lessee regardless of the degree of its annexation to any real property and shall not by reason of any installation in, or affixation to, real or personal property become a part thereof. (b) Time is of the essence of this Lease. Lessee agrees, upon Lessor's request, to execute any instrument necessary or expedient for filing, recording or perfecting the interest of Lessor. All notices required to be given hereunder shall be deemed adequately given if delivered in hand or sent by registered or certified mail to the addressee at its address stated herein, or at such other place as such addressee may have designated in writing. This Lease and any Annexes hereto constitute the entire agreement of the parties with respect to the subject matter hereof, and all Annexes referenced herein are incorporated herein by reference. NO VARIATION OR MODIFICATION OF THIS LEASE OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO. (c) Any Rent or other amount not paid to Lessor when due hereunder shall bear interest, both before and after any judgment or termination hereof, at the lesser of eighteen percent (18%) per annum or the maximum rate allowed by law. Any provisions in this Lease which are in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. (d) LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS LEASE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 13 (e) The parties agree that this Lease shall be governed by and construed in accordance with the laws of the State of Delaware. XX. TRUTH-IN-LEASING: (a) LESSEE HAS REVIEWED THE AIRCRAFT'S MAINTENANCE AND OPERATING LOGS SINCE ITS DATE OF MANUFACTURE AND HAS FOUND THAT THE AIRCRAFT HAS BEEN MAINTAINED AND INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS. LESSEE CERTIFIES THAT THE AIRCRAFT PRESENTLY COMPLIES WITH THE APPLICABLE MAINTENANCE AND INSPECTION REQUIREMENTS OF PART 91 OF THE FEDERAL AVIATION REGULATIONS. (b) LESSEE CERTIFIES THAT LESSEE, AND NOT LESSOR, IS RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE DURING THE TERM HEREOF. LESSEE FURTHER CERTIFIES THAT LESSEE UNDERSTANDS ITS RESPONSIBILITY FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. (c) LESSEE CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS FOR OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. LESSEE UNDERSTANDS THAT AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE, GENERAL AVIATION DISTRICT OFFICE, OR AIR CARRIER DISTRICT OFFICE. IN WITNESS WHEREOF, Lessee and Lessor have caused this Lease to be executed by their duly authorized representatives as of the date first above written. LESSOR: LESSEE: General Electric Capital Corporation Conseco Investment Holding Company By: /s/ RON G. ELIASON By: /s/ MARK A. FERRUCI ------------------------ -------------------------- Title: Region Credit Manager Title: PRESIDENT 14 ANNEX A Description of Aircraft, Lessor's Cost, and Aircraft Markings I. Description Value 1993 Falcon, Model 900B Aircraft $24,641,400.00 which consists of the following components: (a) Airframe bearing FAA Registration Mark 482FJ* and Manufacturer's Serial No. 127, (b) Garrett Model TFE-731-5B engines bearing Manufacturer's Serial Nos. P101172C (left engine), P101175C (right engine) and P101183C (center engine), (each of which has 750 or more rated takeoff horsepower or the equivalent of such horsepower); (c) Standard accessories and optional equipment and such other items fitted or installed on the Aircraft and set forth hereinafter: SEE EXHIBIT 1 ATTACHED HERETO AND MADE A PART HEREOF (d) Those items of Lessee Furnished Equipment described in a bill of sale or bills of sale therefor (copies of which are appended hereto), delivered by Lessee to Lessor which constitute appliances and equipment which will be installed on the Aircraft; (e) Sales Tax Capitalized Lessor's Cost $24,641,400.00 II. Aircraft Markings (referenced in Section VI of Lease) (a) Four-by-six inch plaque to be maintained in cockpit and affixed in conspicuous position stating: GENERAL ELECTRIC CAPITAL CORPORATION Owner and Lessor. Conseco Investment Holding Company, Lessee under a certain Lease dated as of October 1993, has operational control of this aircraft. (b) Similar markings shall be permanently affixed to each engine. * Lessee acknowledges that this FAA Registration Number will be replaced with a new mark of N654CN and will give prompt notice to Lessee once this mark is installed. 15 EXHIBIT I TO ANNEX A AIRCRAFT DESCRIPTION One (1) 1993 Falcon Model 900B, serial number 127 powered by three (3) Garrett Model TFE-731-5B, engine serial numbers: P101172C (left engine), P101175C (right engine) and P101183C (center engine), FAA registration number 482FJ* APU Make: Garrett GTCP36-15OF Avionics FDS: Comm: Dual Collins VHF-22A Nav: Dual Collins VIR-32, VOR/ILS/MARKER ADF: Dual Collins ADF-60B DME: Dual Collins DME-42 Radar: One (1) each Honeywell Primus 870 Radar, with multi-function display & second controller Transponder: Dual Collins TDR-94D Model S Transponder Auto Pilot: Dual Honeywell SPZ 8000 Flight Control System Flitefone: Global Wulfsberg Flitefone VI with four cabin control units Radio Alt: One (1) each Honeywell AA-300 Radio Altimeter System VLF-NAV: H/F: Dual King HKF-950, One (1) each Coltech CSD-714 Selcal Decoder * Lessee acknowledges that this FAA Registration Number will be replaced with a new mark of N654CN and will give prompt notice to Lessor once this mark is installed. 16 ANNEX B Financial Terms (120 - month Basic Lease Term) Basic Term Commencement Date: October 6, 1993 Basic Term: One Hundred Twenty months Advance Rent: (a) Amount: N/A (b) Due Date: N/A First Basic Rent Date: January 6, 1994 Basic Rent Dates: Quarterly in Arrears (January 6th, April 6th, July 6th and October 6th) First Termination Date: October 6, 1998 Last Basic Rent Date: October 6, 2003 Expiration Date: October 6, 2003 Basic Term Lease Rate Factor: 2.5426% Primary Hangar Location: Indianapolis International Airport Indianapolis, IN Last Delivery Date: October 5, 1993 Reciprocal Amount 20% of Capitalized Lessor's Cost 17 ANNEX F Stipulated Loss and Termination Values The Stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite the applicable rent payment. *Capitalized Lessor's Cost $24,641,400.00.
Basic Rent Termination/Stipulated Loss Payment Number Value Basic Term 1 104.1075% 2 103.2003 3 102.2782 4 101.3408 5 100.3879 6 99.4194 7 98.4348 8 97.4340 9 96.4167 10 95.3826 11 94.3315 12 93.2630 13 91.1768 14 90.0728 15 88.9505 16 87.8097 17 85.6501 18 84.4714 19 83.2732 20 82.0552 21 77.8171 22 76.5587 23 75.2794 24 73.9790 25 72.6572 26 71.3136 27 69.9478 28 68.5595 29 67.1482 30 65.7137 31 64.2555 32 62.7733 33 61.2665 34 59.7350 35 58.1781 36 56.5956 37 54.9869 38 53.3518 39 51.6896 40 50.0000
18 ANNEX H TERMINATION (a) On any quarterly payment date after month sixty (60) (the "Termination Date"), Lessee may, so long as no default exists hereunder, terminate this Lease, upon at least ninety (90) days but not more than one hundred eighty (180) days prior written notice to Lessor effective on the Termination Date specified in such notice. (b) Prior to the Termination Date, Lessee shall, and Lessor may, solicit cash bids for the aircraft on an AS IS, WHERE IS, basis without recourse to or warranty from Lessor, express or implied ("AS IS BASIS"). Lessee shall certify to Lessor any bids received by Lessee during this period. The Lessor or its agents will be permitted to bid on the aircraft. (c) Lessor shall on or after the Termination Date, (herein after the "Sale Date"), sell the Aircraft on an AS IS BASIS for cash to the highest bidder. Lessee and Lessor acknowledge that should the proceeds of such sale (net of any related expenses of Lessor or its agents) be less than the "Termination Value" (as described in Annex F the "Stipulated Loss and Termination Value Table"), then Lessee shall immediately pay to Lessor on the Sale Date, a rental adjustment equal to the difference between the Sales Price and the Termination Value (herein after the "Rental Adjustment"). Such adjustment shall be paid in immediately available funds to the Lessor. Any proceeds of such sale (net of any related expenses of Lessor or its agents) in excess of the Termination Value shall be paid to the Lessee. Additionally, if Lessor performs the customary services of a broker in facilitating such sale, Lessee agrees to pay to Lessor on the Sale Date, a brokerage fee (the "Brokerage Fee") for the sale. Such fee amount shall be determined by Lessor but shall not exceed the then fair market value amount for similar aircraft brokerage services. 19 GENERAL ELECTRIC CAPITAL CORPORATION SUBLEASE CONSENT AGREEMENT THIS SUBLEASE CONSENT AGREEMENT is made and entered into this 6th day of October, 1993, (the "Sublease Consent") by and among General Electric Capital Corporation ("Lessor"), Conseco Investment Holding Company ("Lessee") and Conseco, Inc. ("Sublessee"). RECITALS A. Lessor and Lessee have previously entered into that certain Aircraft Lease Agreement (the "Agreement") dated as of October 6, 1993 relating to that certain aircraft (the "Aircraft") more particularly described in Annex A thereto (the "Schedule"). B. Lessee wishes to sublease the Aircraft to Conseco, Inc. ("Sublessee") under that certain Sublease Agreement (the "Sublease") attached hereto as Exhibit A. C. The Agreement and Schedule, copies of which are attached hereto as Exhibit B, are hereafter referred to together as the "Lease". All capitalized terms used herein shall have the meanings set forth in the Lease. D. The Lease prohibits the subleasing of the Aircraft without Lessor's consent and Lessee and Sublessee desire Lessor to consent to the sublease of the Aircraft to said Sublessee. NOW THEREFORE, in consideration of the promises and the premises herein contained, the parties hereto agree as follows: 1. The Lessee hereby acknowledges that it continues to be obligated and bound by the terms, covenants, conditions, warranties and representations of the Lease, (including, but not limited to, the indemnity obligations, obligation to pay Rent, and impositions resulting from relocation under the Sublease) notwithstanding any delegation of duties under the Sublease. 2. Notwithstanding anything to the contrary contained in the Sublease, the Sublessee hereby acknowledges that its possession of the Aircraft is subject to the terms and provisions of the Lease and further, that its rights and privileges to the Aircraft pursuant to the Sublease are subject and subordinate to the title and rights of the Lessor under such Lease. Accordingly, Sublessee agrees that the Sublease may be terminated by the Lessor upon the occurrence of a default under the Lease by the Lessee or upon the occurrence of a default under the Sublease by the Lessee or the Sublessee. The Sublessee hereby agrees and waives its rights to raise any defenses or claims, whether existing or future, arising out of the Sublease against Lessor, its successors or assigns and Sublessee agrees that it still not look to Lessor to perform any of the duties of the Lessee under the Sublease including but not limited to the furnishing of maintenance, repairs, service or insurance. The Sublessee hereby adopts, restates and ratifies the representations, warranties and indemnifications of the Lessee to Lessor contained in Section XV Indemnification of such Lease and Sublessee agrees to be liable, jointly and severally, with Lessee for such amounts as are determined pursuant to Section XV of the Lease to the same extent as if both Sublessee and Lessee had made such representations, warranties and indemnifications under the Lease. These representations, warranties and indemnifications shall be binding upon the Sublessee, its successors and assigns and the benefits thereof shall extend to and include the successors and assigns of Lessor. Sublessee shall not use, or allow to be used, the Aircraft outside the continental United States except as otherwise provided in the Agreement. All of Lessor's rights, privileges and indemnities contained in this paragraph 2 shall survive the expiration or other termination of the Lease, Sublease or this Sublease Consent. 3. In the event of (i) a default by Lessee under the Lease, or (ii) a failure by Lessee to fulfill its obligations under the Sublease, and provided there is no default by Sublessee under the Sublease, Sublessee shall have the following options: (a) to assume the obligations of Lessee under the Lease, including but not limited to curing all past-due payments and any other default thereunder, and upon such assumption Lessee agrees that Sublessee shall have no further obligations to Lessee under the Sublease; 20 (b) to purchase the Aircraft from Lessor at the greater of (i) the Fair Market Value, or (ii) the Stipulated Loss Value determined as of the date of such default or failure as provided in the Lease; or (c) to pay Lessor the Termination Value determined as of the date of such default or failure as provided in the Lease. Upon the payment by Sublessee of any amount specified in subparagraphs (a), (b) or (c) hereof the Lessor, Lessee agrees that Sublessee shall have no further obligations to Lessee under the Sublease. Sublessee shall inform Lessor of any failure by Lessee to fulfill its obligations under the Sublease. Within ten (10) days after such notice, or after Lessor notifies Sublessee of Lessee's default under the Lease, Sublessee shall inform Lessor as to which of the above options it elects. If Sublessee fails to so inform Lessor, or if Sublessee is in default under the Sublease, Lessor may, at is option, exercise any or all of its rights and remedies under the Lease and hereunder. 4. Lessee and Sublessee represent and warrant that Sublessee is not a tax exempt entity and the use by and sublease of the Aircraft to Sublessee shall not result in any loss of tax benefits to Lessor contemplated by the Lease. 5. Lessee and Sublessee further represent and warrant to Lessor that: the Sublease is genuine and represents a valid and binding contract; all names, addresses, dates, signatures and other statements and facts contained therein are true and correct; the Sublease is and will be enforceable according to its terms; the Sublease is and will be free from any liens, set-offs, counterclaims and other defenses; Lessee has the right to assign the Sublease; and this Sublease Consent conveys good title thereto, free and clear of any other liens and encumbrances whatsoever. Sublessee, its successors and assigns and the benefits thereof shall extend to and include the successors and assigns of Lessor. All of Lessor's rights, privileges and indemnities contained in this Sublease Consent shall survive the expiration or other termination of the Lease, Sublease or this Sublease Consent. 7. NEITHER LESSEE NOR SUBLESSEE MAY (a) SELL OR OFFER FOR SALE THE AIRCRAFT OR (b) SUBLEASE THE AIRCRAFT TO ANY THIRD PARTY WITHOUT THE PRIOR WRITTEN CONSENT OR LESSOR. 8. The Sublease shall expire and control of the Aircraft will be returned to Lessee on or before the expiration of the Lease unless the purchase option or early termination option, if any, in the Lease is exercised pursuant to the terms of the Lease. 9. Lessee hereby gives, grants, assigns, transfers, pledges and hypothecates unto Lessor, as security for the performance of its obligations under the Lease, all of the right, title and interest of Lessee in and to (a) the Sublease, (b) all rentals and all other amounts, including but not limited to all amounts payable due to Sublessee's early termination of the Sublease, due under the Sublease, (c) any and all proceeds of insurance required by the Sublease and (d) all products and proceeds of the foregoing. In furtherance of the foregoing grant of a security interest, Lessee and Sublessee agree to execute any financing statements or other documents as required by Lessor necessary for perfecting the interest of Lessor. Lessee and Sublessee further agree to deliver to Lessor all executed original counterparts of the Sublease covering the Aircraft (excluding those which have been marked to indicate they are not the original). 21 10. After default by Lessee or Sublessee under the Lease, the Sublease or this Sublease Consent, Lessor may at it option exercise one or more the following remedies in addition to any remedies it may have under the Lease: (a) Lessor may notify Sublessee to make all payments of rent and any other payments directly to Lessor and, upon such notice, Sublessee shall make all such rent and other payments directly to Lessor, and in such event Lessee agrees not to collect said payments thereafter; (Lessor may enforce, modify or terminate the Sublease; (c) Lessor may at any time from time to time sell the Sublease in whole or in part, for cash or on time, at public or private sale; such sales to be held at the same or different times and places than the sale or other disposition of the Aircraft and to include or not include the Aircraft at Lessor's sole discretion; and (d) to exercise any other remedy available to it pursuant to applicable law or available to Lessee under the Sublease. All rights granted hereunder shall be cumulative and not alternative, shall be in addition to, and shall in no manner impair or affect, Lessor's rights under the Lease or any other agreement, statute or rule of law. 11. Sublessee specifically acknowledges and agrees that, notwithstanding anything to the contrary in the Sublease, LESSOR HAS NOT MADE NOR SHALL BE DEEMED TO HAVE MADE OR TO MAKE ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE WITH SPECIFICATIONS, OPERATION OR CONDITION OF, OR AS TO THE QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN, THE AIRCRAFT OR ANY COMPONENT THEREOF DELIVERED TO LESSEE OR SUBLESSEE HEREUNDER, AND LESSOR DOES NOT MAKE ANY WARRANTY OR MERCHANTABILITY OR FITNESS OF THE AIRCRAFT OR ANY COMPONENT THEREOF FOR ANY PARTICULAR PURPOSE OR AS TO TITLE TO THE UNITS OR ANY COMPONENT THEREOF, OR ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO ANY UNIT OR ANY COMPONENT THEREOF (EITHER UPON DELIVERY THEREOF TO THE LESSOR OR OTHERWISE). 12. Nothing contained herein or in the Sublease shall operate to excuse Lessee from any of its obligations under the Lease. Lessor shall have no duty to enforce Sublessee's performance under the Sublease. 13. Lessee and Sublessee shall notify Lessor of the location of the Aircraft upon Lessor's request. 14. Sublessee is an aircraft user and not a broker or seller of aircraft. The Sublease shall meet all applicable requirements of state and federal laws. including, without limitation, the Federal Aviation Act of 1958, as amended and the regulations issued pursuant thereto and shall be filed, as appropriate, with the Federal Aviation Administration. 15. If any provision hereof shall be determined to be unenforceable, the same shall be deemed stricken, but the remainder of this Sublease Consent shall remain in full force and effect and shall be construed to effectuate the intent of the parties as set forth herein. Lessor's failure at any time to require strict performance by Lessee or Sublessee of any provision hereof require strict performance by Lessee or Sublessee of any provision hereof shall not waive or diminish Lessor's right thereafter to demand strict compliance with that or any other provision. 16. Any modification hereof and any waiver of any of the provisions hereof shall not be valid unless in writing and signed by an authorized representative of the parties hereto. 17. The parties agree that this Sublease Consent shall be governed by and construed in accordance with the laws of the State of Indiana. LESSEE: SUBLESSEE: Conseco Investment Holding Company Conseco, Inc. By: /s/ MARK A. FERRUCCI By: /s/ LAWRENCE W. INLOW ------------------------- ----------------------- Its: PRESIDENT Its: EXECUTIVE VICE PRESIDENT 22 By execution hereof, consent is hereby granted for the subleasing of the Aircraft to the Sublessee. Consent is hereby granted to the relocation of the Aircraft to the locations) specified in Exhibit C. LESSOR: General Electric Capital Corporation Title: Date: 10/6/93 ----------------------- 23 SUBLEASE AGREEMENT This Lease, by and between CONSECO INVESTMENT HOLDING COMPANY, a Delaware corporation, 1209 Orange Street, Wilmington, Delaware 19801 ("Lessor") and CONSECO, INC., a corporation organized and existing under the laws of the State of Indiana with its residence, mailing address and principal place of business at 11825 N. Pennsylvania Street, Carmel, Indiana 46032 ("Lessee"), has been made and entered into to be effective as of the 6th day of October, 1993. TERMS AND CONDITIONS OF LEASE For and in consideration of the mutual covenants and promises hereinafter set forth, the parties hereto agree as follows: 1. LEASE. Lessor hereby leases to Lessee, and Lessee hereby leases and hires from Lessor, the aircraft and related machinery, equipment and other property described in Schedule A attached hereto and made a part hereof. All machinery, equipment and other property described in Schedule A is, with all replacement parts, repairs, additions and accessories incorporated therein and/or affixed thereto, collectively called "Equipment." Where reference is made herein to this "Lease" it shall be deemed to include the terms and conditions set forth in the Lease and the Schedules attached hereto. 2. TERM. The term of this Lease with respect to the Equipment shall commence on the first date specified in Schedule B attached hereto and shall end upon full performance and observance of each and every term, condition and covenant set forth in this Lease, and any extensions thereof, including but not limited to, any extension caused by Lessee's continued possession of the Equipment after the term shown on Schedule B, or any renewal thereof, whether with Lessor's consent or otherwise. Termination of this Lease prior to the term established for the Equipment at commencement shall be solely at the discretion of Lessor, and on such terms as Lessor may from time to time specify in its sole discretion, including the amount of, and manner of calculation of, any premature termination payment. 3. RENT. The rent for the Equipment shall be the amount designated in Schedule B ("Rent"), and shall be due and payable on the dates set forth therein. Lessee shall pay Lessor Rent at the office of Lessor or its assigns, or to such other person and/or at such other place as Lessor may from time to time designate in writing. 4. DELIVERY. The Equipment shall be delivered to the Indianapolis International Airport as the primary hangar location of the Equipment and such location shall not thereafter be changed without the written consent of Lessor. In the event that the Equipment shall not be delivered within ninety (90) days after the date of this Lease, Lessor shall have the option at any time thereafter to terminate this Lease and all Lessor's obligations hereunder upon written notice to Lessee. 5. WARRANTIES. LESSOR, NOT BEING THE MANUFACTURER OF THE EQUIPMENT NOR THE MANUFACTURER'S AGENT, MAKE NO EXPRESS OR IMPLIED WARRANTY (OF ANY KIND WHATSOEVER WITH RESPECT TO THE EQUIPMENT, INCLUDING BUT NOT LIMITED TO: THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR ANY PARTICULAR PURPOSE; THE DESIGN OR CONDITION OF THE EQUIPMENT; THE QUALITY OR CAPACITY OF THE EQUIPMENT; THE WORKMANSHIP IN THE EQUIPMENT; COMPLIANCE OF THE EQUIPMENT WITH THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATION OR CONTRACT PERTAINING THERETO; PATENT INFRINGEMENT; OR LATENT DEFECTS. Lessee will be subrogated to Lessor's claims, if any, against the manufacturer or supplier of the Equipment for breach of any warranty or representation and, upon written request from Lessee, Lessor shall take all reasonable action requested by Lessee to enforce any such warranty, express or implied, issued on or applicable to any of the Equipment, which is enforceable by Lessor in its own name, provided, however, that (a) Lessee is not in default under this Lease and (b) Lessor shall not be obligated to resort to litigation to enforce any such warranty unless Lessee shall pay all expenses in connection therewith. Notwithstanding the foregoing, Lessee's obligations to pay the Rent under this Lease shall be and are absolute and unconditional. All proceeds of any such warranty recovery from the manufacturer or supplier of the Equipment shall first be used to repair the affected Equipment to Lessor's satisfaction. 6. USE. Lessee shall possess and use the Equipment in conformity with all national, state, municipal, police and other laws, ordinances and regulations relating to the possession, use or maintenance of such Equipment, and in conformity with any insurance policies and any warranties of the manufacturer of the Equipment. 24 7. EQUIPMENT IDENTIFICATION. If at any time during the term hereof Lessor supplies Lessee with labels, plates or other markings stating that the Equipment is owned by Lessor, Lessee shall affix and keep the same in a prominent place on the Equipment. 8. LESSEE'S INSPECTION. Lessee shall inspect the Equipment within forty-eight (48) hours after receipt and installation thereof. Unless Lessee within said period of time gives written notice to Lessor, specifying any defect in or other proper objection to the Equipment or its installations Lessee agrees that it shall be conclusively presumed, as between Lessor and Lessee, that Lessee has fully inspected and acknowledged that the Equipment is in good condition and repair, and that Lessee is satisfied with and has accepted the Equipment in such good condition and repair. 9. LESSOR'S INSPECTION. At any time during normal business hours, Lessor shall have the right to enter into and upon the premises where the Equipment may be located for the purpose of inspecting it or observing its; use. Lessee shall give Lessor immediate notice of any attachment or other judicial process affecting any item of Equipment. 10. MAINTENANCE AND REPAIRS. Lessee shall, at its expense, maintain and repair each item of Equipment and shall keep it in good mechanical condition and working order. Lessee shall not be responsible for normal wear and tear. If the Equipment shall consist of computer or electronic devices or machinery, or of devices related thereto, Lessee shall at its expense maintain and upgrade such devices in accordance with the manufacturer's suggestions and directions. 11. ALTERATIONS AND ADDITIONS. Without the prior written consent of Lessor, Lessee shall make no alternations, additions, improvements or attachments with respect to any item of Equipment. All alterations, additions, attachments, improvements, accessories and repairs at any time made or placed upon the Equipment shall become part of the Equipment and shall be property of Lessor. 12. TITLE; SECURITY INTEREST. The Lessee shall have no right, title or interest therein except as expressly set forth in this Lease. Lessee, at its expense, will keep the Equipment free and clear from any and all claims, liens, encumbrances and legal processes. Lessor assumes no liability and makes no representation as to the treatment by Lessee of this Lease, the Equipment or the rental payments for financial statement or tax purposes. All items of Equipment shall at all times be and remain personal property. If for any purpose, this Lease shall be construed to be a financing transaction, Lessee hereby grants, pledges and assigns Lessor a security interest in the Equipment to secure all of Rent and other sums due or to become due under this Lease. The interest so granted shall be in addition to any interest granted in other property to secure the rent and shall encompass the Lessee's interest on the Equipment as owner, co-owner, lessee, consignee, secured party, whether now owned or existing or hereafter arising or acquired, and wherever located, together with all substitutions, replacements, additions and accessions therefor or thereto, all replacement and repair parts therefor, all negotiable documents relating thereto, all products thereof and all cash and non-cash proceeds thereof including, but not limited to, notes, drafts, checks, instruments, insurance proceeds, indemnity proceeds, warranty and guaranty proceeds and proceeds arising in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Equipment by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority). 13. RISK OF LOSS. All risk of loss, damage, theft or destruction to each item of equipment shall be borne by the Lessee. No such loss, damage, theft or destruction of the Equipment, in whole or in part, shall impair the obligations of Lessee under this Lease, all of which shall continue in full force and effect; and Lessee, upon Lessor's approval, shall either (a) place the affected Equipment in good repair, condition and working order or (b) replace the same with like Equipment in repair, condition and working order or (c) pay the Lessor an amount equal to all unpaid rent and other indebtedness due and to become due under this Lease with respect to the affected Equipment, together with the anticipated fair market value of the Equipment at the end of the Lease Term and together with interest on such sum at the Prime 25 Commercial Rate of The INB National Bank ("Bank") from the date of loss until receipt of payment. As used in this Lease, "Prime Commercial Rate" shall mean the rate established by the Bank from time to time based upon its consideration of economic, money market, business and competitive factors, and it is not necessarily the Bank's most favored rate, which rate shall automatically change, without notice to Lessee, with each change in the Prime Commercial Rate. After compliance with the foregoing to Lessor's satisfaction, and provided Lessee is not in default under this Lease, Lessee shall be subrogated to Lessor's rights with respect to any insurance policies or claims for reimbursement by others with respect to such loss, damage, theft or destruction. 14. FINANCIAL STATEMENTS AND FURTHER ASSURANCES; LESSEE'S WARRANTIES. Unless otherwise agreed, Lessee shall deliver to the Lessor the following: (a) within ninety (90) days of the end of Lessee's fiscal year, an audited financial statement prepared by independent accountants satisfactory to the Lessor, containing a balance sheet and statements of income and surplus, together with any management letters prepared by such accountants; and (b) at the request of Lessor, such other monthly or quarterly information as Lessor may, from time to time, reasonably require. Lessee hereby represents and warrants to Lessor that all credit and financial information furnished to Lessor in connection with this Lease is true and accurate in every respect. 15. RETURN OF EQUIPMENT. Unless Lessee shall have duly exercised a renewal or purchase option, upon the expiration or earlier termination of this Lease, Lessee shall return the Equipment to Lessor in good repair, condition and working order, ordinary wear and tear resulting from proper use thereof alone excepted, by delivering the Equipment at Lessee's cost and expense to such place as Lessor shall specify. 16. INSURANCE. Lessee shall keep the Equipment insured against all risks of loss or damages from every cause whatsoever for not less than the replacement value thereof as determined by Lessor and shall carry public liability, and property damage insurance coverage the Equipment. All said insurance shall be in form and amount, and from an insurer, suitable to Lessor, and shall name Lessor as loss payee under physical damage coverage as its interests may appear and as additional insured under liability coverage. Lessee shall pay all insurance premiums and shall deliver the policies or certificates of insurance to Lessor. Each insurer shall agree, by endorsement upon the policy issued by it or by separate instrument furnished to Lessor, that it will give Lessor not less than thirty (30) days written notice before the policy shall be altered or canceled. The proceeds of such insurance, at the option of Lessor, shall be applied (a) toward the replacement, restoration or repair of the Equipment or (b) toward payment of, the obligations of Lessee hereunder. Lessee hereby appoints Lessor its attorney-in-fact to make claim for, receive payment of and execute and endorse all documents, checks or drafts for loss or damage under any insurance policy. 17. TAXES. Lessee shall keep the Equipment free and clear of levies, liens and encumbrances, and shall pay all license and registration fees, assessments, charges and taxes (municipal, state and federal) which may now or hereafter be imposed upon the ownership, leasing, renting, sales, possession or use of the Equipment, excluding, however, all taxes on or measured by Lessor's net income or franchise taxes of Lessor. 18. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee shall fail to duly and promptly perform any of its obligations under this Lease, Lessor may perform any act or make any payment which Lessor may deem necessary for the maintenance and preservation of the Equipment and Lessor's title thereto, including payments for satisfaction of liens, repairs, taxes, levies and insurance. All sums so paid or incurred by Lessor, together with interest as provided below, and any reasonable legal fees incurred by Lessor in connection therewith, shall be additional Rent under this Lease and payable by Lessee to Lessor on demand. All payments received by Lessor from Lessee shall be first applied by Lessor to the sums paid or incurred by Lessor as additional Rent, and the balance, if any, shall be applied to the payments of Rent. The performance of any act or any payment made by Lessor shall not be deemed a waiver or release by Lessor of any obligation or default of Lessee. 19. LATE CHARGES. Should Lessee fail to promptly pay any Rent to be paid to Lessor under this Lease, then Lessee shall pay interest on such Rent from the due date at the rate of one and one-half percent (1-1/2%) per month for each month or portion of any month that said Rent remains unpaid, if not prohibited by law, otherwise at the highest lawful contract rate. 26 20. INDEMNIFICATION. Lessee assumes liability for, and hereby agrees to indemnify, protect and hold harmless Lessor, its agents, employees, officers, directors, successors and assigns from any and all liabilities, obligations, losses, damages, injuries, claims, demands, penalties, actions, costs and expenses, including reasonable attorneys, fees, arising out of or connected with the use, condition (including, but not limited to, latent and other defects and whether or not discoverable by Lessee or Lessor), operation, ownership, selection, delivery, leasing or return of any item of Equipment. The indemnities and assumptions of liabilities and obligations herein shall continue in full force and effect notwithstanding the expiration or earlier termination of this Lease. Lessee is an independent contractor and nothing contained in this Lease shall authorize Lessee or any other person to operate any item of Equipment so as to incur or impose any liability or obligation for or on behalf of Lessor. 21. ASSIGNMENT BY LESSEE. Neither this Lease nor any interest herein is assignable or transferable by operation of law, including but not limited to, the bankruptcy laws of the United States. Without the prior written consent of Lessor, Lessee shall not (a) assign, transfer, pledge or hypothecate this Lease, the Equipment or any part thereof, or any interest therein, (b) sublet or lend the Equipment or any part thereof, or (c) permit the Equipment or any part thereof to be used by anyone other than Lessee or Lessee's employees. Consent to any of the foregoing prohibited acts applies only in the given instance; and is not a consent to any subsequent like act by Lessee or any other person. Subject to the foregoing, this Lease inures to the benefit of, and is binding upon, the heirs, legatees, personal representatives, successors and assigns of the parties hereto. 22. ASSIGNMENT BY LESSOR. Lessor may assign this Lease and/or encumber the equipment, and said assignee may assign the same. All rights of Lessor hereunder may be assigned, pledged, mortgaged, transferred, or otherwise disposed of, either in whole or in part, without notice to Lessee. If Lessor assigns this Lease or the Rent or any other interest herein, whether as security for any of its indebtedness or otherwise, no breach or default by Lessor hereunder or pursuant to any other agreement between Lessor and Lessee shall excuse performance by Lessee of any provision hereof. No such assignee shall by obligated to perform any duty, covenant or condition required to be performed by Lessor under the terms of this Lease. In the event Lessor shall assign the Rent payment hereunder and written notice thereof is given to Lessee, Lessee agrees to unconditionally pay directly to any such assignee all Rent and other sums due or to become due under this Lease. THE RIGHTS OF ANY SUCH ASSIGNEE SHALL NOT BE SUBJECT TO ANY DEFENSE, COUNTERCLAIM OR SET-OFF WHICH LESSEE MAY HAVE AGAINST THE LESSOR. Notwithstanding the foregoing, any such assignment (a) shall be subject to Lessee's right to possess and use the Equipment so long as Lessee is not in default under this Lease and (b) shall not release any of Lessor's obligations hereunder or any claim which Lessee has against Lessor. 23. EVENTS OF DEFAULT. Lessee shall be in default under this Lease upon the happening of any of the following events or conditions ("Event of Default"): (a) Failure of Lessee to pay Rent or any other indebtedness or obligation now or hereafter owed by Lessee to Lessor under this Lease or any other agreement or document and the continuance of such default for ten consecutive days; or (b) Failure of Lessee to perform any of the obligations, covenants or liabilities contained in this Lease or any other agreement or document with Lessor, and the continuance of such default for ten consecutive days; or (c) Any warranty, representation or statement made or furnished to Lessor by or on behalf of Lessee proves to have been false in any material respect when made or furnished; or (d) Loss, theft, damage, destruction, or the attempted sale or encumbrance by Lessee of any of the Equipment, or the making of any levy, seizure or attachment of the Equipment; or 27 (e) Dissolution, termination of existence, discontinuance of business or insolvency of Lessee, or the appointment of a receiver, assignment for the benefit of creditors, or commencement of any proceeding under Title 11 of the United States Bankruptcy Code by or against Lessee. 24. REMEDIES OF LESSOR. Upon the occurrence of any Event of Default and at any time thereafter (subject to any applicable grace provisions) , Lessor may without any further notice to Lessee, in its sole discretion, exercise one or more or the following remedies: (a) Declare all unpaid Rent and all other sums due under this Lease to be immediately due and payable; (b) Terminate this Lease; (c) Take possession of any or all items of Equipment, wherever they may be located, without any court order other process of law, and Lessee hereby waives all damages occasioned by such taking of possession. Lessor's taking of possession shall not constitute a termination of this Lease unless Lessor expressly so notifies Lessee in writing; (d) Cause Lessee, at its expense, to promptly return the Equipment to Lessor; (e) Use, hold, sell, lease or otherwise dispose of the Equipment or any item thereof on the premises of the Lessee; (f) Sell or lease the Equipment or any part thereof, at public auction or by private sale, at such time or times and upon such terms as Lessor may determine, free and clear of any rights of Lessee, and notice which is required by law to be delivered by Lessor to Lessee with respect to such sale shall be delivered at least ten (10) days prior to the date of sales or lease and shall constitute reasonable notice to Lessee; (g) To sue for and recover all Rent and other sums then accrued or thereafter accruing with respect to the Equipment, including but not limited to any expenses paid or incurred by Lessor in connection with the repossession, holding, repair and subsequent sale, lease or other disposition of the Equipment, including reasonable attorneys' fees; (h) Offset any sums due Lessee from Lessor, including but not limited to all deposit or transaction account balances of Lessee with any banking entity affiliated by common ownership with Lessor, against all unpaid Rent and all other sums due under this Lease; (i) Exercise any and all rights accruing to a Lessor under any applicable law upon a default by a Lessee. No right or remedy herein conferred upon or reserved to Lessor is exclusive of any other right or remedy provided herein or by law or in equity, and all such remedies of Lessor are cumulative and may be exercised concurrently or separately, so long as the exercise of such rights and remedies of Lessor are consistent with the duty of the Lessor to mitigate its damages. No repossession sale or lease by Lessor of any item of Equipment shall bar an action for a deficiency as hereinafter provided and neither the bringing of an action nor the entry of judgement against the Lessee shall bar the Lessor's right to repossess any or all items of Equipment. In the event Lessor repossesses and sells or releases any item of Equipment, and the proceeds of such sale or lease exceed the amount of all indebtedness due and to become due under the terms of this Lease, all applicable late charges, and interest on such sums from the time of the Event of Default to the receipt of payment, then Lessor shall be entitled to retain all proceeds of such sale or lease in full satisfaction of the obligations of Lessee hereunder with respect to such items of Equipment. In the event Lessor repossesses and sells or releases any item of Equipment and the proceeds of such sale or lease are less than the amount of all indebtedness due and to become due under the terms of this Lease, including but not limited 28 to all costs of resale or release, all taxes due or to become due, and all applicable late charges, costs or taxes due or to become due, and interest on such sums from the time of the Event of Default to the receipt of such proceeds, then Lessor shall be entitled to recover from the Lessee the deficiency, together with the interest on such deficiency at the rate of one and one-half percent (1-1/2%) per month for each month or portion of any month that said deficiency remains unpaid, if not prohibited by law, otherwise at the highest lawful contract rate. 25. LESSOR'S EXPENSES. Lessee shall pay to Lessor all costs and expenses, including reasonable attorneys' fees, incurred by Lessor in exercising any of its rights or remedies hereunder or enforcing any of the terms, conditions or provisions of this Lease. 26. SEVERABILITY. Any provision of this Lease which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition and unenforceable without invalidating the remaining provisions hereof. To the extent permitted by applicable law, Lessee hereby waives any provision of Law which prohibits or renders unenforceable any provisions hereof in any respect. 27. OFFSET. Lessee hereby waives any and all existing and further claims, and offsets, against any Rent or the sums due hereunder; and agrees to pay the Rent and other sums hereunder regardless of any offset or claim which may be asserted by Lessee or on its behalf. 28. NONWAIVER. No covenant or condition of this Lease can be waived except by the written consent of Lessor. Forbearance or indulgence by Lessor in any regard whatsoever shall not constitute a waiver of the covenant or condition to be performed by Lessee to which the same may apply. 29. ENTIRE AGREEMENT. This instrument and the Schedules constitute the entire agreement between Lessor and Lessee; no term or provision of this Lease shall be amended, altered or changed except by a written agreement signed by the parties hereto, except that Lessor may complete any descriptions of any of the Equipment on the appropriate Schedules after delivery thereof and Lessor may complete the date on which the rent set forth on the Schedules shall commence. 30. NOTICES. Service of all notices under this Agreement shall be sufficient if given personally or mailed to the party involved at its address stated forth herein, or at such address as such party may provide in writing from time to time. Any such notice mailed to such address shall be effective and deemed to be delivered when deposited in the United States mail, duly addressed and with postage prepaid. 31. CONSTRUCTION. This Lease shall be governed by and construed in accordance with the laws of the State of Delaware. The titles of the sections of this Lease are for convenience of the parties and shall not define or limit any of the terms or provisions hereof. Whenever the context of this Lease requires, the neuter gender includes the masculine or feminine, and the singular number includes the plural; and whenever the word "Lessor" is used herein, it shall include all assignees of Lessor. If there is more than one Lessee named in this Lease, the liability of each shall be joint and several. Time is of the essence of this Lease in each and all of its provisions. The provisions of this Lease shall be binding upon, and inure to the benefit of, the assigns, representatives and successors of the Lessor and Lessee. CONSECO INVESTMENT HOLDING CONSECO, INC. COMPANY By: /s/ MARK A. FERRUCCI By: /s/ ROLLIN M. DICK --------------------- -------------------- President Executive Vice President 29 SCHEDULE A FALCON 900B AIRFRAME ENGINES SERIAL NUMBER: 127 GARRETT TFE-731-5B TIME SINCE NEW: 0 HOURS TIME SINCE NEW: 0 HOURS TOTAL CYCLES: 0 LANDINGS TIME BETWEEN OVERHAUL: 4200 HOURS APU MAKE: GARRETT GTCP36-15OF APU TIME: 0 HOURS AVIONICS SYSTEMS IRS: TRIPLE HONEYWELL LASER IRS'S WITH LASERTRACK NAVIGATIONAL DISPLAY UNIT & CDI AUTO PILOT: DUAL HONEYWELL SPZ 8000 FLIGHT CONTROL SYSTEM FMS: DUAL HONEYWELL FMZ-804 FLIGHT MANAGEMENT SYSTEM 1 EA HONEYWELL DL-900 DATA LOADER GPS: 1 EA HONEYWELL GLOBAL POSITIONING SYSTEM AFIS: 1 EA GLOBAL WULFSBERG AIRBORNE FLIGHT INFO. SYSTEM RADAR: 1 EA HONEYWELL PRIMUS 870 RADAR, WITH MULTI-FUNCTION DISPLAY & SECOND CONTROLLER LIGHTING SENSOR: 1 EA HONEYWELL LSZ-850 LIGHTNING SENSOR SYSTEM AUDIO: DUAL BAKER M1045 FLIGHTDECK AUDIO SYSTEM 1 EA BAKER M2050C CABIN PA/ CHIME SYSTEM COMM: DUAL COLLINS VHF-22A NAV: DUAL COLLINS VIR-32, VOR/ILS/MARKER ADF: DUAL COLLINS ADF-60B DME: DUAL COLLINS DME-42 TRNS: DUAL COLLINS TDR-94D MODE S TRANSPONDER HF: DUAL KING KHF-950 I EA COLTECH CSD-714 SELCAL DECODER RAD ALT: 1 EA HONEYWELL AA-300 RADIO ALTIMETER SYSTEM TCAS II: I EA COLLINS TCAS-94 WITH ARINC CONTROL ADS: DUAL HONEYWELL AZ-810 AIR DATA SYSTEMS CLOCK: DUAL NAVITRON DIGITAL CLOCKS STANDBY INST.: 1 EA SMITH STANDBY MAGNETIC COMPASS 1 EA J.E.T. STANDBY HORIZON SYSTEM 1 EA SAFT - EMERGENCY POWER SYSTEM ELT: 1 EA DORNE MARGOLIN ELT VOICE RECORDER: 1 EA FAIRCHILD A100A COCKPIT VOICE RECORDER FLT DATA RECORDER: 1 EA FAIRCHILD F8OO FLIGHT DATA RECORDER GROUND PROX: 1 EA SUNDSTRAND MK-V DIGITAL GROUND PROXIMITY WARNING SYSTEM WITH WIND SHEAR DETECTION AOA: 1 EA TELEDYNE ANGLE OF ATTACK SYSTEM ADDITIONAL EQUIPMENT GLOBAL WULFSBERG FLITEFONE VI - WITH FOUR CABIN CONTROL UNITS RACAL SATCOM SYSTEM CONNECTED TO FOUR CABIN CONTROL UNITS RACAL FACSIMILE NEC I-300 - USE WITH SATCON FLIGHTDECK CAMERA - AERIAL VIEW SYSTEMS SONY AM/FM STEREO, MULTIPLE DISC CD PLAYER WITH WIRELESS REMOTE SONY 13" COLOR MONITOR SONY VHS VCR/TUNER GALLEY MASTER SYSTEM AIRSHOW 200 30 SCHEDULE B Falcon 900 B Aircraft Rent Schedule Capitalized Cost of Aircraft $24,641,400.00 Lease Commencement Date October 6, 1993 Lease Term 120 months Rant Paymout Dates Quarterly in Arrears (Each Jan 6, April 6, July 6 and Oct 6) First Rent Date January 6, 1994 Last Rent Date October 6, 2003 Lease Expiration Date October 6. 2003 Lease Rate factor (as % of 2.5426% capitalized aircraft cost) Primary Hangar Location Indianapolis Int'l Airport 31 CORPORATE GUARANTY General Electric Capital Corporation 1415 W. 22nd Street, Suite 800 Oak Brook, IL 60521 To induce you to enter into an Interim Finance Agreement and Lease, with you as Lessor and Conseco Investment Holding Company as Borrower/Lessee, which documents were executed by Lessee on September 29, 1993 and October 6, 1993 respectively (collectively referred to as the "Lease") and covers the equipment described in the Lease and any schedule thereto, but without in any way binding you to enter into the Lease, the undersigned, for good and valuable consideration, does hereby guarantee to you, your successors and assigns, the due, regular and punctual payment of all sums as provided in the Lease, and any schedules thereto, whether it represents an original balance, a casualty or stipulated loss value, a balance reduced by part payment or a deficiency after sale of equipment or otherwise, and does hereby further guarantee that the Lessee will faithfully perform and fulfill all agreements and obligations provided in the Lease at the time and in the manner therein provided. Undersigned does hereby further guarantee to pay on demand all losses, costs, attorney's fees and expenses which may be suffered by you by reason of Lessee's default or default of the undersigned. Undersigned waives any and all impairment of its rights (including, but not limited to, the release of any obligor or collateral or any part thereof (with or without substitution), failure to perfect or maintain the perfection of any interest in any collateral or property, or failure to have title to the leased equipment) whether intentional or negligent, by operation of law or otherwise. The undersigned agrees that nothing herein shall be deemed to render this Guaranty in any way conditional, or to require you first to seek or exhaust any remedy against Lessee, its successors or assigns, or any other person obligated or liable under said Lease, this Guaranty or any other instrument; and it is agreed that you may, upon default of Lessee, or at any time thereafter, make demand upon and receive payment of any sum or performance of any covenant or agreement hereunder guaranteed by the undersigned, with or without notice or demand for payment or performance by Lessee, its successors or assigns, or any other person. Notice of acceptance of this Guaranty and of any default by the Lessee or any other person is hereby waived. Presentment, protest and demand, and notice of protest, demand and dishonor of the Lease, and the exercise of possessory, collection or other remedies on the Lease, are hereby waived. Notice of adverse change in Lessee's financial condition or of any other fact which might materially increase the risk of the undersigned is also waived, and the undersigned agrees that you shall not be required to first foreclose, proceed against, or exhaust any collateral or security for any indebtedness or obligation hereby guaranteed, before requiring the undersigned to pay the full amount of the liability hereby created. Suit may be brought and maintained against the undersigned, at your election, without joinder of the Lessee or any other person as parties thereto. The extension of the time of payment or the renewal of the Lease or the extension of the time of performance of agreements or any other indulgence may be granted to the Lessee, its successors or assigns, or any other person, without notice to the undersigned, and all settlements, compromises, compositions, accounts stated and agreed balances made in good faith between the Lessee, its successors or assigns and shall be binding upon and shall not affect the liability of the undersigned. The undersigned's obligations hereunder shall in no way be affected or impaired by (i) Lessee's voluntary or involuntary bankruptcy, assignment for the benefit of creditors, reorganization or similar proceedings affecting the Lessee or any of its assets, and (ii) the release of Lessee from any of its agreements contained in the Lease by operation of law or otherwise. The undersigned hereby waives all right to trial by jury in any litigation arising herefrom or in relation hereto, and agrees not to seek change of venue from any jurisdiction and court in which any action, proceeding or litigation is brought. The undersigned hereby waives exercise of possessory, collection, foreclosure or other remedies by you against Lessee, secondary obligors or collateral under the Lease. As used in this Guaranty, the word "person" shall include any individual, corporation or partnership, and refers to the undersigned and to anyone absolutely, contingently, partly or wholly liable for payment and/or performance of the Lessee's obligations being guaranteed hereunder. Any failure 32 by you to exercise your rights hereunder shall not give rise to any estoppel against you, or excuse the undersigned from performing hereunder. Your waiver of any right to demand performance hereunder shall not be a waiver of any subsequent or other right to demand performance hereunder. This Guaranty and each of its provisions may only be waived, modified, varied, released, terminated or surrendered, in whole or in part, by a duly authorized written instrument signed by you, but as to all obligations of the Lessee, contingent or absolute, incurred up to the time of the receipt of such notice, this Guaranty shall be continuing and unconditional until the same are fully paid, performed and discharged. This Guaranty shall bind the undersigned's successors and assigns and the benefits thereof shall extend to and include your successors and assigns. In the event of default hereunder, you may at any time inspect undersigned's records, or at your option, undersigned shall furnish you with a current independent audit report. If any provisions of this Guaranty are in conflict with any applicable statute, rule or law, then such provisions shall be deemed null and void to the extent that they may conflict therewith, but without invalidating any other provisions hereof. Each signatory on behalf of a corporate guarantor warrants that he had authority to sign on behalf of such corporation and by so signing, to bind said guarantor corporation hereunder. IN WITNESS WHEREOF, this Guaranty is executed this 6th day of October, 1993. Conseco, Inc. ------------------------------ (Name of Corporation) Attest: /s/ LAWRENCE W. INLOW By: /s/ ROLLIN M. DICK ----------------------- --------------------------- 33 ASSIGNMENT AGREEMENT THIS ASSIGNMENT AGREEMENT is made as of the 25th day of October, 1993, between GENERAL ELECTRIC CAPITAL CORPORATION ("Assignor") and NATIONSBANC LEASING CORPORATION ("Assignee"). Assignor has heretofore entered into that certain Aircraft Lease Agreement dated as of October 6, 1993 (the "Lease"), between Assignor, as lessor, and Conseco Investment Holding Company, as lessee ("Lessee"), providing for the leasing by Assignor to Lessee of one (1) 1993 Falcon 900B aircraft, SIN 127, FAA Registration N654CN (the "Aircraft"), together with three (3) Garrett model TFE-731-5B engines, S/N P101172C, P101175C and P101183C (collectively, the "Engines"). The Lease was filed for recording with the Federal Aviation Administration ("FAA") and recorded at the FAA Aircraft Registry on the date and assigned the conveyance number, as set forth on Schedule A hereto. Lessee has heretofore entered into that certain Sublease Agreement dated as of October 6, 1993 (the "Sublease"), between Lessee, as sublessor, and Conseco, Inc., as subleases (the "Sublessee"), providing for the subleasing of the Aircraft and the Engines from Lessee to Sublessee. All right, title and interest of Lessee in and to the Sublease has been assigned by Lessee to Assignor pursuant to that certain Sublease Consent Agreement dated as of October 6, 1993 (the "Sublease Consent"), by and among Assignor, Lessee and Sublessee. The Sublease and Sublease Consent were filed for recording with the FAA and recorded at the FAA Aircraft Registry on the date and assigned the conveyance number, as set forth on Schedule A hereto. Pursuant to that certain Master Assignment Agreement No. 2 and that certain Specification of Assigned Lease, each dated as of the date hereof, between Assignor and Assignee, all right, title and interest of Assignor in, to and under the Aircraft, the Engines, the Lease, the Sublease and the Sublease Consent, have been sold, assigned and conveyed to Assignee. The parties have executed this Assignment Agreement in connection with and further to evidence such sale, assignment and conveyance. NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Effective from and after the date hereof, Assignor hereby irrevocably and unconditionally, sells, assigns and conveys to Assignee all right, title and interest of Assignor in, to and under the Aircraft, the Engines, the Lease, the Amendment, the Sublease and the Sublease Consent; and Assignee accepts such assignment. 2. This Assignment Agreement and the rights and obligations of the parties hereunder shall in all respects be governed by, and construed in accordance with, the internal laws of the State of Illinois (without regard to the conflict of laws principles of such State), including all matters of construction, validity and performance. 3. This Assignment Agreement may be executed in any number of counterparts, each of which shall be an original, all of which when taken together shall constitute one agreement binding on all parties, notwithstanding that all parties are not signatories to the same counterpart. IN WITNESS WHEREOF, the parties have caused this Assignment Agreement to be executed on their behalf as of the date first above written. 34 GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ STEPHEN E. WHITE ----------------------------- Name: Stephen E. White Title: Transaction and Syndication Sr. Mgr. NATIONSBANC LEASING CORPORATION By: /s/ M. RANDALL ROSS ----------------------------- Name: M. Randall Ross Title: Vice President 35 SCHEDULE A ASSIGNMENT AGREEMENT 1. Aircraft Lease Agreement and Sublease-Consent Agreement: recorded by the FAA on October 12, 1993, and assigned Conveyance No. Y38995 2. Sublease Agreement recorded by the FAA on October 12 1993, and assigned Conveyance No. Y38996. EX-10.33.1 14 EXHIBIT 10.33.1 TO CONSECO, INC. 1993 FORM 10-K 1 Western National Corporation (a Delaware corporation) 27,497,500 Shares of Common Stock (Par Value $.001 Per Share) U.S. PURCHASE AGREEMENT February 8, 1994 MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DEAN WITTER REYNOLDS INC. GOLDMAN, SACHS & CO. LADENBURG, THALMANN & CO. INC. as U.S. Representatives of the several U.S. Underwriters c/o Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1305 Dear Sirs: Western National Corporation, a Delaware corporation (the "Company"), Conseco Investment Holding Company, a Delaware corporation ("CIHC"), and Conseco, Inc., an Indiana corporation ("Conseco"), confirm their agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Dean Witter Reynolds Inc. ("Dean Witter"), Goldman, Sachs & Co. ("Goldman Sachs"), Ladenburg, Thalmann & Co. Inc. ("Ladenburg") and each of the other underwriters named in Schedule A hereto (collectively, the "U.S. Underwriters," which term shall also includes any underwriter substituted as hereinafter provided in Section 10), for whom Merrill Lynch, Dean Witter, Goldman Sachs and Ladenburg are acting as representatives (in such capacity, Merrill Lynch, Dean Witter, Goldman Sachs and Ladenburg shall hereinafter be referred to as the "U.S. Representatives"), with respect to the sale by the Company and CIHC, acting severally and not jointly, and the purchase by the U.S. Underwriters, acting severally and not jointly, of 1,700,000 shares and 25,797,500 shares, respectively, of the respective number of shares of Common Stock of the Company, $.001 par value per share (the "Common Stock"), set forth in Schedule A and with respect to the grant by the Company and CIHC to the U.S. Underwriters and Managers (as defined below), acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of additional shares of Common Stock to cover over-allotments. The aforesaid shares of Common Stock (the "Initial U.S. Securities") to be purchased by the U.S. Underwriters and all or any part of the shares of Common Stock subject to the over-allotment option described in Section 2(b) hereof (the "U.S. Option Securities") are collectively referred to herein as the "U.S. Securities." The 4,852,500 shares of Common Stock subject to the option described in Section 2(b) hereof are hereinafter collectively called the "Option Securities." It is understood that the Company, CIHC and Conseco are concurrently entering into an agreement dated the date hereof (the "International Purchase Agreement") with certain Managers outside the United States and Canada (the "Managers") for which Merrill Lynch International Limited, Dean Witter International Ltd., Goldman Sachs International Limited and Ladenburg are acting as lead managers (the "Lead Managers"), providing for the offering by the Company and CIHC of 4,852,500 shares of Common Stock (the "Initial International Securities") and the grant by the Company and CIHC to the Managers of an option to purchase all 2 or any part of the Managers' pro rata portion of the Option Securities (the "International Option Securities") to cover over- allotments. The Initial International Securities and the International Option Securities are hereinafter called the "International Securities." It is understood that the Company and CIHC are not obligated to sell, and the U.S. Underwriters are not obligated to purchase, any Initial U.S. Securities unless all of the Initial International Securities are contemporaneously purchased by the Managers. The U.S. Underwriters and the Managers are hereinafter collectively called the "Underwriters," the Initial U.S. Securities and the Initial International Securities are hereinafter collectively called the "Initial Securities," and U.S. Securities and the International Securities are hereinafter collectively called the "Securities." The Company, CIHC, Conseco and the Managers understand that the Underwriters will concurrently enter into an Intersyndicate Agreement of even date herewith (the "Intersyndicate Agreement") providing for the coordination of certain transactions among the Underwriters under the direction of Merrill Lynch. Prior to the purchase and public offering of the U.S. Securities by the several U.S. Underwriters, the Company, CIHC, Conseco and the U.S. Representatives, acting on behalf of the several U.S. Underwriters, shall enter into an agreement substantially in the form of Exhibit A hereto (the "U.S. Pricing Agreement"). The U.S. Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company, CIHC, Conseco and the U.S. Representatives and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the U.S. Securities will be governed by this Agreement, as supplemented by the U.S. Pricing Agreement. From and after the date of the execution and delivery of the U.S. Pricing Agreement, this Agreement shall be deemed to incorporate the U.S. Pricing Agreement. The initial public offering price and the purchase price with respect to the International Securities shall be set forth in a separate instrument (the "International Pricing Agreement"), the form of which is attached to the International Purchase Agreement. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (No. 33-70022) and a related preliminary prospectus for the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof, and will file such additional amendments thereto and such amended prospectuses as may hereafter be required. (1) Such registration statement (as amended, if applicable) and the two prospectuses constituting a part thereof (including in each case the information, if any, deemed to be a part thereof pursuant to Rule 430A(b) under the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations")), as from time to time thereafter may be amended or supplemented pursuant to the 1933 Act or otherwise, are hereinafter referred to as the "Registration Statement," the "U.S. Prospectus," and the "International Prospectus" respectively, and the U.S. and International Prospectuses are hereinafter together called "Prospectuses" and, each individually, a "Prospectus," respectively, except that if any [FN] (1) Two forms of prospectuses are to be used in connection with the offering and sale of the Securities: one relating to the U.S. Securities (the "U.S. Prospectus"), and one relating to the International Securities (the "International Prospectus"). 3 revised prospectus shall be provided to the U.S. Underwriters or the Managers by the Company for use in connection with the offering of the Securities which differs from the Prospectuses on file at the Commission at the time the Registration Statement becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) under the 1933 Act Regulations), the terms "U.S. Prospectus" and "International Prospectus" shall refer to each such revised prospectus from and after the time it is first provided to the U.S. Underwriters or the Managers, as the case may be, for such use. The Company, CIHC and Conseco understand that the U.S. Underwriters propose to make a public offering of the U.S. Securities as soon as the U.S. Representatives deem advisable after the Registration Statement becomes effective and the U.S. Pricing Agreement has been executed and delivered. The price per share for the International Securities to be purchased by the Managers pursuant to the International Purchase Agreement shall be identical to the price per share for the U.S. Securities to be purchased by the U.S. Underwriters hereunder. SECTION 1. Representations and Warranties. (a) The Company, CIHC and Conseco represent and warrant to each U.S. Underwriter as of the date hereof and as of the date of the U.S. Pricing Agreement (such latter date being hereinafter referred to as the "U.S. Representation Date") as follows: (i) At the time the Registration Statement becomes effective and at the U.S. Representation Date, the Registration Statement will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Prospectuses, at the time the Registration Statement becomes effective (unless the term "Prospectuses" refers to prospectuses which have been provided to the U.S. Underwriters and the Managers by the Company for use in connection with the offering of the Securities which differ from the Prospectuses on file at the Commission at the time the Registration Statement becomes effective, in which case at the time such Prospectuses are first provided to the U.S. Underwriters and the Managers for such use) and at the U.S. Representation Date and at the Closing Time referred to in Section 2, will not include 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; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectuses made in reliance upon and in conformity with information furnished to the Company in writing by any U.S. Underwriter through Merrill Lynch expressly for use in the Registration Statement or the Prospectuses. 4 (ii) Coopers & Lybrand, the accountants who certified the financial statements and supporting schedules of the Company and Western National Life Insurance Company, a Texas insurance company ("Western"), included in the Registration Statement, are independent public accountants with respect to the Company and its subsidiaries as required by the 1933 Act and the 1933 Act Regulations. (iii) The financial statements of the Company and Western included in the Registration Statement and the Prospectuses present fairly the financial position of the Company and Western as of the dates indicated and the results of its operations for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included in the Registration Statement present fairly the information required to be included therein; and the Company's ratios of earnings to fixed charges (actual and pro forma) included in the Prospectuses and in Exhibit 12.1 to the Registration Statement have been calculated in compliance, in all material respects, with Item 503(d) of Regulation S-K of the Commission. (iv) The statutory financial statements of Western, from which certain ratios and other statistical data contained in the Registration Statement have been derived, have for each relevant period been prepared in accordance with accounting practices prescribed or permitted by the National Association of Insurance Commissioners and the insurance department of the state of Texas, and such accounting practices have been applied on a consistent basis throughout the periods involved, except as disclosed therein. (v) Since the respective dates as of which information is given in the Registration Statement and the Prospectuses, and except as otherwise stated or contemplated therein, (A) there has been no material adverse change and no development which will result in a prospective material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Company or any of its subsidiaries which are material to the Company and its subsidiaries, considered as one enterprise, other than those entered into in the ordinary course of business, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (vi) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own, lease and operate its properties and to conduct its business as presently conducted and as described in the Prospectuses; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except to the extent the failures to so qualify or be in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise. 5 (vii) Each of the Company's subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own, lease and operate its properties and to conduct its business as presently conducted and as described in the Prospectuses; and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failures to so qualify or be in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise; and the outstanding shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued, are fully paid and nonassessable and all such shares are owned by the Company or, in the case of Western, by WNL Holding Corp., a Delaware corporation ("WNL"); and at the Closing Time (as defined herein), WNL, Western and Conseco Annuity Guarantee Company, a Texas corporation ("CAGC"), will be the only subsidiaries of the Company. (viii) The Company and each of its subsidiaries hold all material licenses, certificates and permits from governmental authorities (including, without limitation, insurance licenses from the insurance departments of the various states where the subsidiaries write insurance business (the "Insurance Licenses")) which are necessary to the conduct of their businesses; the Company and its subsidiaries have fulfilled and performed all material obligations necessary to maintain their respective Insurance Licenses, and no event or events have occurred which may be reasonably expected to result in the impairment, modification, termination or revocation of such Insurance Licenses. (ix) The authorized, issued and outstanding capitalization of the Company is as set forth in the Prospectuses under "Capitalization"; all of the issued and outstanding shares of the Common Stock (including the Securities being sold by CIHC) have been duly authorized and validly issued and are fully paid and nonassessable; the Securities to be sold by the Company have been duly authorized and, when delivered by the Company to the U.S. Underwriters pursuant to this Agreement and to the Managers pursuant to the International Purchase Agreement against payment of the consideration set forth in the U.S. Pricing Agreement and the International Pricing Agreement, will be validly issued and fully paid and nonassessable; the issuance of the Securities is not subject to preemptive or other similar rights, and the Common Stock at the time the Registration Statement becomes effective will be registered under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and will be authorized for listing on the New York Stock Exchange, Inc. (the "NYSE"), upon official notice of issuance. (x) Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, or in violation of any applicable law, administrative regulation or 6 administrative or court order or decree, which violation or default would, singly or in the aggregate, have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise; and the execution, delivery and performance of this Agreement, the U.S. Pricing Agreement, the International Purchase Agreement and the International Pricing Agreement and the consummation of the transactions contemplated herein and therein and compliance by the Company with its obligations hereunder and thereunder have been duly authorized by all necessary corporate action and will not conflict with or constitute a breach of, or a default under, or result in the creation or imposition of any pledge, lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, except for any conflict, breach, default, pledge, lien, charge or encumbrance which would not, singly and in the aggregate, have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any applicable law, administrative regulation or administrative or court decree. (xi) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign (including, without limitation, any proceeding to revoke or deny renewal of any Insurance Licenses), now pending, or, to the best knowledge of the Company, CIHC or Conseco, threatened, against or affecting the Company or any of its subsidiaries which is required to be disclosed in the Registration Statement or the Prospectuses, or which is reasonably likely to result in any material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise, or which would be reasonably likely to materially and adversely affect a material portion of the properties or assets thereof or which is reasonably likely to materially and adversely affect the consummation of the transactions contemplated by this Agreement, the U.S. Pricing Agreement, the International Purchase Agreement and the International Pricing Agreement; all pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement or the Prospectuses, including ordinary routine litigation incidental to the business of the Company or any of its subsidiaries, are, considered in the aggregate, not material; and there are no contracts or documents of the Company or any of its subsidiaries which are required to be filed as exhibits to the Registration Statement by the 1933 Act or the 1933 Act Regulations which have not been so filed. (xii) No authorization, approval or consent of any court or governmental authority or agency is necessary in connection with the issuance and sale of the Securities hereunder, or the consummation by the Company, CIHC and Conseco of any other transactions contemplated hereby, except such as have been obtained 7 and made under the federal securities laws or state insurance laws and such as may be required under state or foreign securities laws. (xiii) The Securities conform in all material respects to the respective statements relating thereto contained in the Prospectuses and the Registration Statement. (xiv) Except as provided in the Stockholder Agreement among the Company, CIHC and Conseco, there are no holders of securities of the Company or any of its subsidiaries with registration rights to have any securities registered as part of the Registration Statement or included in the offering contemplated by this Agreement or the International Purchase Agreement. (xv) This Agreement and the International Purchase Agreement have been, and at the U.S. Representation Date and the International Representation Date, the U.S. Pricing Agreement and the International Pricing Agreement, respectively, will have been, duly authorized, executed and delivered by the Company, CIHC and Conseco and constitute the valid, legal and binding obligations of the Company, CIHC and Conseco enforceable against them in accordance with their terms (except (1) as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting creditors' rights generally and except that the remedies of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and (2) that no representation or warranty is given as to the enforceability of the indemnity and contribution provisions hereunder or thereunder). (xvi) The execution and delivery of this Agreement, the U.S. Pricing Agreement, the International Purchase Agreement and the International Pricing Agreement, and the consummation of the transactions herein and therein contemplated, will not result in a breach by CIHC or Conseco of, or constitute a default by CIHC or Conseco under, their respective charters or by-laws or any material indenture, deed of trust, contract, or other material agreement or instrument or any decree, judgment or order to which CIHC or Conseco is a party or by which CIHC or Conseco may be bound. (xvii) CIHC has and will have at the Closing Time referred to in Section 2(c) good and marketable title to the Securities to be sold by CIHC hereunder, free and clear of any pledge, lien, security interest, encumbrance, claim or equity, other than pursuant to this Agreement and the International Purchase Agreement; CIHC has full right, power and authority to sell, transfer and deliver the Securities to be sold by CIHC hereunder and under the International Purchase Agreement; and upon delivery of the Securities to be sold by CIHC hereunder and under the International Purchase Agreement and payment of the purchase price therefor as herein and therein contemplated, each of the Underwriters will receive good and marketable title to its ratable share of the Securities purchased by it from CIHC, free and clear of any pledge, lien, security interest, encumbrance, claim or equity, except for those created by or through the Underwriters. 8 (xviii) All authorizations, approvals and consents necessary for the execution and delivery by CIHC and Conseco of this Agreement, the U.S. Pricing Agreement, the International Purchase Agreement and the International Pricing Agreement and the sale and delivery of the Securities to be sold by CIHC (other than, at the time of the execution hereof, the issuance of the order of the Commission declaring the Registration Statement effective and such authorizations, approvals or consents as may be necessary under state or foreign securities laws) have been obtained and are in full force and effect; and CIHC and Conseco has the full right, power and authority to enter into this Agreement, the U.S. Pricing Agreement, the International Purchase Agreement and the International Pricing Agreement and to sell, transfer and deliver the Securities to be sold by CIHC hereunder and thereunder. (xix) None of the Company, CIHC or Conseco has taken, or will take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (xx) Except as noted by the Company, CIHC and Conseco in a letter previously delivered by them to the Underwriters, none of the Company, CIHC, Conseco or any of their respective subsidiaries are affiliated with or a person associated with a member of the National Association of Securities Dealers, Inc. (the "NASD"). (b) Any certificate signed by any officer of the Company, CIHC or Conseco and delivered to the U.S. Representatives or to counsel for the U.S. Underwriters shall be deemed a representation and warranty by the Company, CIHC or Conseco, as the case may be, to each U.S. Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to U.S. Underwriters; Closing. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and CIHC, severally and not jointly, agree to sell to each U.S. Underwriter, severally and not jointly, and each U.S. Underwriter agrees, severally and not jointly, to purchase from the Company and CIHC, at the price per share set forth in the U.S. Pricing Agreement, that portion of the 1,700,000 shares and 25,797,500 shares being sold by the Company and CIHC, respectively, which the number of Initial U.S. Securities set forth in Schedule A opposite the name of such U.S. Underwriter (except as otherwise provided in the U.S. Pricing Agreement), plus any additional number of Initial U.S. Securities which such U.S. Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, bears to the total number of Initial U.S. Securities (except as otherwise provided in the U.S. Pricing Agreement), subject, in each case, to such adjustments as the U.S. Underwriters in their discretion shall make to eliminate any sales or purchases of fractional shares. (1) If the Company has elected not to rely upon Rule 430A under the 1933 Act Regulations, the initial public offering price per Security, and the purchase price per Security to be paid by the several U.S. Underwriters for the Securities (collectively, the "U.S. Pricing Terms") have each been determined and set forth in the U.S. Pricing 9 Agreement, dated the date hereof, and an amendment to the Registration Statement and the Prospectuses will be filed before the Registration Statement becomes effective. (2) If the Company has elected to rely upon Rule 430A under the 1933 Act Regulations, the purchase price per Security to be paid by the several U.S. Underwriters shall be an amount equal to the initial public offering price per Security, less an amount per Security to be determined by agreement among the U.S. Representatives, the Company, CIHC and Conseco. The U.S. Pricing Terms likewise shall be determined by agreement among the U.S. Representatives, the Company, CIHC and Conseco. The U.S. Pricing Terms, when so determined, shall be set forth in the U.S. Pricing Agreement. In the event that such U.S. Pricing Terms have not been agreed upon and the U.S. Pricing Agreement has not been executed and delivered by the parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, unless otherwise agreed to by the Company, CIHC, Conseco and the U.S. Representatives. (b) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and CIHC hereby grant an option to the U.S. Underwriters, severally and not jointly, to purchase from them up to an additional 255,000 shares and 3,869,625 shares, respectively, of Common Stock at the price per share set forth in the U.S. Pricing Agreement. The option hereby granted will expire automatically at the close of business on the 30th calendar day after (i) the date the Registration Statement becomes effective, if the Company has elected not to rely upon Rule 430A under the 1933 Act Regulations, or (ii) the U.S. Representation Date, if the Company has elected to rely upon Rule 430A under the 1933 Act Regulations, and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the U.S. Representatives to the Company, CIHC and Conseco setting forth the number of U.S. Option Securities as to which the several U.S. Underwriters are then exercising the option and the time and date of payment and delivery for such U.S. Option Securities. Any such time and date of delivery (a "Date of Delivery") shall be determined by the U.S. Representatives but shall not be later than seven full business days after the exercise of such option, nor in any event before the Closing Time, as hereinafter defined, unless otherwise agreed upon by the U.S. Representatives, the Company, CIHC and Conseco. If the option is exercised as to all or any portion of the U.S. Option Securities, each of the U.S. Underwriters, acting severally and not jointly, will purchase that portion of the number of U.S. Option Securities subject to the option set forth in this Section 2(b) of the Company or CIHC, as the case may be, which the number of Initial U.S. Securities set forth in Schedule A opposite the name of such U.S. Underwriter bears to the total number of Initial U.S. Securities (except as otherwise provided in the U.S. Pricing Agreement), subject in each case to such adjustments as the U.S. Representatives in their discretion shall make to eliminate any sales or purchases of fractional shares. (c) Delivery of certificates for the Initial U.S. Securities shall be made at the offices of Merrill Lynch in New York, New York and payment of the purchase price for the Initial U.S. Securities shall be made at the offices of Merrill Lynch in Chicago, Illinois, or in each case at such other place as shall be agreed upon by the U.S. Representatives, the Company, CIHC and Conseco, at 10:00 a.m. (New York City time) on the fifth business day after the date the Registration Statement becomes effective (or, if the Company has elected to rely upon Rule 430A, the fifth business day after execution of the U.S. Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the U.S. Representatives, the Company, CIHC and Conseco (such time and date of payment and delivery 10 being herein called the "Closing Time"). In addition, if the U.S. Underwriters purchase any or all of the U.S. Option Securities, payment of the purchase price, and delivery of certificates for such U.S. Option Securities shall be made at the offices set forth above, or at such other place as shall be agreed upon by the U.S. Representatives, the Company, CIHC and Conseco, on each Date of Delivery as specified in the relevant notice from the U.S. Representatives to the Company, CIHC and Conseco. Payment for the Securities purchased by the U.S. Underwriters shall be made to the Company and CIHC by certified or official bank check or checks, drawn in Chicago Clearing House funds or similar next day funds, payable to the order of the Company or CIHC, as the case may be, against delivery to the U.S. Representatives for the respective accounts of the U.S. Underwriters of certificates for the Securities to be purchased by them. Certificates for the Initial U.S. Securities and the U.S. Option Securities shall be in such denominations and registered in such names as the U.S. Representatives may request in writing at least two full business days before the Closing Time or any Date of Delivery, as the case may be. It is understood that each U.S. Underwriter has authorized the U.S. Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial U.S. Securities and the U.S. Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the U.S. Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial U.S. Securities or the U.S. Option Securities, if any, to be purchased by any U.S. Underwriter whose check has not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such U.S. Underwriter from its obligations hereunder. The certificates for the Initial U.S. Securities and the U.S. Option Securities, if any, will be made available for examination and packaging by the U.S. Representatives not later than 10:00 a.m. (New York City time) on the last business day prior to the Closing Time or the Date of Delivery, as the case may be. SECTION 3. Covenants of the Company, CIHC and Conseco. The Company covenants, and with respect to Sections 3(l) and 3(o) below, each of the Company, CIHC and Conseco covenants, with each U.S. Underwriter as follows: (a) The Company will notify the U.S. Representatives immediately and confirm the notice in writing (i) of the effectiveness of the Registration Statement and any amendment thereto (including any post-effective amendment) and, if Rule 430A under the 1933 Act Regulations is being relied upon, of the filing of the amended Prospectuses pursuant to Rule 430A, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectuses or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose and (v) of the issuance by any state securities commission or other regulatory authority of any order suspending the qualification or the exemption from qualification of the Securities under state securities or Blue Sky laws or the initiation of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Company will give the U.S. Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectuses (including any revised prospectus which the Company proposes for use by the U.S. Underwriters in connection with the offering of the Securities which differs from the prospectuses on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectuses are required to be filed pursuant 11 to Rule 424(b) under the 1933 Act Regulations), will furnish the U.S. Representatives with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which the U.S. Representatives or counsel for the U.S. Underwriters shall reasonably object. (c) The Company will deliver to the U.S. Representatives five signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith) and will also deliver to the U.S. Representatives as many conformed copies of the Registration Statement as originally filed and of each amendment thereto (without exhibits) as the U.S. Representatives may request. (d) The Company will furnish to each U.S. Underwriter, from time to time during the period when the Prospectuses are required to be delivered under the 1933 Act such number of copies of the Prospectuses (as amended or supplemented) as such U.S. Underwriter may request for the purposes contemplated by the 1933 Act or the applicable 1933 Act Regulations. (e) If any event shall occur as a result of which it is necessary, in the reasonable opinion of counsel for the U.S. Underwriters, to amend or supplement the Prospectuses in order to make the U.S. Prospectus not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Company will forthwith amend or supplement the U.S. Prospectus (in form and substance reasonably satisfactory to counsel for the U.S. Underwriters) so that, as so amended or supplemented, the U.S. Prospectus will not include 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 existing at the time it is delivered to a purchaser, not misleading, and the Company will furnish to the U.S. Underwriters as many copies of such amendment or supplement as the U.S. Underwriters may request. (f) The Company will endeavor, in cooperation with the U.S. Underwriters and their counsel, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the U.S. Representatives may designate; provided, however, that the Company shall not be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to execute a general consent as to service of process in any jurisdiction in which it is not so subject to such service. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for so long as may be required in connection with the distribution of the Securities. (g) The Company will make generally available to its security holders as soon as practicable, but in any event not later than 45 days after the close of the period covered thereby, an earnings statement (in form and in a manner complying with the provisions of Rule 158 under the 1933 Act Regulations) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in said Rule 158) of the Registration Statement. (h) The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectuses under "Use of Proceeds." (i) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A under the 1933 Act Regulations, then promptly following the execution of the U.S. Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) under the 1933 Act Regulations, copies of amended 12 Prospectuses, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including amended Prospectuses), containing all information so omitted. (j) The Company, during the period when the Prospectuses are required to be delivered under the 1933 Act, will promptly file all documents required to be filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act, of which the U.S. Representatives shall have previously been advised and previously furnished a copy, and with respect to which the Company shall endeavor in good faith to provide the U.S. Representatives or the U.S. Underwriters' counsel with an opportunity to comment. (k) For a period of one year after the Closing Time, the Company will furnish to the U.S. Representatives copies of all reports and communications delivered to the Company's stockholders or to holders of the Securities as a class and will also furnish copies of all reports (excluding exhibits) filed with the Commission on Forms 8-K, 10-Q and 10-K, and all other reports and information furnished to its stockholders generally, not later than the time such reports are first furnished to such holders generally. (l) During a period commencing on the date hereof and ending 180 days, in the case of the Company, and 365 days, in the case of CIHC and Conseco, from the date of the Prospectuses, each of the Company, CIHC and Conseco will not, without the prior written consent of the U.S. Representatives, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, or enter into any agreement to sell, any Common Stock or any securities similar to the Securities or any security convertible into or exchangeable or exercisable for any Common Stock or any such similar securities or file with the Commission a registration statement under the 1933 Act to register any Common Stock of the Company or any securities convertible into or exercisable for Common Stock of the Company; provided, however, that such restriction shall not affect (i) the ability of the Company to take any such action in connection with any employee benefit or incentive plan of the Company or its subsidiaries described in the Prospectuses, (ii) the ability of CIHC to sell 150,000 shares of Common Stock of the Company to Mr. Michael J. Poulos pursuant to the Employment Agreement dated September 9, 1993 between Conseco and Mr. Poulos or (iii) the ability of the Company or CIHC to take any action in connection with the offering of the Securities made pursuant to the Prospectuses. (m) The Company will use its best efforts to effect and maintain the listing of the Securities and all other shares of Common Stock outstanding from time to time on the NYSE and to cause the Common Stock to be registered under the 1934 Act. (n) The Company and CIHC will indemnify and hold harmless the U.S. Underwriters against any documentary, stamp or similar issue tax, including any interest and penalties, on the creation, issue and sale of the Securities and on the execution of this Agreement. (o) No later than the next business day following the Closing Time, Conseco shall repay in full all indebtedness under the Credit Agreement dated as of September 30, 1993 among Conseco, the lenders named therein, First Union National Bank of North Carolina, Citicorp USA, Inc. and Continental Bank, N.A., as Agents, and Continental Bank, N.A., as Administrative Agent. SECTION 4. Payment of Expenses. The Company will pay all expenses incident to the performance of the obligations of the Company, CIHC and Conseco under this Agreement, the U.S. Pricing Agreement, the International Purchase Agreement and the International Pricing Agreement including, without limitation, expenses related to the following, if incurred: (i) the preparation, delivery, printing 13 and filing of the Registration Statement and Prospectuses as originally filed and of each amendment thereto; (ii) the printing of this Agreement, the U.S. Pricing Agreement, the International Purchase Agreement and the International Pricing Agreement; (iii) the preparation, issuance and delivery of the certificates for the Securities to the U.S. Underwriters and Managers; (iv) the fees and disbursements of the Company's counsel and accountants; (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f), including filing fees and the fees and disbursements of counsel for the U.S. Underwriters and Managers in connection therewith and in connection with the preparation of the Blue Sky Survey; (vi) the printing and delivery to the U.S. Underwriters and Managers of copies of the Registration Statement as originally filed and of each amendment thereto, of the preliminary prospectuses, and of the Prospectuses and any amendments or supplements thereto; (vii) the printing and delivery to the U.S. Underwriters and Managers of copies of the Blue Sky Survey; (viii) any fees payable to the NASD; (ix) any fees payable to the Commission; and (x) the fees and expenses incurred in connection with the listing on the NYSE of the Securities. If this Agreement is terminated by the U.S. Representatives in accordance with the provisions of Section 5 or Section 9(a)(i), the Company, CIHC and Conseco shall reimburse the U.S. Underwriters for all of their out-of-pocket expenses, including the fees and disbursements of counsel for the U.S. Underwriters. SECTION 5. Conditions of U.S. Underwriters' Obligations. The obligations of the U.S. Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company, CIHC and Conseco herein contained, to the performance by the Company, CIHC and Conseco of their obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 p.m., New York City time, on the date hereof or, with the consent of Merrill Lynch, at a later time and date, not later, however, than 5:30 p.m. on the first business day after the date hereof, or at such later time and date as may be agreed upon by the U.S. Representatives, the Company, CIHC and Conseco, and at the Closing Time and any Date of Delivery no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. If the Company has elected to rely upon Rule 430A under the 1933 Act Regulations, the U.S. Pricing Terms and any other price-related information previously omitted from the effective Registration Statement to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) under the 1933 Act Regulations within the prescribed time period, and prior to the Closing Time, the Company shall have provided evidence satisfactory to the U.S. Representatives of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A under the 1933 Act Regulations. (b) At the Closing Time the U.S. Representatives shall have received: (1) The favorable opinion, dated as of the Closing Time, of Lawrence W. Inlow, Secretary and General Counsel to the Company, CIHC and Conseco, in form and substance satisfactory to counsel for the U.S. Underwriters and Managers, to the effect that: 14 (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware; the Company has the corporate power under the laws of the State of Delaware and under its charter to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectuses; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failures to so qualify or be in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs or prospects of the Company and its subsidiaries, considered as one enterprise. (ii) The Securities delivered at the Closing Time and all other outstanding shares of the Common Stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and conform in all material respects to the description thereof contained in the Prospectuses; the Common Stock is registered under the 1934 Act and the Securities at the Closing Time have been authorized for listing on the NYSE, upon official notice of issuance. (iii) The issuance of the Securities is not subject to preemptive or other similar rights arising by law. (iv) The U.S. Purchase Agreement, the U.S. Pricing Agreement, the International Purchase Agreement and the International Pricing Agreement have been duly authorized, executed and delivered by the Company, CIHC and Conseco and constitute valid and binding obligations of the Company, CIHC and Conseco enforceable in accordance with their terms (except (1) as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting creditors' rights generally and except that the remedies of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and (2) that no opinion need be given as to the enforceability of the indemnity and contribution provisions hereunder or thereunder). (v) The Common Stock conforms in all material respects to the description thereof contained in the Prospectuses and the Registration Statement; and the forms of certificates used to evidence the Securities and the Common Stock comply with all applicable statutory and NYSE requirements. (vi) Each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and has the corporate power and authority to own, lease and operate its properties and to conduct its business as presently conducted and as described in the Registration Statement and the Prospectuses. Nothing has come to the attention of such counsel to lead such counsel to believe that any subsidiary is not duly qualified as a foreign corporation to transact business or is not in good standing in each jurisdiction in which such 15 qualification is required, except where the failures to so qualify or be in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise. All of the issued and outstanding capital stock of each subsidiary of the Company have been duly authorized and validly issued, are fully paid and nonassessable, and all such shares are owned by the Company or, in the case of Western, by WNL, and WNL, Western and CAGC are the only subsidiaries of the Company. (vii) The Registration Statement is effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act or proceedings therefor initiated, or to such counsel's best knowledge, threatened by the Commission. (viii) At the time the Registration Statement became effective and at the U.S. Representation Date and the Closing Time, the Registration Statement (other than the financial statements and schedules or other financial information or statistical data included therein, as to which no opinion need be rendered) complied as to form in all material respects to the requirements of the 1933 Act and the 1933 Act Regulations. (ix) No authorization, approval or consent of any court or governmental authority or agency is necessary in connection with the issuance and sale of the Securities hereunder or the consummation by the Company, CIHC and Conseco of any other transactions contemplated hereby, except such as have been obtained and made under the federal securities laws or state insurance laws and such as may be required under the state or foreign securities laws. (x) To the best knowledge of such counsel, there are no statutes or regulations required to be described in the Registration Statement which are not described as required and there are no legal or governmental proceedings pending or threatened which are required to be disclosed in the Registration Statement, other than those disclosed therein. (xi) To the best knowledge of such counsel, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed as exhibits thereto; the descriptions thereof or references thereto are true and correct in all material respects and no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument so described, referred to or filed, which default could have a material adverse effect on the Company and its subsidiaries considered as one enterprise. 16 (xii) The issuance and delivery of the Securities, the execution and delivery of the U.S. Purchase Agreement, the International Purchase Agreement, the U.S. Pricing Agreement and the International Purchase Agreement and the consummation of the transactions contemplated therein and compliance by the Company with its obligations thereunder will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any pledge, lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, except for any conflict, breach, default, lien, charge or encumbrance which would not, singly and in the aggregate, have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise nor will such action result in any violation of the provisions of the charter or by-laws of the Company, or any material applicable law, administrative regulation or administrative or court decree. (xiii) The Company and each of its subsidiaries hold all material licenses, certificates and permits from all governmental authorities (including, without limitation, the Insurance Licenses) which are necessary to the conduct of their businesses; the Company and each of its subsidiaries have fulfilled and performed all material obligations necessary to maintain their respective Insurance Licenses, and no event or events have occurred which may be reasonably expected to result in the material impairment, modification, termination or revocation of such Insurance Licenses. (xiv) CIHC has full legal right, power and authorization, and any approval required by law, to sell, assign, transfer and deliver good and marketable title to the Securities which CIHC has agreed to sell pursuant to the U.S. Purchase Agreement and the International Purchase Agreement. (xv) No authorization, approval, consent, or order of any court or governmental authority or agency is required in connection with the sale of the Securities by CIHC to the Underwriters, except such as may be required under the 1933 Act or the 1933 Act Regulations or state or foreign securities laws or state insurance laws. (xvi) When the Securities are delivered to the Underwriters against payment therefor in accordance with the terms of the U.S. Purchase Agreement and the International Purchase Agreement, each of the Underwriters will acquire good and marketable title to the Securities purchased by it from CIHC, free and clear of any mortgage, pledge, lien, security interest, encumbrance, claim or equity created by or arising through CIHC, assuming that the Underwriters acquire the Securities without notice of any adverse claim as such term is used in Section 8-302 of the Uniform Commercial Code as in effect in the State of New York. 17 (xvii) Nothing has come to such counsel's attention that causes such counsel to believe that the Registration Statement (except for financial statements and schedules or other financial information or statistical data included therein, as to which no opinion need be expressed), at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectuses (except for financial statements and schedules or other financial information or statistical data included therein, as to which no opinion need be expressed), at the U.S. Representation Date (unless the term "Prospectuses" refers to prospectuses which have been provided to the U.S. Underwriters and the Managers by the Company for use in connection with the offering of the Securities which differs from the Prospectuses on file at the Commission at the time the Registra- tion Statement becomes effective, in which case at the time it is first provided to the U.S. Under- writers and the Managers for such use) or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits 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. (2) The favorable opinion, dated as of the Closing Time, of Vinson & Elkins L.L.P., special counsel to the Company, to the effect that: (i) the Registration Statement and the Prospectuses, and each amendment or supplement thereto, as of their respective effective or issue dates, or when amended, as appropriate, (other than the financial statements and schedules or other financial information or statistical data included therein, as to which no opinion need be expressed) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations; (ii) nothing has come to such counsel's attention that causes such counsel to believe that the Registration Statement (except for financial statements and schedules or other financial information or statistical data included therein, as to which no opinion need be expressed), at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectuses (except for financial statements and schedules and other financial information or statistical data included therein, as to which no opinion need be expressed), at the U.S. Representation Date (unless the term "Prospectuses" refers to prospectuses which have been provided to the U.S. Underwriters and the Managers by the Company for use in connection with the offering of the Securities which differs from the Prospectuses on file at the Commission at the time the Registra- tion Statement becomes effective, in which case at the time it is first provided to the U.S. Underwriters and the Managers for such use) or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits 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. 18 (iii) The U.S. Purchase Agreement, the U.S. Pricing Agreement, the International Purchase Agreement and the International Pricing Agreement have been duly authorized, executed and delivered by the Company and constitute valid and binding obligations of the Company enforceable in accordance with their terms (except (1) as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting creditors' rights generally and except that the remedies of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceed- ing therefor may be brought, and (2) that no opinion need be given as to the enforceability of the indemnity and contribution provisions here- under or thereunder). (3) The favorable opinion, dated as of the Closing Time, of Sidley & Austin, counsel for the U.S. Underwriters, with respect to the incorporation of the Company, the validity of the Securities, the Registration Statement, the Prospectuses and other related matters as you may require, and the Company, CIHC and Conseco shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (c) At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Registration Statement and the Prospectuses, other than as stated or contemplated in the Registration Statement or the Prospectuses, any material adverse change or any development which will result in a prospective material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, and the U.S. Representatives shall have received a certificate of the president or a vice president of the Company, CIHC and Conseco, respectively, and of the chief financial or chief accounting officer of the Company, CIHC and Conseco, respectively, dated as of the Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1 are true and correct with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company, CIHC and Conseco have complied with all agreements and satisfied all conditions on their part to be performed or satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and, to the best of each such officer's knowledge and information, no proceedings for that purpose have been initiated or threatened by the Commission. (d) At the time of the execution of this Agreement, the U.S. Representatives shall have received from Coopers & Lybrand a letter, dated such date, in form and substance satisfactory to the U.S. Representatives, to the effect that (i) they are independent public accountants with respect to the Company and its subsidiaries within the meaning of the 1933 Act and the 1933 Act Regulations; (ii) it is their opinion that the financial statements and supporting schedules included in the Registration Statement and covered by their opinions therein comply with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations; (iii) based upon limited procedures set forth in detail in such letter, nothing has come to their attention which causes them to believe that (A) the unaudited financial information of the Company and its subsidiaries included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations, or are not presented in conformity with generally accepted accounting principles applied on a basis substantially 19 consistent with that of the audited financial statements included in the Registration Statement or (B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than five days prior to the date of this Agreement or the International Purchase Agreement, there was any increase in long-term debt or insurance liabilities or any decrease in total assets, stockholder's equity or common stock, as compared with amounts shown on the latest balance sheet included in the Prospectuses, or (C) for the period from the closing date of the latest income statement included in the Prospectuses to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year and with the period of corresponding length ended the date of the latest income statement included in the Prospectuses, in the amounts of total revenues, total insurance policy income, net investment income or net income except in all cases set forth in this clause (iii) for changes, increases or decreases which the Prospectuses discloses have occurred or may occur or which are described in such letter; (iv) they have examined the statutory financial statements of each of the Company's insurance subsidiaries, from which certain ratios and other statistical data contained in the Registration Statement have been derived, and in their opinion such statements, with respect to each insurance subsidiary, have for each relevant period been prepared in accordance with accounting practices prescribed or permitted by the appropriate insurance department of the state of domicile of such subsidiary, and such accounting practices have been applied on a consistent basis throughout the periods involved, except as disclosed therein; (v) based upon the procedures set forth in clause (iii) above and a reading of the "Selected Historical Financial Information," and the "Pro Forma Consolidated Financial Statements" and the information contained under the caption "Management" included in the Registration Statement, nothing has come to their attention that caused them to believe that the "Selected Historical Financial Information" and the "Pro Forma Consolidated Financial Statements" included in the Registration Statement do not comply in all material respects with the applicable requirements of Regulation S-K under the 1933 Act and the 1934 Act (e.g. "Selected Financial Data" (Item 301) and "Supplementary Financial Information" (Item 302)), or that the information set forth therein is not fairly stated in relation to the financial statements from which it was derived, and nothing has come to their attention that caused them to believe that the information under the caption "Management" contained in the Registration Statement does not comply in all material respects with the applicable requirements of Item 402 ("Executive Compensation") of such Regulation S-K; (vi) they are unable to and do not express any opinion on the "Pro Forma Consolidated Financial Statements" or on the pro forma adjustments applied to the historical amounts included in such statements; however, for purposes of such letter they have: (A) read the "Pro Forma Consolidated Financial Statements," (B) made inquiries of certain officials of the Company who have responsibility for financial and accounting matters about the basis for their determination of the pro forma adjustments and whether the "Pro Forma Consolidated Financial Statements" comply in form in all material respects with the applicable accounting requirements of Regulation S-X and (C) proved the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the "Pro Forma Consolidated Financial Statements"; and (vii) in addition to the examination referred to in their opinions and the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages, ratios and financial information that has been derived from the accounting and financial records of the Company that are subject to internal accounting controls which are included in the Registration Statement and Prospectuses and which are specified by the U.S. Representatives, and have found such amounts, percentages, ratios and financial information to be in agreement with the relevant accounting and financial records of the Company and its subsidiaries identified in such letter. 20 (e) At the Closing Time, the U.S. Representatives shall have received from Coopers & Lybrand a letter, dated as of the Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (d) of this Section, except that the specified date referred to shall be a date not more than five days prior to the Closing Time and, if the Company has elected to rely on Rule 430A under the 1933 Act Regulations, to the further effect that they have carried out procedures as specified in clause (v) of subsection (d) of this Section with respect to certain amounts, percentages and financial information specified by the U.S. Representatives and deemed to be a part of the Registration Statement pursuant to Rule 430(A)(b) and have found such amounts, percentages and financial information to be in agreement with the records specified in such clause (v). (f) At the Closing Time, the Securities shall have been and shall remain approved for listing on the NYSE upon notice of issuance. (g) At the Closing Time, and at each Date of Delivery, if any, counsel for the U.S. Underwriters shall have been furnished with such documents and opinions as they may reasonably require with respect to unforeseen materially changed circum- stances since the date of this Agreement and the International Purchase Agreement for the purpose of enabling them to pass upon the issuance and sale of the Securities as contemplated herein and in the International Purchase Agreement and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the U.S. Representatives and counsel for the U.S. Underwriters. (h) At the Closing Time, the U.S. Underwriters and Managers shall receive agreements of all directors and executive officers of the Company not to, without the prior written consent of the U.S. Representatives, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, or enter into any agreement to sell, any Common Stock or any securities similar to the Securities or any security convertible into or exchangeable or exercisable for any Common Stock or any such similar securities during a period commencing on the date hereto and ending 180 days from the date of the Prospectuses. (i) In the event that the U.S. Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the U.S. Option Securities, the representations and warranties of the Company, CIHC and Conseco contained herein and the statements in any certificates furnished by the Company, CIHC and Conseco hereunder shall be true and correct as of, and as if made on, each Date of Delivery, and, at the relevant Date of Delivery, the U.S. Representatives shall have received: (1) A certificate, dated such Date of Delivery, of the president or a vice president of the Company, CIHC and Conseco, respectively, and the chief financial or chief accounting officer of the Company, CIHC and Conseco, respectively, confirming that the certificate delivered at the Closing Time pursuant to Section 5(c) hereof is true and correct as of, and as if made on, such Date of Delivery. (2) The favorable opinion of Lawrence W. Inlow, Secretary and General Counsel for the Company, CIHC and Conseco, in form and substance satisfactory to counsel for the U.S. Underwriters, dated such Date of Delivery, relating to the U.S. Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(1) hereof. 21 (3) The favorable opinion of Vinson & Elkins L.L.P., special counsel for the Company, in form and substance satisfactory to counsel for the U.S. Underwriters, dated such Date of Delivery, relating to the U.S. Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(2) hereof. (4) The favorable opinion of Sidley & Austin, counsel for the U.S. Underwriters, dated such Date of Delivery, relating to the U.S. Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(3) hereof. (5) A letter from Coopers & Lybrand in form and substance satisfactory to the U.S. Underwriters and dated such Date of Delivery, substantially the same in form and substance as the letters furnished to the U.S. Representatives pursuant to Section 5(d) hereof, except that the "specified date" in the letter furnished pursuant to this Section 5(i)(5) shall be a date not more than five days prior to such Date of Delivery. If any condition specified in this Section 5 shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the U.S. Representatives by notice to the Company, CIHC and Conseco at any time at or prior to the Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4. SECTION 6. Indemnification. (a) The Company, CIHC and Conseco, jointly and severally, agree to indemnify and hold harmless each U.S. Underwriter and each person, if any, who controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectuses or the Prospectuses (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company, CIHC or Conseco, as the case may be; and (iii) against any and all expense whatsoever, as incurred (including, subject to Section 6(c) hereof, the reasonable fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investi- gating, preparing for or defending against any 22 litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that (A) the foregoing indemnity shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectuses or the Prospectuses (or any amendment or supplement thereto); and (B) the foregoing indemnity agreement with respect to any preliminary prospectuses shall not inure to the benefit of the Underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased Securities, or any person controlling any U.S. Underwriter, if a copy of the Prospectuses (as then amended or supplemented, if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of the U.S. Underwriters to such person if such is required by law at or prior to the written confirmation of the sale of such Securities to such person and if the Prospectuses (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. (b) Each U.S. Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, CIHC, Conseco and each person, if any, who controls the Company, CIHC or Conseco within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectuses or the Prospectuses (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such U.S. Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectuses or the Prospectuses (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but the failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such action (which approval shall not be unreasonably withheld), unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for reasonable fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. An indemnifying party shall not be liable for any settlement or any action or claim effected without 23 its consent, which consent shall not unreasonably withheld. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. SECTION 7. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 6 is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company, CIHC, Conseco and the U.S. Underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company, CIHC and Conseco and one or more of the U.S. Underwriters, as incurred, in such proportions that the U.S. Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the U.S. Prospectus bears to the initial public offering price appearing thereon and the Company, CIHC and Conseco are jointly and severally responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement and each person, if any, who controls the Company, CIHC or Conseco within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company, CIHC and Conseco. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement and the U.S. Pricing Agreement, or contained in certificates of officers of the Company, CIHC or Conseco submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any U.S. Underwriter or controlling person, or by or on behalf of the Company, CIHC and Conseco, and shall survive delivery of the Securities to the U.S. Underwriters. SECTION 9. Termination of Agreement. (a) The U.S. Representatives may terminate this Agreement and the U.S. Pricing Agreement, by notice to the Company, CIHC and Conseco, at any time at or prior to the Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Registration Statement (except as otherwise stated or contemplated therein at the date of the U.S. Pricing Agreement), any material adverse change or any development which will result in a prospective material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any outbreak of hostilities or other calamity or crisis, or any material worsening thereof, the effect of which on the financial markets of the United States is such as to make it, in the judgment of the U.S. Representatives, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in the Common Stock has been suspended by the Commission, or if trading generally on either the American Stock Exchange or the NYSE has been suspended, or minimum or maximum prices for trading have 24 been fixed, or maximum ranges for prices for securities have been required, by either of said Exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by Federal, New York or California authorities. (b) If this Agreement and the U.S. Pricing Agreement are terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4, and provided further that Sections 6 and 7 hereof shall survive such termination. SECTION 10. Default by One or More of the U.S. Underwriters. If one or more of the U.S. Underwriters shall fail at Closing Time to purchase the Initial U.S. Securities which it or they are obligated to purchase under this Agreement and the U.S. Pricing Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting U.S. Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the U.S. Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Initial U.S. Securities, the non- defaulting U.S. Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting U.S. Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the number of Initial U.S. Securities, this Agreement shall terminate without liability on the part of any non-defaulting U.S. Underwriter. No action taken pursuant to this Section shall relieve any defaulting U.S. Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the U.S. Representatives, the Company, CIHC or Conseco shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectuses or in any other documents or arrangements. The U.S. Underwriters shall also have the right to amend Schedule A hereto by making such substitutions or corrections as indicated in the U.S. Pricing Agreement. SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the U.S. Underwriters shall be directed to Merrill Lynch & Co., 5500 Sears Tower, Chicago, Illinois 60606, Attention: Robert S. Whitelaw, Managing Director, with a copy to Sidley & Austin, One First National Plaza, Chicago, Illinois 60603, Attention: John J. Sabl, Esq.; notices to the Company shall be directed to it at 5555 San Felipe Road, Suite 900, Houston Texas 77056, Attention: Richard W. Scott, Esq.; notices to CIHC and Conseco shall be directed to them at Conseco, Inc., 11825 North Pennsylvania Street, Carmel, Indiana 46032, Attention: Lawrence W. Inlow, Esq. 25 SECTION 12. Parties. This Agreement and the U.S. Pricing Agreement shall each inure to the benefit of and be binding upon the U.S. Underwriters, the Company, CIHC and Conseco and their respective successors. Nothing expressed or mentioned in this Agreement or the U.S. Pricing Agreement is intended or shall be construed to give any person, firm or corporation, other than the U.S. Underwriters, the Company, CIHC and Conseco and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or the U.S. Pricing Agreement or any provision herein or therein contained. This Agreement and the U.S. Pricing Agreement and all conditions and provisions hereof and thereof are intended to be for the sole and exclusive benefit of the U.S. Underwriters, the Company, CIHC and Conseco and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any U.S. Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. Governing Law and Time. This Agreement and the U.S. Pricing Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State. Unless otherwise set forth herein, specified times of day refer to New York City time. SECTION 14. Waiver of Right to Jury Trial. Each of the Company, CIHC and Conseco (on their own behalf and, to the extent permitted by applicable law, on behalf of their respective shareholders) and the U.S. Underwriters waive all rights to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) related to or arising out of the engagement of the U.S. Underwriters pursuant to, or the performance by the U.S. Underwriters of the services contemplated by, this Agreement. 26 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the U.S. Underwriters, the Company, CIHC and Conseco in accordance with its terms. Very truly yours, WESTERN NATIONAL CORPORATION By: /s/ Michael J. Poulos ------------------------- Name: Michael J. Poulos Title: Chairman of the Board and President CONSECO, INC. By: /s/ Rollin M. Dick --------------------------- Name: Rollin M. Dick Title: Executive Vice President CONSECO INVESTMENT HOLDING COMPANY By: /s/ William T. Devanney, Jr. ---------------------------- Name: William T. Devanney, Jr. Title: Vice President CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DEAN WITTER REYNOLDS INC. GOLDMAN, SACHS & CO. LADENBURG, THALMANN & CO. INC. For themselves and as U.S. Representatives of the other U.S. Underwriters named in the U.S. Purchase Agreement. By: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: /s/ Robert S. Whitelaw Name: Robert S. Whitelaw Title: Managing Director 27
SCHEDULE A Number of Initial Name of U.S. Underwriter U.S. Securities - - ------------------------ ---------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . . . . . . . . . . 2,724,375 Dean Witter Reynolds Inc.. . . . . . . . . 2,724,375 Goldman, Sachs & Co. . . . . . . . . . . . 2,724,375 Ladenburg, Thalmann & Co. Inc. . . . . . . 2,724,375 Bear, Stearns & Co. Inc. . . . . . . . . . 400,000 CS First Boston Corporation. . . . . . . . 400,000 Alex Brown & Sons Incorporated. . . . . . 400,000 Dillon, Read & Co. Inc.. . . . . . . . . . 400,000 Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . . . . . . . . 400,000 A.G. Edwards & Sons, Inc.. . . . . . . . . 400,000 Hambrecht & Quist Incorporated . . . . . . 400,000 Kidder, Peabody & Co. Incorporated . . . . 400,000 Lazard Freres & Co.. . . . . . . . . . . . 400,000 Lehman Brothers Inc. . . . . . . . . . . . 400,000 Montgomery Securities. . . . . . . . . . . 400,000 Morgan Stanley & Co. Incorporated. . . . . 400,000 Oppenheimer & Co. Inc. . . . . . . . . . . 400,000 PaineWebber Incorporated . . . . . . . . . 400,000 Robertson, Stephens & Company. . . . . . . 400,000 Salomon Brothers Inc . . . . . . . . . . . 400,000 Smith Barney Shearson Inc. . . . . . . . . 400,000 Wertheim Schroder & Co. Incorporated . . . 400,000 RAS Securities Corp. . . . . . . . . . . . 400,000 Sands Brothers & Co., Ltd. . . . . . . . . 400,000 Advest, Inc. . . . . . . . . . . . . . . . 200,000 Arnhold and S. Bleichroeder, Inc.. . . . . 200,000 Robert W. Baird & Co. Incorporated . . . . 200,000 J.C. Bradford & Co.. . . . . . . . . . . . 200,000 The Chicago Corporation. . . . . . . . . . 200,000 Conning & Company. . . . . . . . . . . . . 200,000 Cowen & Company. . . . . . . . . . . . . . 200,000 Dain Bosworth Incorporated . . . . . . . . 200,000 Doft & Co., Inc. . . . . . . . . . . . . . 200,000 Fahnestock & Co. Inc.. . . . . . . . . . . 200,000 First Albany Corporation . . . . . . . . . 200,000 First Manhattan Co.. . . . . . . . . . . . 200,000 First of Michigan Corporation. . . . . . . 200,000 Furman Selz Incorporated . . . . . . . . . 200,000 Gruntal & Co., Incorporated. . . . . . . . 200,000 Interstate/Johnson Lane Corporation. . . . 200,000 Janney Montgomery Scott Inc. . . . . . . . 200,000 C.J. Lawrence/Deutsche Bank Securities Corporation . . . . . . . . . . . . . . 200,000 Legg Mason Wood Walker, Incorporated . . . 200,000 Mabon Securities Corp. . . . . . . . . . . 200,000 McDonald & Company Securities, Inc.. . . . 200,000 Morgan Keegan & Company, Inc.. . . . . . . 200,000 28 Needham & Company, Inc.. . . . . . . . . . 200,000 Neuberger & Berman . . . . . . . . . . . . 200,000 Piper Jaffray Inc. . . . . . . . . . . . . 200,000 The Principal/Eppler, Guerin & Turner, Inc.. . . . . . . . . . . . . . 200,000 Ragen MacKenzie Incorporated Rauscher Pierce Refsnes, Inc.. . . . . . . 200,000 Raymond James & Associates, Inc. . . . . . 200,000 The Robinson-Humphrey Company, Inc.. . . . 200,000 Stifel, Nicolaus & Company, Incorporated.. 200,000 Sutro & Co. Incorporated . . . . . . . . . 200,000 Tucker Anthony Incorporated. . . . . . . . 200,000 Wheat, First Securities, Inc.. . . . . . . 200,000 M.R. Beal & Company. . . . . . . . . . . . 100,000 Brean Murray, Foster Securities Inc. . . . 100,000 Crowell, Weedon & Co.. . . . . . . . . . . 100,000 Dominick & Dominick, Incorporated. . . . . 100,000 Laidlaw Equities, Inc. . . . . . . . . . . 100,000 Mesirow Financial, Inc.. . . . . . . . . . 100,000 Northington Capital Markets, Inc.. . . . . 100,000 The Ohio Company . . . . . . . . . . . . . 100,000 Parker/Hunter Incorporated . . . . . . . . 100,000 Paulsen, Dowling Securities, Inc.. . . . . 100,000 Pennsylvania Merchant Group Ltd. . . . . . 100,000 Scott & Stringfellow, Inc. . . . . . . . . 100,000 The Seidler Companies Incorporated . . . . 100,000 Muriel Siebert & Co., Inc. . . . . . . . . 100,000 Spencer Trask Securities Incorporated. . . 100,000 Traub and Company, Inc.. . . . . . . . . . 100,000 Van Kasper & Company . . . . . . . . . . . 100,000 Wedbush Morgan Securities. . . . . . . . . 100,000 __________ Total. . . . . . . . . . . . . . . . . . . 27,497,500 __________ __________
29 Exhibit A WESTERN NATIONAL CORPORATION (a Delaware corporation) 27,497,500 Shares of Common Stock PRICING AGREEMENT _____________, 1994 MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DEAN WITTER REYNOLDS INC. GOLDMAN, SACHS & CO. LADENBURG, THALMANN & CO. INC. as U.S. Representatives of the several U.S. Underwriters named in the within-mentioned U.S. Purchase Agreement c/o Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1305 Dear Sirs: Reference is made to the U.S. Purchase Agreement dated ____________, 1994 (the "U.S. Purchase Agreement") relating to the purchase by the several U.S. Underwriters named in Schedule A thereto, for whom Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Dean Witter Reynolds Inc., Goldman, Sachs & Co. and Ladenburg, Thalmann & Co. Inc. are acting as representatives (the "U.S. Representatives"), of the above shares of Common Stock (the "Securities") of Western National Corporation, a Delaware corporation (the "Company"). Pursuant to Section 2 of the U.S. Purchase Agreement, the Company, Conseco Investment Holding Company, a Delaware corporation ("CIHC"), and Conseco, Inc., an Indiana corporation ("Conseco"), agree with each U.S. Underwriter as follows: 1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $_____. 2. The purchase price per share for the Securities to be paid by the several U.S. Underwriters shall be $_____, being an amount equal to the initial public offering price set forth above less $____ per share. 30 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the U.S. Underwriters, the Company, CIHC and Conseco in accordance with its terms. Very truly yours, WESTERN NATIONAL CORPORATION By: _____________________________ Name: Title: CONSECO, INC. By: _____________________________ Name: Title: CONSECO INVESTMENT HOLDING COMPANY By:________________________________ Name: Title: CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DEAN WITTER REYNOLDS INC. GOLDMAN, SACHS & CO. LADENBURG, THALMANN & CO. INC. For themselves and as U.S. Representatives of the other U.S. Underwriters named in the U.S. Purchase Agreement. By: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: ____________________________________ Authorized Signatory EX-10.33.2 15 EXHIBIT 10.33.2 TO CONSECO, INC. 1993 FORM 10-K 1 WESTERN NATIONAL CORPORATION (a Delaware corporation) 4,852,500 Shares of Common Stock (Par Value $.001 Per Share) INTERNATIONAL PURCHASE AGREEMENT February 8, 1994 MERRILL LYNCH INTERNATIONAL LIMITED DEAN WITTER INTERNATIONAL LTD. GOLDMAN SACHS INTERNATIONAL LIMITED LADENBURG, THALMANN & CO. INC. as Lead Managers of the several Managers c/o Merrill Lynch International Limited Ropemaker Place 25 Ropemaker Street London EC2Y 9LY England Dear Sirs: Western National Corporation, a United States company incorporated in the State of Delaware (the "Company"), Conseco Investment Holding Company, a United States company incorporated in the State of Delaware ("CIHC"), and Conseco, Inc., a United States company incorporated in the State of Indiana ("Conseco"), confirm their agreement with Merrill Lynch International Limited ("Merrill Lynch"), Dean Witter International Ltd. ("Dean Witter"), Goldman Sachs International Limited ("Goldman Sachs") and Ladenburg, Thalmann & Co. Inc. ("Ladenburg") and each of the other underwriters named in Schedule A hereto (collectively, the "Managers," which term shall also include any underwriter substituted as hereinafter provided in Section 10), for whom Merrill Lynch, Dean Witter, Goldman Sachs and Ladenburg are acting as lead managers (in such capacity, the "Lead Managers"), with respect to the sale by the Company and CIHC, acting severally and not jointly, and the purchase by the Managers, acting severally and not jointly, of 300,000 shares and 4,552,500 shares, respectively, of the respective number of shares of Common Stock of the Company, par value $.001 per share ("Common Stock"), set forth in Schedule A and with respect to the grant by the Company and CIHC to the Managers and U.S. Underwriters (as defined below), acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of additional shares of Common Stock to cover over-allotments, in each case except as may otherwise be provided in the International Pricing Agreement, as hereinafter defined. The 4,852,500 shares of Common Stock (the "Initial International Securities") and all or any part of the Managers' pro rata portion of the 727,875 shares of Common Stock subject to the option described in Section 2(b) hereof (the "International Option Securities") to be purchased by the Managers are collectively hereinafter called the "International Securities." The 4,852,500 shares of Common Stock subject to the option described in Section 2(b) hereof are hereinafter collectively called the "Option Securities." It is understood that the Company, CIHC and Conseco are concurrently entering into an agreement dated the date hereof (the "U.S. Purchase Agreement") providing for the offering by the Company and CIHC of 27,497,500 shares of Common Stock (the "Initial U.S. Securities") through arrangements with certain underwriters in the United States (the "U.S. Underwriters") for which Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Dean Witter Reynolds Inc., Goldman, Sachs & Co. and Ladenburg are acting as representatives (the "U.S. Representatives") and the grant by the Company and CIHC to the U.S. Underwriters of an option to purchase all or any part of the U.S. Underwriters' pro rata portion of the Option Securities (the "U.S. Option Securities") to cover over-allotments. The Initial U.S. Securities and the U.S. Option Securities are hereinafter called the "U.S. Securities." It is understood that the Company and CIHC are not obligated to sell, and the 2 Managers are not obligated to purchase, any Initial International Securities unless all of the Initial U.S. Securities are contemporaneously purchased by the U.S. Underwriters. The Managers and the U.S. Underwriters are hereinafter collectively called the "Underwriters," the Initial U.S. Securities and the Initial International Securities are hereinafter collectively called the "Initial Securities," and the International Securities and the U.S. Securities are hereinafter collectively called the "Securities." Prior to the purchase and public offering of the International Securities by the several Managers, the Company, CIHC, Conseco and the Lead Managers, acting on behalf of the several Managers, shall enter into an agreement substantially in the form of Exhibit A hereto (the "International Pricing Agreement"). The International Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company, CIHC, Conseco and the Lead Managers and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the International Securities will be governed by this Agreement, as supplemented by the International Pricing Agreement. From and after the date of the execution and delivery of the International Pricing Agreement, this Agreement shall be deemed to incorporate the International Pricing Agreement. The initial public offering price and the purchase price with respect to the U.S. Securities shall be set forth in a separate instrument (the "U.S. Pricing Agreement"), the form of which is attached to the U.S. Purchase Agreement. The Company has filed with the United States Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (No. 33-70022) and a related preliminary prospectus for the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof, and will file such additional amendments thereto and such amended prospectuses as may hereafter be required. (1) Such registration statement (as amended, if applicable) and the two prospectuses constituting a part thereof (including in each case the information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations")), as from time to time amended or supplemented pursuant to the 1933 Act, are hereinafter referred to as the "Registration Statement," the "International Prospectus" and the "U.S. Prospectus," respectively, and the International and U.S. Prospectuses are hereinafter together called "Prospectuses" and, each individually, a "Prospectus," except that if any revised prospectus shall be provided to the Managers or the U.S. Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectuses on file at the Commission at the time the Registration Statement becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the terms "International Prospectus" and "U.S. Prospectus" shall refer to each such revised prospectus from and after the time it is first provided to the Managers or the U.S. Underwriters, as the case may be, for such use. The Company, CIHC and Conseco understand that the Managers propose to make a public offering of the International Securities as soon as the Lead Managers deem advisable after the Registration Statement becomes effective and the International Pricing Agreement has been executed and delivered. The price per share for the U.S. Securities to be purchased by the U.S. Underwriters pursuant to the U.S. Purchase Agreement shall be identical to the price per share for the International Securities to be purchased by the Managers hereunder. [FN] 1. Two forms of prospectus are to be used in connection with the offering and sale of the Securities: one relating to the International Securities (the "International Prospectus"), and one relating to the U.S. Securities (the "U.S. Prospectus"). 3 SECTION 1. Representations and Warranties. (a) The Company, CIHC and Conseco represent and warrant to each of the Managers as of the date hereof and as of the date of the International Pricing Agreement (such latter date being hereinafter referred to as the "International Representation Date") as follows: (i) At the time the Registration Statement becomes effective and at the International Representation Date, the Registration Statement will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Prospectuses, at the time the Registration Statement becomes effective (unless the term "Prospectuses" refers to prospectuses which have been provided to the U.S. Underwriters and the Managers by the Company for use in connection with the offering of the Securities which differ from the Prospectuses on file at the Commission at the time the Registration Statement becomes effective, in which case at the time such Prospectuses are first provided to the U.S. Underwriters and the Managers for such use) and at the International Representation Date and at the Closing Time referred to in Section 2, will not include 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; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectuses made in reliance upon and in conformity with information furnished to the Company in writing by any Manager through Merrill Lynch expressly for use in the Registration Statement or the Prospectuses. (ii) Coopers & Lybrand, the accountants who certified the financial statements and supporting schedules of the Company and Western National Life Insurance Company, a Texas insurance company ("Western"), included in the Registration Statement, are independent public accountants with respect to the Company and its subsidiaries as required by the 1933 Act and the 1933 Act Regulations. (iii) The financial statements of the Company and Western included in the Registration Statement and the Prospectuses present fairly the financial position of the Company and Western as of the dates indicated and the results of its operations for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included in the Registration Statement present fairly the information required to be included therein; and Company's ratios of earnings to fixed charges (actual and pro forma) included in the Prospectuses and in Exhibit 12.1 to the Registration Statement have been calculated in compliance, in all material respects, with Item 503(d) of Regulation S-K of the Commission. (iv) The statutory financial statements of Western, from which certain ratios and other statistical data contained in the Registration Statement have been derived, have for each relevant period been prepared in accordance with accounting 4 practices prescribed or permitted by the National Association of Insurance Commissioners and the insurance department of the state of Texas, and such accounting practices have been applied on a consistent basis throughout the periods involved, except as disclosed therein. (v) Since the respective dates as of which information is given in the Registration Statement and the Prospectuses, and except as otherwise stated or contemplated therein, (A) there has been no material adverse change and no development which will result in a prospective material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Company or any of its subsidiaries which are material to the Company and its subsidiaries, considered as one enterprise, other than those entered into in the ordinary course of business, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (vi) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own, lease and operate its properties and to conduct its business as presently conducted and as described in the Prospectuses; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except to the extent the failures to so qualify or be in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise. (vii) Each of the Company's subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own, lease and operate its properties and to conduct its business as presently conducted and as described in the Prospectuses; and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failures to so qualify or be in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise; and the outstanding shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued, are fully paid and nonassessable and all such shares are owned by the Company or, in the case of Western, by WNL Holding Corp, a Delaware corporation ("WNL"); and at the Closing time (as defined herein), WNL, Western and Conseco Annuity Guarantee Company, a Texas corporation ("CAGC"), will be the only subsidiaries of the Company. 5 (viii) The Company and each of its subsidiaries hold all material licenses, certificates and permits from governmental authorities (including, without limitation, insurance licenses from the insurance departments of the various states where the subsidiaries write insurance business (the "Insurance Licenses")) which are necessary to the conduct of their businesses; the Company and its subsidiaries have fulfilled and performed all material obligations necessary to maintain their respective Insurance Licenses, and no event or events have occurred which may be reasonably expected to result in the impairment, modification, termination or revocation of such Insurance Licenses. (ix) The authorized, issued and outstanding capitalization of the Company is as set forth in the Prospectuses under "Capitalization"; all of the issued and outstanding shares of the Common Stock (including the Securities being sold by CIHC) have been duly authorized and validly issued and are fully paid and nonassessable; the Securities to be sold by the Company have been duly authorized and, when delivered by the Company to the Managers pursuant to this Agreement and to the U.S. Underwriters pursuant to the U.S. Purchase Agreement against payment of the consideration set forth in the International Pricing Agreement and the U.S. Pricing Agreement, will be validly issued and fully paid and nonassessable; the issuance of the Securities is not subject to preemptive or other similar rights, and the Common Stock at the time the Registration Statement becomes effective will be registered under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and will be authorized for listing on the New York Stock Exchange, Inc. (the "NYSE"), upon official notice of issuance. (x) Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, or in violation of any applicable law, administrative regulation or administrative or court order or decree, which violation or default would, singly or in the aggregate, have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise; and the execution, delivery and performance of this Agreement, the International Pricing Agreement, the U.S. Purchase Agreement and the U.S. Pricing Agreement and the consummation of the transactions contemplated herein and therein and compliance by the Company with its obligations hereunder and thereunder have been duly authorized by all necessary corporate action and will not conflict with or constitute a breach of, or a default under, or result in the creation or imposition of any pledge, lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, except for any conflict, 6 breach, default, pledge, lien, charge or encumbrance which would not, singly and in the aggregate, have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any applicable law, administrative regulation or administrative or court decree. (xi) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign (including, without limitation, any proceeding to revoke or deny renewal of any Insurance Licenses), now pending, or, to the best knowledge of the Company, CIHC or Conseco, threatened, against or affecting the Company or any of its subsidiaries which is required to be disclosed in the Registration Statement or the Prospectuses, or which is reasonably likely to result in any material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise, or which would be reasonably likely to materially and adversely affect a material portion of the properties or assets thereof or which is reasonably likely to materially and adversely affect the consummation of the transactions contemplated by this Agreement, the International Pricing Agreement, the U.S. Purchase Agreement and the U.S. Pricing Agreement; all pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement or the Prospectuses, including ordinary routine litigation incidental to the business of the Company or any of its subsidiaries, are, considered in the aggregate, not material; and there are no contracts or documents of the Company or any of its subsidiaries which are required to be filed as exhibits to the Registration Statement by the 1933 Act or the 1933 Act Regulations which have not been so filed. (xii) No authorization, approval or consent of any court or governmental authority or agency is necessary in connection with the issuance and sale of the Securities hereunder, or the consummation by the Company, CIHC and Conseco of any other transactions contemplated hereby, except such as have been obtained and made under the federal securities laws or state insurance laws and such as may be required under state or foreign securities laws. (xiii) The Securities conform in all material respects to the respective statements relating thereto contained in the Prospectuses and the Registration Statement. (xiv) Except as provided in the Stockholder Agreement among the Company, CIHC and Conseco, there are no holders of securities of the Company or any of its subsidiaries with registration rights to have any securities registered as part of the Registration Statement or included in the offering contemplated by this Agreement or the U.S. Purchase Agreement. 7 (xv) This Agreement and the U.S. Purchase Agreement have been, and at the International Representation Date and the U.S. Representation Date, the International Pricing Agreement and the U.S. Pricing Agreement, respectively, will have been, duly authorized, executed and delivered by the Company, CIHC and Conseco and constitute the valid, legal and binding obligations of the Company, CIHC and Conseco enforceable against them in accordance with their terms (except (1) as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting creditors' rights generally and except that the remedies of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and (2) that no representation or warranty is given as to the enforceability of the indemnity and contribution provisions hereunder or thereunder). (xvi) The execution and delivery of this Agreement, the International Pricing Agreement, the U.S. Purchase Agreement and the U.S. Pricing Agreement, and the consummation of the transactions herein and therein contemplated, will not result in a breach by CIHC or Conseco of, or constitute a default by CIHC or Conseco under, their respective charters or by-laws or any material indenture, deed of trust, contract, or other material agreement or instrument or any decree, judgment or order to which CIHC or Conseco is a party or by which CIHC or Conseco may be bound. (xvii) CIHC has and will have at the Closing Time referred to in Section 2(c) good and marketable title to the Securities to be sold by CIHC hereunder, free and clear of any pledge, lien, security interest, encumbrance, claim or equity, other than pursuant to this Agreement and the U.S. Purchase Agreement; CIHC has full right, power and authority to sell, transfer and deliver the Securities to be sold by CIHC hereunder and under the U.S. Purchase Agreement; and upon delivery of the Securities to be sold by CIHC hereunder and under the U.S. Purchase Agreement and payment of the purchase price therefor as herein and therein contemplated, each of the Underwriters will receive good and marketable title to its ratable share of the Securities purchased by it from CIHC, free and clear of any pledge, lien, security interest, encumbrance, claim or equity, except for those created by or through the Underwriters. (xviii) All authorizations, approvals and consents necessary for the execution and delivery by CIHC and Conseco of this Agreement, the International Pricing Agreement, the U.S. Purchase Agreement and the U.S. Pricing Agreement and the sale and delivery of the Securities to be sold by CIHC (other than, at the time of the execution hereof, the issuance of the order of the Commission declaring the Registration Statement effective and such authorizations, approvals or consents as may be necessary under state or foreign securities laws) have been obtained and are in full force and effect; and CIHC and Conseco have the full right, power and authority to enter into this Agreement, the International Pricing 8 Agreement, the U.S. Purchase Agreement and the U.S. Pricing Agreement and to sell, transfer and deliver the Securities to be sold by CIHC hereunder and thereunder. (xix) None of the Company, CIHC or Conseco has taken, or will take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (xx) Except as noted by the Company, CIHC and Conseco in a letter previously delivered by them to the Underwriters, none of the Company, CIHC, Conseco or any of their respective subsidiaries are affiliated with or a person associated with a member of the National Association of Securities Dealers, Inc. (the "NASD"). (b) Any certificate signed by any officer of the Company, CIHC or Conseco and delivered to the Lead Managers or to counsel for the Managers shall be deemed a representation and warranty by the Company, CIHC or Conseco, as the case may be, to each Manager as to the matters covered thereby. SECTION 2. Sale and Delivery to the Managers; Closing. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and CIHC, severally and not jointly, agree to sell to each Manager, severally and not jointly, and each Manager, severally and not jointly, agrees to purchase from the Company and CIHC, at the price per share set forth in the International Pricing Agreement, that proportion of the 300,000 shares and 4,552,500 shares being sold by the Company and CIHC, respectively, which the number of Initial International Securities set forth in Schedule A opposite the name of such Manager (plus any additional number of Initial International Securities which such Manager may become obligated to purchase pursuant to the provisions of Section 10 hereof) bears to the total number of Initial International Securities (except as otherwise provided in the International Pricing Agreement), subject, in each case, to such adjustments as the Managers in their discretion shall make to eliminate any sales or purchases of fractional securities. (1) If the Company has elected not to rely upon Rule 430A under the 1933 Act Regulations, the public offering price and the purchase price per share to be paid by the several Managers for the Securities (collectively, the "International Pricing Terms") have each been determined and set forth in the International Pricing Agreement, dated the date hereof, and an amendment to the Registration Statement and the Prospectuses containing such information will be filed before the Registration Statement becomes effective. (2) If the Company has elected to rely upon Rule 430A under the 1933 Act Regulations, the purchase price per share to be paid by the Managers for the International Securities shall be an amount equal to the initial public offering price per share, less an amount per share to be determined by agreement among the Lead Managers, the Company, CIHC and Conseco. The International Pricing Terms likewise shall be determined by agreement among the Lead Managers, the Company, CIHC and Conseco. The International Pricing Terms, when so determined, shall be set forth in the 9 International Pricing Agreement. In the event that such International Pricing Terms have not been agreed upon and the International Pricing Agreement has not been executed and delivered by all parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, unless otherwise agreed to by the Lead Managers, the Company, CIHC and Conseco. (b) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and CIHC hereby grant an option to the Underwriters, severally and not jointly, to purchase up to an additional 4,852,500 shares of Common Stock at the price per share set forth in the International Pricing Agreement and the U.S. Pricing Agreement, of which 4,124,625 shares shall be the pro rata portion for the U.S. Underwriters and 727,875 shares shall be the pro rata portion for the Managers. The option hereby granted will expire 30 days after the later of (i) the date the Registration Statement becomes effective, if the Company has elected not to rely on Rule 430A under the 1933 Act Regulations, or (ii) the International Representation Date, if the Company has elected to rely upon Rule 430A under the 1933 Act Regulations, and may be exercised in whole or in part only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Lead Managers and the U.S. Representatives to the Company, CIHC and Conseco setting forth the number of Option Securities as to which the Underwriters are exercising the option and the time and date of payment for such Option Securities. Such time and date of delivery for the International Option Securities (the "Date of Delivery") shall be determined by the Lead Managers, but shall not be later than seven full business days after the exercise of said option, and in no event prior to Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the International Option Securities, each of the Managers, acting severally and not jointly, will purchase from the Company and CIHC that portion of the number of International Option Securities subject to the option set forth in this Section 2(b) of the Company or CIHC, as the case may be, which the number of Initial International Securities set forth in Schedule A opposite the name of such Manager bears to the total number of Initial International Securities (except as otherwise provided in the International Pricing Agreement), subject in each case to such adjustments as the Lead Managers in their discretion shall make to eliminate any sales or purchases of fractional shares. (c) Payment of the purchase price for, and delivery of certificates for, the International Securities to be purchased by the Managers shall be made at the offices of the Lead Managers in New York, New York or at such other place as shall be agreed upon by the Lead Managers, the Company, CIHC and Conseco, at 10:00 a.m. (New York City time) on the fifth business day (unless postponed in accordance with the provisions of Section 10) following the date the Registration Statement becomes effective (or, if the Company has elected to rely upon Rule 430A, the fifth business day after execution of the International Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Lead Managers, the Company, CIHC and Conseco (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the International Option Securities are purchased by the Managers, payment of the purchase price, and delivery of certificates, for such International Option Securities shall be made at the above-mentioned offices of the Lead Managers, or at such other place as shall be agreed upon by the Lead Managers, the Company, CIHC and Conseco, on the Date of Delivery as specified in the notice from the Lead Managers to the Company, CIHC and Conseco. Payment shall be made to the Company and CIHC by certified or official bank check or checks drawn in Chicago Clearing House funds or similar next day funds payable to the order of the Company or CIHC, as the case may be, against delivery to the Lead Managers for the respective accounts of the Managers of certificates for the International Securities to be purchased by them. Certificates for the International Securities hall be in such denominations and registered in such names as the Lead Managers may request in writing at least two business days before Closing Time or the Date of Delivery, as the case may be. It is understood that each Manager has authorized the Lead Managers, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the International Securities which it has agreed to purchase. The Lead 10 Managers, individually and not as representatives of the Managers, may (but shall not be obligated to) make payment of the purchase price for the International Securities to be purchased by any Manager whose check has not been received by Closing Time or the Date of Delivery, as the case may be, but such payment shall not relieve such Manager from its obligations hereunder. The certificates for the Initial International Securities and the International Option Securities will be made available for examination and packaging by the Lead Managers not later than 10:00 a.m. on the last business day prior to Closing Time or the Date of Delivery, as the case may be. SECTION 3. Covenants of the Company, CIHC and Conseco. The Company covenants, and with respect to Sections 3(l) and 3(p) below, each of the Company, CIHC and Conseco covenants, with each of the Managers as follows: (a) The Company will notify the Lead Managers immediately and confirm the notice in writing (i) of the effectiveness of the Registration Statement and any amendment thereto (including any post-effective amendment) and, if Rule 430A under the 1933 Act Regulations is being relied upon, of the filing of the amended Prospectuses pursuant to Rule 430A, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectuses or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose and (v) of the issuance by any state securities commission or other regulatory authority of any order suspending the qualification or the exemption from qualification of the Securities under state securities or Blue Sky laws or the initiation of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Company will give the Lead Managers notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectuses (including any revised prospectus which the Company proposes for use by the Managers in connection with the offering of the Securities which differs from the prospectuses on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectuses are required to be filed pursuant to Rule 424(b) under the 1933 Act Regulations), will furnish the Lead Managers with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which the Lead Managers or counsel for the Managers shall reasonably object. (c) The Company will deliver to the Lead Managers five signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith) and will also deliver to the Lead Managers as many conformed copies of the Registration Statement as originally filed and of each amendment thereto (without exhibits) as the Lead Managers may request. (d) The Company will furnish to each Manager, from time to time during the period when the Prospectuses are required to be delivered under the 1933 Act, such number of copies of the Prospectuses (as amended or supplemented) as such Managers may request for the purposes contemplated by the 1933 Act or the applicable 1933 Act Regulations. (e) If any event shall occur as a result of which it is necessary, in the reasonable opinion of counsel for the Managers, to amend or supplement the Prospectuses in order to make the International Prospectus not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Company will forthwith amend or supplement the International Prospectus (in form and substance reasonably satisfactory to counsel for the Managers) so that, as so amended or supplemented, the International Prospectus will not include 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 existing at the time it is delivered to a purchaser, not misleading, and the Company will furnish to the Managers as many copies of such amendment or supplement as the Managers may request. 11 (f) The Company will endeavor, in cooperation with the Managers and their counsel, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Lead Managers may designate; provided, however, that the Company shall not be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to execute a general consent as to service of process in any jurisdiction in which it is not so subject to such service. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for so long as may be required in connection with the distribution of the Securities. (g) The Company will make generally available to its security holders as soon as practicable, but in any event not later than 45 days after the close of the period covered thereby, an earnings statement (in form and in a manner complying with the provisions of Rule 158 under the 1933 Act Regulations) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in said Rule 158) of the Registration Statement. (h) The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectuses under "Use of Proceeds." (i) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A under the 1933 Act Regulations, then promptly following the execution of the International Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) under the 1933 Act Regulations, copies of amended Prospectuses, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including amended Prospectuses), containing all information so omitted. (j) The Company, during the period when the Prospectuses are required to be delivered under the 1933 Act, will promptly file all documents required to be filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act, of which the Lead Managers shall have previously been advised and previously furnished a copy, and with respect to which the Company shall endeavor in good faith to provide the Lead Managers or the Managers' counsel with an opportunity to comment. (k) For a period of one year after the Closing Time, the Company will furnish to the Lead Managers copies of all reports and communications delivered to the Company's stockholders or to holders of the Securities as a class and will also furnish copies of all reports (excluding exhibits) filed with the Commission on Forms 8-K, 10-Q and 10-K, and all other reports and information furnished to its stockholders generally, not later than the time such reports are first furnished to such holders generally. (l) During a period commencing on the date hereof and ending 180 days, in the case of the Company, and 365 days, in the case of CIHC and Conseco, from the date of the Prospectuses, each of the Company, CIHC and Conseco will not, without the prior written consent of the Lead Managers, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, or enter into any agreement to sell, any Common Stock or any securities similar to the Securities or any security convertible into or exchangeable or exercisable for any Common Stock or any such similar securities or file with the Commission a registration statement under the 1933 Act to register any Common Stock of the Company or any securities convertible into or exercisable for Common Stock of the Company; provided, however, that such restriction shall not affect (i) the ability of the Company to take any such action in connection with any employee benefit or incentive plan of the Company or its subsidiaries described in the Prospectuses, (ii) the ability of CIHC to sell 150,000 shares of Common Stock of the Company to Mr. Michael J. Poulos pursuant to the Employment Agreement dated September 9, 1993 between Conseco and Mr. Poulos or (iii) the ability of the Company or CIHC to take any action pursuant to the offering of the Securities made pursuant to the Prospectuses. 12 (m) The Company will use its best efforts to effect and maintain the listing of the Securities and all other shares of Common Stock outstanding from time to time on the NYSE and to cause the Common Stock to be registered under the 1934 Act. (n) The Company agrees that no action has been or will be taken in any jurisdiction outside the United States and Canada by it that would permit a public offering of the Securities, or possession or distribution of the International Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus issued in connection with the offering of the Securities, or any other offering material, in any country or jurisdiction where action for that purpose is required. (o) The Company and CIHC will indemnify and hold harmless the Managers against any documentary, stamp or similar issue tax, including any interest and penalties, on the creation, issue and sale of the Securities and on the execution of this Agreement. (p) No later than the next business day following the Closing Time, Conseco shall repay in full all indebtedness under the Credit Agreement dated as of September 30, 1993 among Conseco, the lenders named therein, First Union National Bank of North Carolina, Citicorp USA, Inc. and Continental Bank, N.A., as Agents, and Continental Bank, N.A., as Administrative Agent. SECTION 4. Payment of Expenses. The Company will pay all expenses incident to the performance of the obligations of the Company, CIHC and Conseco under this Agreement, the International Pricing Agreement, the U.S. Purchase Agreement and the U.S. Pricing Agreement including, without limitation, expenses related to the following, if incurred: (i) the preparation, delivery, printing and filing of the Registration Statement and Prospectuses as originally filed and of each amendment thereto; (ii) the printing of this Agreement, the International Pricing Agreement, the U.S. Purchase Agreement and the U.S. Pricing Agreement; (iii) the preparation, issuance and delivery of the certificates for the Securities to the U.S. Underwriters and Managers; (iv) the fees and disbursements of the Company's counsel and accountants; (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f), including filing fees and the fees and disbursements of counsel for the U.S. Underwriters and Managers in connection therewith and in connection with the preparation of the Blue Sky Survey; (vi) the printing and delivery to the U.S. Underwriters and Managers of copies of the Registration Statement as originally filed and of each amendment thereto, of the preliminary prospectuses, and of the Prospectuses and any amendments or supplements thereto; (vii) the printing and delivery to the U.S. Underwriters and Managers of copies of the Blue Sky Survey; (viii) any fees payable to the NASD; (ix) any fees payable to the Commission; and (x) the fees and expenses incurred in connection with the listing on the NYSE of the Securities. If this Agreement is terminated by the Lead Managers in accordance with the provisions of Section 5 or Section 9(a)(i), the Company, CIHC and Conseco shall reimburse the Managers for all of their out-of-pocket expenses, including the fees and disbursements of counsel for the Managers. SECTION 5. Conditions of Managers' Obligations. The obligations of the Managers hereunder are subject to the accuracy of the representations and warranties of the Company, CIHC and Conseco herein contained, to the performance by the Company, CIHC and Conseco of their obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 p.m., New York City time, on the date hereof or, with the consent of Merrill Lynch, at a later time and date, not later, however, than 5:30 p.m. on the first business day after the date hereof, or at such later time and date as may be agreed upon by the Lead Managers, the Company, CIHC and Conseco, and at the Closing Time and any Date of Delivery no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. If the Company has elected to rely upon Rule 430A under the 1933 Act Regulations, the International Pricing Terms and any other price-related information previously omitted from the effective Registration Statement to 13 such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) under the 1933 Act Regulations within the prescribed time period, and prior to the Closing Time, the Company shall have provided evidence satisfactory to the Lead Managers of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A under the 1933 Act Regulations. (b) At the Closing Time the Lead Managers shall have received: (1) The favorable opinion, dated as of the Closing Time, of Lawrence W. Inlow, Secretary and General Counsel to the Company, CIHC and Conseco, in form and substance satisfactory to counsel for the U.S. Underwriters and Managers, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware; the Company has the corporate power under the laws of the State of Delaware and under its charter to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectuses; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failures to so qualify or be in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs or prospects of the Company and its subsidiaries, considered as one enterprise. (ii) The Securities delivered at the Closing Time and all other outstanding shares of the Common Stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and conform in all material respects to the description thereof contained in the Prospectuses; the Common Stock is registered under the 1934 Act and the Securities at the Closing Time have been authorized for listing on the NYSE, upon official notice of issuance. (iii) The issuance of the Securities is not subject to preemptive or other similar rights arising by law. (iv) The U.S. Purchase Agreement, the U.S. Pricing Agreement, the International Purchase Agreement and the International Pricing Agreement have been duly authorized, executed and delivered by the Company, CIHC and Conseco and constitute valid and binding obligations of the Company, CIHC and Conseco enforceable in accordance with their terms (except (1) as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting creditors' rights generally and except that the remedies of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, and (2) that no opinion need be given as to the enforceability of the indemnity and contribution provisions hereunder or thereunder). 14 (v) The Common Stock conforms in all material respects to the description thereof contained in the Prospectuses and the Registration Statement; and the forms of certificates used to evidence the Securities and the Common Stock comply with all applicable statutory and NYSE requirements. (vi) Each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and has the corporate power and authority to own, lease and operate its properties and to conduct its business as presently conducted and as described in the Registration Statement and the Prospectuses. Nothing has come to the attention of such counsel to lead such counsel to believe that any subsidiary is not duly qualified as a foreign corporation to transact business or is not in good standing in each jurisdiction in which such qualification is required, except where the failures to so qualify or be in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise. All of the issued and outstanding capital stock of each subsidiary of the Company have been duly authorized and validly issued, are fully paid and nonassessable, and all such shares are owned by the Company or, in the case of Western, by WNL, and WNL, Western and CAGC are the only subsidiaries of the Company. (vii) The Registration Statement is effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act or proceedings therefor initiated, or to such counsel's best knowledge, threatened by the Commission. (viii) At the time the Registration Statement became effective and at the International Representation Date and the Closing Time, the Registration Statement (other than the financial statements and schedules or other financial information or statistical data included therein, as to which no opinion need be rendered) complied as to form in all material respects to the requirements of the 1933 Act and the 1933 Act Regulations. (ix) No authorization, approval or consent of any court or governmental authority or agency is necessary in connection with the issuance and sale of the Securities hereunder or the consummation by the Company, CIHC and Conseco of any other transactions contemplated hereby, except such as have been obtained and made under the federal securities laws or state insurance laws and such as may be required under the state or foreign securities laws. (x) To the best knowledge of such counsel, there are no statutes or regulations required to be described in the Registration Statement which are not described as required and there are no legal or governmental proceedings pending or threatened which are required to be disclosed in 15 the Registration Statement, other than those disclosed therein. (xi) To the best knowledge of such counsel, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed as exhibits thereto; the descriptions thereof or references thereto are true and correct in all material respects and no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument so described, referred to or filed, which default could have a material adverse effect on the Company and its subsidiaries considered as one enterprise. (xii) The issuance and delivery of the Securities, the execution and delivery of the U.S. Purchase Agreement, the International Purchase Agreement, the U.S. Pricing Agreement and the International Purchase Agreement and the consummation of the transactions contemplated therein and compliance by the Company with its obligations thereunder will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any pledge, lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, except for any conflict, breach, default, lien, charge or encumbrance which would not, singly and in the aggregate, have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise nor will such action result in any violation of the provisions of the charter or by-laws of the Company, or any material applicable law, administrative regulation or administrative or court decree. (xiii) The Company and each of its subsidiaries hold all material licenses, certificates and permits from all governmental authorities (including, without limitation, the Insurance Licenses) which are necessary to the conduct of their businesses; the Company and each of its subsidiaries have fulfilled and performed all material obligations necessary to maintain their respective Insurance Licenses, and no event or events have occurred which may be reasonably expected to result in the material impairment, modification, termination or revocation of such Insurance Licenses. (xiv) CIHC has full legal right, power and authorization, and any approval required by law, to sell, assign, transfer and deliver good and marketable title to the Securities which CIHC has agreed to sell pursuant to the U.S. Purchase 16 Agreement and the International Purchase Agreement. (xv) No authorization, approval, consent, or order of any court or governmental authority or agency is required in connection with the sale of the Securities by CIHC to the Underwriters, except such as may be required under the 1933 Act or the 1933 Act Regulations or state or foreign securities laws or state insurance laws. (xvi) When the Securities are delivered to the Underwriters against payment therefor in accordance with the terms of the U.S. Purchase Agreement and the International Purchase Agreement, each of the Underwriters will acquire good and marketable title to the Securities purchased by it from CIHC, free and clear of any mortgage, pledge, lien, security interest, encumbrance, claim or equity created by or arising through CIHC, assuming that the Underwriters acquire the Securities without notice of any adverse claim as such term is used in Section 8-302 of the Uniform Commercial Code as in effect in the State of New York. (xvii) Nothing has come to such counsel's attention that causes such counsel to believe that the Registration Statement (except for financial statements and schedules or other financial information or statistical data included therein, as to which no opinion need be expressed), at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectuses (except for financial statements and schedules or other financial information or statistical data included therein, as to which no opinion need be expressed), at the International Representation Date (unless the term "Prospectuses" refers to prospectuses which have been provided to the U.S. Underwriters and the Managers by the Company for use in connection with the offering of the Securities which differs from the Prospectuses on file at the Commission at the time the Registra- tion Statement becomes effective, in which case at the time it is first provided to the U.S. Under- writers and the Managers for such use) or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits 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. (2) The favorable opinion, dated as of the Closing Time, of Vinson & Elkins L.L.P., special counsel to the Company, to the effect that: (i) The Registration Statement and the Prospectuses, and each amendment or supplement thereto, as of their respective effective or issue dates, or when amended, as appropriate, (other than the financial statements and schedules or other financial information or statistical data included therein, as to which no opinion need be expressed) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations; 17 (ii) Nothing has come to such counsel's attention that causes such counsel to believe that the Registration Statement (except for financial statements and schedules or other financial information or statistical data included therein, as to which no opinion need be expressed), at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectuses (except for financial statements and schedules and other financial information or statistical data included therein, as to which no opinion need be expressed), at the International Representation Date (unless the term "Prospectuses" refers to prospectuses which have been provided to the U.S. Underwriters and the Managers by the Company for use in connection with the offering of the Securities which differs from the Prospectuses on file at the Commission at the time the Registra- tion Statement becomes effective, in which case at the time it is first provided to the U.S. Under- writers and the Managers for such use) or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits 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. (iii) The U.S. Purchase Agreement, the U.S. Pricing Agreement, the International Purchase Agreement and the International Pricing Agreement have been duly authorized, executed and delivered by the Company and constitute valid and binding obligations of the Company enforceable in accordance with their terms (except (1) as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws affecting creditors' rights generally and except that the remedies of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceed- ing therefor may be brought, and (2) that no opinion need be given as to the enforceability of the indemnity and contribution provisions here- under or thereunder). (3) The favorable opinion, dated as of the Closing Time, of Sidley & Austin, counsel for the Managers, with respect to the incorporation of the Company, the validity of the Securities, the Registration Statement, the Prospectuses and other related matters as you may require, and the Company, CIHC and Conseco shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (c) At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Registration Statement and the Prospectuses, other than as stated or contemplated in the Registration Statement or the Prospectuses, any material adverse change or any development which will result in a prospective material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, and the Lead Managers shall have received a certificate of the president or a vice president of the Company, CIHC and Conseco, respectively, and of the chief financial or chief accounting officer of the Company, CIHC and Conseco, respectively, dated as of the Closing Time, to the effect that (i) there has 18 been no such material adverse change, (ii) the representations and warranties in Section 1 are true and correct with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company, CIHC and Conseco have complied with all agreements and satisfied all conditions on their part to be performed or satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and, to the best of each such officer's knowledge and information, no proceedings for that purpose have been initiated or threatened by the Commission. (d) At the time of the execution of this Agreement, the Lead Managers shall have received from Coopers & Lybrand a letter, dated such date, in form and substance satisfactory to the Lead Managers, to the effect that (i) they are independent public accountants with respect to the Company and its subsidiaries within the meaning of the 1933 Act and the 1933 Act Regulations; (ii) it is their opinion that the financial statements and supporting schedules included in the Registration Statement and covered by their opinions therein comply with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations; (iii) based upon limited procedures set forth in detail in such letter, nothing has come to their attention which causes them to believe that (A) the unaudited financial information of the Company and its subsidiaries included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations, or are not presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement or (B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than five days prior to the date of this Agreement or the International Purchase Agreement, there was any increase in long-term debt or insurance liabilities or any decrease in total assets, stockholder's equity or common stock, as compared with amounts shown on the latest balance sheet included in the Prospectuses, or (C) for the period from the closing date of the latest income statement included in the Prospectuses to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year and with the period of corresponding length ended the date of the latest income statement included in the Prospectuses, in the amounts of total revenues, total insurance policy income, net investment income or net income except in all cases set forth in this clause (iii) for changes, increases or decreases which the Prospectuses discloses have occurred or may occur or which are described in such letter; (iv) they have examined the statutory financial statements of each of the Company's insurance subsidiaries, from which certain ratios and other statistical data contained in the Registration Statement have been derived, and in their opinion such statements, with respect to each insurance subsidiary, have for each relevant period been prepared in accordance with accounting practices prescribed or permitted by the appropriate insurance department of the state of domicile of such subsidiary, and such accounting practices have been applied on a consistent basis throughout the periods involved, except as disclosed therein; (v) based upon the procedures set forth in clause (iii) above and a reading of the "Selected Historical Financial Information," the "Pro Forma Consolidated Financial Statements" and the information contained under the caption "Management" included in the Registration Statement, nothing has come to their attention that caused them to believe that the "Selected Historical Financial Information" and the "Pro Forma Consolidated Financial Statements" included in the Registration Statement do not comply in all material respects with the applicable requirements of Regulation S-K under the 1933 Act and the 1934 Act (e.g. "Selected Financial Data" (Item 301) and "Supplementary Financial Information" (Item 302)), or that the information set forth therein is not fairly stated in relation to the financial statements from which it was derived, and nothing has come to their attention that caused them to believe that the information under the caption "Management" Contained in the Registration Statement does not comply in all material respects with the applicable requirements of Item 402 ("Executive Compensation") of such Regulation S-K; (vi) they are unable to and do not express any opinion on the "Pro Forma Consolidated Financial Statements" or on the pro forma adjustments applied to the historical amounts included in such statements; however, for purposes of such letter they have: (A) read the "Pro Forma Consolidated Financial Statements," (B) made inquires of certain officials of the Company who have responsibility for financial and accounting matters about the basis for their determination of the pro forma adjustments and whether the "Pro Forma Consolidated Financial Statements" comply in form in all material respects with the applicable accounting requirements of 19 Regulation S-X and (C) proved the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the "Pro Forma Consolidated Financial Statements"; and (vii) in addition to the examination referred to in their opinions and the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages, ratios and financial information that has been derived from the accounting and financial records of the Company that are subject to internal accounting controls which are included in the Registration Statement and Prospectuses and which are specified by the Lead Managers, and have found such amounts, percentages, ratios and financial information to be in agreement with the relevant accounting and financial records of the Company and its subsidiaries identified in such letter. (e) At the Closing Time, the Lead Managers shall have received from Coopers & Lybrand a letter, dated as of the Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (d) of this Section, except that the specified date referred to shall be a date not more than five days prior to the Closing Time and, if the Company has elected to rely on Rule 430A under the 1933 Act Regulations, to the further effect that they have carried out procedures as specified in clause (v) of subsection (d) of this Section with respect to certain amounts, percentages and financial information specified by the Lead Managers and deemed to be a part of the Registration Statement pursuant to Rule 430(A)(b) and have found such amounts, percentages and financial information to be in agreement with the records specified in such clause (v). (f) At the Closing Time, the Securities shall have been and shall remain approved for listing on the NYSE upon notice of issuance. (g) At the Closing Time, and at each Date of Delivery, if any, counsel for the Managers shall have been furnished with such documents and opinions as they may reasonably require with respect to unforeseen materially changed circumstances since the date of this Agreement and the U.S. Purchase Agreement for the purpose of enabling them to pass upon the issuance and sale of the Securities as contemplated herein and in the U.S. Purchase Agreement and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Lead Managers and counsel for the Managers. (h) At the Closing Time, the U.S. Underwriters and Managers shall receive agreements of all directors and executive officers of the Company not to, without the prior written consent of the Lead Managers, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, or enter into any agreement to sell, any Common Stock or any securities similar to the Securities or any security convertible into or exchangeable or exercisable for any Common Stock or any such similar securities during a period commencing on the date hereto and ending 180 days from the date of the Prospectuses. (i) In the event that the Managers exercise their option provided in Section 2(b) hereof to purchase all or any portion of the U.S. Option Securities, the representations and warranties of the Company, CIHC and Conseco contained herein and the statements in any certificates furnished by the Company, CIHC and Conseco hereunder shall be true and correct as of, and as if made on, each Date of Delivery, and, at the relevant Date of Delivery, the Lead Managers shall have received: (1) A certificate, dated such Date of Delivery, of the president or a vice president of the Company, CIHC and Conseco, respectively, and the chief financial or chief accounting officer of the Company, CIHC and Conseco, respectively, confirming that the certificate delivered at the Closing Time pursuant to Section 5(c) hereof is true and correct as of, and as if made on, such Date of Delivery. (2) The favorable opinion of Lawrence W. Inlow, Secretary and General Counsel for the Company, CIHC and Conseco, in form and substance satisfactory to counsel for the Managers, dated such Date of Delivery, relating to the International Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(1) hereof. 20 (3) The favorable opinion of Vinson & Elkins L.L.P., special counsel for the Company, in form and substance satisfactory to counsel for the Managers, dated such Date of Delivery, relating to the International Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(2) hereof. (4) The favorable opinion of Sidley & Austin, counsel for the Managers, dated such Date of Delivery, relating to the International Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(3) hereof. (5) A letter from Coopers & Lybrand in form and substance satisfactory to the Managers and dated such Date of Delivery, substantially the same in form and substance as the letters furnished to the Lead Managers pursuant to Section 5(d) hereof, except that the "specified date" in the letter furnished pursuant to this Section 5(i)(5) shall be a date not more than five days prior to such Date of Delivery. If any condition specified in this Section 5 shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Lead Managers by notice to the Company, CIHC and Conseco at any time at or prior to the Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4. SECTION 6. Indemnification. (a) The Company, CIHC and Conseco, jointly and severally, agree to indemnify and hold harmless each Manager and each person, if any, who controls any Manager within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectuses or the Prospectuses (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company, CIHC or Conseco, as the case may be; and 21 (iii) against any and all expense whatsoever, as incurred (including, subject to Section 6(c) hereof, the reasonable fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investi- gating, preparing for or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that (A) the foregoing indemnity shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectuses or the Prospectuses (or any amendment or supplement thereto); and (B) the foregoing indemnity agreement with respect to any preliminary prospectuses shall not inure to the benefit of the Underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased Securities, or any person controlling any Manager, if a copy of the Prospectuses (as then amended or supplemented, if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of the Managers to such person if such is required by law at or prior to the written confirmation of the sale of such Securities to such person and if the Prospectuses (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. (b) Each Manager severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, CIHC, Conseco and each person, if any, who controls the Company, CIHC or Conseco within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectuses or the Prospectuses (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Manager through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectuses or the Prospectuses (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but the failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such action (which approval shall not be unreasonably withheld), unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for reasonable fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. An indemnifying party shall not be liable for any settlement or any action or claim effected without its consent, which consent shall not unreasonably withheld. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been 22 sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. SECTION 7. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 6 is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company, CIHC, Conseco and the Managers shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company, CIHC and Conseco and one or more of the Managers, as incurred, in such proportions that the Managers are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the International Prospectus bears to the initial public offering price appearing thereon and the Company, CIHC and Conseco are jointly and severally responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement and each person, if any, who controls the Company, CIHC or Conseco within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company, CIHC and Conseco. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement and the International Pricing Agreement, or contained in certificates of officers of the Company, CIHC or Conseco submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Manager or controlling person, or by or on behalf of the Company, CIHC and Conseco, and shall survive delivery of the Securities to the Manager. SECTION 9. Termination of Agreement. (a) The Lead Managers may terminate this Agreement and the International Pricing Agreement, by notice to the Company, CIHC and Conseco, at any time at or prior to the Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Registration Statement (except as otherwise stated or contemplated therein at the date of the International Pricing Agreement), any material adverse change or any development which will result in a prospective material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any outbreak of hostilities or other calamity or crisis, or any material worsening thereof, the effect of which on the financial markets of the United States is such as to make it, in the judgment of the Lead Managers, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in the Common Stock has been suspended by the Commission, or if trading generally on either the American Stock Exchange or the NYSE has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said Exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by Federal, New York or California authorities or (iv) if there has occurred any change or development involving a prospective change in national or international political, financial or economic controls, which in the opinion of the Lead Managers is likely to have a material adverse effect on the market for the Securities. (b) If this Agreement and the International Pricing Agreement are terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4, and provided further that Sections 6 and 7 hereof shall survive such termination. 23 SECTION 10. Default by One or More of the Managers. If one or more of the Managers shall fail at Closing Time to purchase the Initial International Securities which it or they are obligated to purchase under this Agreement and the International Pricing Agreement (the "Defaulted Securities"), the Lead Managers shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Managers, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Lead Managers shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Initial International Securities, the non-defaulting Managers shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Managers, or (b) if the number of Defaulted Securities exceeds 10% of the number of Initial International Securities, this Agreement shall terminate without liability on the part of any non-defaulting Manager. No action taken pursuant to this Section shall relieve any defaulting Manager from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Lead Managers, the Company, CIHC or Conseco shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or prospectuses or in any other documents or arrangements. The Managers shall also have the right to amend Schedule A hereto by making such substitutions or corrections as indicated in the International Pricing Agreement. SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Lead Managers shall be directed to the Lead Managers at Merrill Lynch International Limited, n:\Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY, England, attention of Christine Burgess-Allen, with a copy to Sidley & Austin, One First National Plaza, Chicago, Illinois 60603, Attention: John J. Sabl, Esq.; notices to the Company shall be directed to it at 5555 San Felipe Road, Suite 900, Houston, Texas 77056, Attention: Richard W. Scott, Esq.; notices to CIHC and Conseco shall be directed to them at Conseco, Inc., 11825 North Pennsylvania Street, Carmel, Indiana 46032, Attention: Lawrence W. Inlow, Esq. SECTION 12. Parties. This Agreement and the International Pricing Agreement shall each inure to the benefit of and be binding upon the Managers, the Company, CIHC and Conseco and their respective successors, heirs and legal representatives. Nothing expressed or mentioned in this Agreement or the International Pricing Agreement is intended or shall be construed to give any person, firm or corporation, other than the Managers, the Company, CIHC and Conseco and their respective successors, heirs and legal representatives and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or the International Pricing Agreement or any provision herein or therein contained. This Agreement and the International Pricing Agreement and all conditions and provisions hereof and thereof are intended to be for the sole and exclusive benefit of the Managers, the Company, CIHC and Conseco and their respective successors, heirs and legal representatives, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of International Securities from any Manager shall be deemed to be a successor by reason merely of such purchase. SECTION 13. Governing Law and Time. This Agreement and the International Pricing Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State. Specified times of day refer to New York City time. 24 SECTION 14. Waiver of Right to Jury Trial. Each of the Company, CIHC and Conseco (on their own behalf and, to the extent permitted by applicable law, on behalf of their respective shareholders) and the Managers waive all rights to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) related to or arising out of the engagement of the Managers pursuant to, or the performance by the Managers of the services contemplated by, this Agreement. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Managers, the Company, CIHC and Conseco in accordance with its terms. Very truly yours, WESTERN NATIONAL CORPORATION By:/s/ Michael J. Poulos -------------------------- Name: Michael J. Poulos Title: Chairman of the Board and President CONSECO, INC. By:/s/ Rollin M. Dick ---------------------- Name: Rollin M. Dick Title: Executive Vice President CONSECO INVESTMENT HOLDING COMPANY By:/s/ William T. Devanney, Jr. --------------------------- Name: William T. Devanney, Jr. Title: Vice President CONFIRMED AND ACCEPTED as of the date first above written: MERRILL LYNCH INTERNATIONAL LIMITED DEAN WITTER INTERNATIONAL LTD. GOLDMAN SACHS INTERNATIONAL LIMITED LADENBURG, THALMANN & CO. INC. For themselves and as Lead Managers of the other Managers named in Schedule A hereto. By: Merrill Lynch International Limited By: /s/ Robert S. Whitelaw ___________________________________ (Attorney-in-Fact) 25 SCHEDULE A
Number of Initial International Securities Name of Manager to be Purchased Merrill Lynch International Limited. . . . . 1,088,125 Dean Witter International Ltd. . . . . . . . 1,088,125 Goldman Sachs International Limited. . . . . 1,088,125 Ladenburg, Thalmann & Co. Inc. . . . . . . . 1,088.125 ABN AMRO Bank N.V. . . . . . . . . . . . . . 100,000 Credit Lyonnais Securities . . . . . . . . . 100,000 Dresdner Bank Aktiengesellschaft . . . . . . 100,000 Nomura International plc . . . . . . . . . . 100,000 N M Rothschild & Sons Limited. . . . . . . . 100,000 --------- Total. . . . . . . . . . . . . . . . . 4,852,500 --------- ---------
26 Exhibit A WESTERN NATIONAL CORPORATION (a Delaware corporation) 4,852,500 Shares of Common Stock (Par Value $.001 Per Share) INTERNATIONAL PRICING AGREEMENT , 1994 MERRILL LYNCH INTERNATIONAL LIMITED DEAN WITTER INTERNATIONAL LTD. GOLDMAN SACHS INTERNATIONAL LIMITED LADENBURG, THALMANN & CO. INC. as Lead Managers of the several Managers named in the within-mentioned International Purchase Agreement c/o Merrill Lynch International Limited Ropemaker Place 25 Ropemaker Street London EC2Y 9lY England Dear Sirs: Reference is made to the International Purchase Agreement, dated , 1994 (the "International Purchase Agreement"), relating to the purchase by the several Managers named in Schedule A thereto, for whom Merrill Lynch International Limited, Dean Witter International Ltd., Goldman Sachs International Limited and Ladenburg, Thalmann & Co. Inc. are acting as representatives (the "Lead Managers"), of the above shares of Common Stock (the "Initial International Securities"), of Western National Corporation (the "Company"). Pursuant to Section 2 of the International Purchase Agreement, the Company, Conseco Investment Holding Company, a Delaware corporation ("CIHC"), and Conseco, Inc., an Indiana corporation ("Conseco"), agree with each Manager as follows: 1. The initial public offering price per share for the Initial International Securities, determined as provided in said Section 2, shall be $ . 2. The purchase price per share for the Initial International Securities to be paid by the several Managers shall be $ , being an amount equal to the initial public offering price set forth above less $ per share. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Managers, the Company, CIHC and Conseco in accordance with its terms. Very truly yours, WESTERN NATIONAL CORPORATION By:________________________________ Name: Title: 27 CONSECO, INC. By: Name: Title: CONSECO INVESTMENT HOLDING COMPANY By:________________________________ Name: Title: CONFIRMED AND ACCEPTED as of the date first above written: MERRILL LYNCH INTERNATIONAL LIMITED DEAN WITTER INTERNATIONAL LTD. GOLDMAN SACHS INTERNATIONAL LIMITED LADENBURG, THALMANN & CO. INC. For themselves and as Lead Managers of the other Managers named in Schedule A to the International Purchase Agreement. By: Merrill Lynch International Limited By: ___________________________________ ___________________________________ (Attorney-in-Fact) EX-10.34 16 EXHIBIT 10-34 TO CONSECO, INC. 1993 FORM 10-K 1 SEPARATION AGREEMENT by and between CONSECO, INC. and WESTERN NATIONAL CORPORATION dated as of February 8, 1994 2 SEPARATION AGREEMENT THIS SEPARATION AGREEMENT (this "Agreement") is made and entered into as of the 8th day of February, 1994, by and between CONSECO, INC., an Indiana corporation ("Conseco"), and WESTERN NATIONAL CORPORATION, a Delaware corporation and, as of the date hereof, an indirect wholly owned subsidiary of Conseco ("WNC"). WHEREAS, WNC intends to make an initial public offering of certain newly issued shares of its common stock and Conseco intends to sell a certain number of shares of common stock of WNC through a secondary offering made as part of such initial public offering; and WHEREAS, this Agreement is made in order to provide for certain corporate transactions that will take place prior to, at or about the time of the Public Offering and certain terms of the continuing relationships among the parties; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties hereby agree as follows: 3 ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Action" shall mean any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal. "Affiliate" of a Person shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. "Business Day" shall mean any day which is not a Saturday or Sunday or a day on which banks in New York, New York are authorized or required to close. "CIHC" shall mean Conseco Investment Holding Company, a Delaware Corporation and wholly owned subsidiary of Conseco. "Closing" shall mean the closing at which the Shares sold in the Public Offering are delivered and the underwriters in the Public Offering deliver payment therefor. "Closing Date" shall mean the day on which the Closing occurs. "Code" means the Internal Revenue Code of 1986, as amended, and shall include corresponding provisions of any subsequently enacted federal tax laws. "Initial Registration Statement" shall mean the registration statement filed by WNC with the SEC in connection with the Public Offering as contemplated by Section 2.1 hereof. "Insurance Proceeds" shall mean those monies (i) received by an insured from an insurance carrier or (ii) paid by an insurance carrier on behalf of the insured, in either case net of any applicable premium adjustments, retrospectively rated premium adjustments, deductibles, retentions or costs paid by such insured. "Losses" shall mean any and all losses, liabilities, claims, damages, obligations, payments, costs and expenses, matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, known or unknown (including, without limitation, the costs and expenses of any and all Actions, threatened Actions, demands, assessments, judgments, settlements and compromises relating thereto and attorneys' fees and any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened Actions). "Offering Expenses" shall mean the costs and expenses of any registration by WNC which is made in connection with the Public Offering, including specifically the fees and expenses of counsel and accountants; all out-of-pocket costs and expenses incident to the preparation, printing and filing under the Securities Act of any registration statement and all amendments and supplements thereto; the costs of furnishing copies of preliminary prospectuses, each final prospectus and each amendment or supplement thereto to underwriters, dealers and other purchasers of Shares so registered; the costs and expenses incurred in connection with the qualification of such Shares under the "blue sky" laws of various jurisdictions; the fees and expenses of WNC's transfer agent; stock exchange listing fees; fees paid to the National Association of Securities Dealers, Inc.; and similar expenses incurred in complying with the registration provisions of this Agreement, but excluding underwriters' discounts and commissions. 4 "Person" shall mean an individual, corporation, partnership, limited liability company, association, joint venture, unincorporated organization, trust, or other entity, including, without limitation, employee pension, profit sharing or other benefit plan or trust. "Primary Offering Shares" shall mean those newly issued Shares offered for sale for the account of WNC as part of the Public Offering contemplated under Section 2.1 hereof. "Public Offering" shall mean the registered offering for sale to the public of the Primary Offering Shares and the Secondary Offering Shares as contemplated by Section 2.1 hereof. "SEC" shall mean the Securities and Exchange Commission. "Secondary Offering Shares" shall mean those Shares offered for sale for the account of Conseco or CIHC as part of the Public Offering contemplated under Section 2.1 hereof. "Securities Act" shall mean the Securities Act of 1933, as amended. "Shares" means shares of common stock, par value $.001 per share, of WNC. "Tax Laws" means the Code, federal, state, county, local, or foreign laws relating to Taxes and any regulations or official administrative pronouncements released thereunder. "Tax" means any of the Taxes. "Taxes" means all forms of taxation, whenever created or imposed, and whether of the United States or elsewhere, and whether imposed by a local, municipal, governmental, state, federation or other body, and without limiting the generality of the foregoing, shall include income, sales, use, ad valorem, gross receipts, license, value added, franchise, transfer, recording, withholding, payroll, employment, excise, occupation, premium and property taxes, together with any related interest, penalties and additions to any such tax, or additional amounts imposed by any taxing authority (domestic or foreign). "Tax Benefit" means any item of loss, deduction, credit or any other Tax Item which decreases Taxes paid or payable. "Tax Detriment" means any item of income, gain, recapture of credit or any other Tax Item which increases Taxes paid or payable. "Tax Item" means any item of income, gain, loss, deduction, credit, provisions for reserves, recapture of credit or any other item which increases or decreases Taxes paid or payable, including an adjustment under Code Section 481 resulting from a change in accounting method. "Tax Return" means any return, filing, questionnaire, information return or other document required to be filed, including requests for extensions of time, filings made with estimated tax payments, claims for refund and amended returns that may be filed, for any period with any taxing authority (whether domestic or foreign) in connection with any Tax or Taxes (whether or not a payment is required to be made with respect to such filing). "WNL" means Western National Life Insurance Company, a Texas stock insurance corporation and, as of the date hereof, an indirect wholly owned subsidiary of Conseco. 5 ARTICLE II SECTION 2.1 Primary and Secondary Offering. (a) WNC has filed a registration statement on Form S-1 to register under the Securities Act for sale or distribution to the public (i) 2,000,000 newly issued Shares for the account of WNC, (ii) Shares held by Conseco or any of its subsidiaries in such number as shall be determined by Conseco and (iii) such number of Shares as shall be necessary for an over-allotment option (the "Over-allotment Option") from WNC and Conseco, pro rata, to the underwriters of 15% of the aggregate number of Primary Offering Shares and Secondary Offering Shares. WNC shall also include in such registration statement 150,000 Shares to be sold by CIHC to Michael J. Poulos. WNC shall file such amendment or amendments to the Initial Registration Statement as shall be necessary to cause it to become effective. (b) Prior to the time at which the Initial Registration Statement is declared effective, WNC and Conseco shall take all necessary corporate action to have WNC authorize for issuance such number of Shares as shall be necessary for purposes of the Public Offering. SECTION 2.2 Terms of Offering. The number of Primary Offering Shares and Secondary Offering Shares and the price for such Shares shall be determined by Conseco, subject to Section 2.1(a). Notwithstanding anything to the contrary contained herein, Primary Offering Shares will have priority over Secondary Offering Shares in determining the number of Shares to be sold in the Public Offering. SECTION 2.3 Expenses. All Offering Expenses incurred in connection with the Public Offering shall be borne by WNC. SECTION 2.4 Approvals. The consummation of the Public Offering and the other transactions and agreements contained herein are subject to the prior receipt by the parties of each requisite corporate and governmental or regulatory approval or authorization. Conseco and WNC expressly agree to use reasonable efforts and to cooperate to obtain any and all such approvals and authorizations. SECTION 2.5 Indemnification for Initial Registration. (a) WNC hereby agrees to indemnify and hold harmless Conseco and the officers (regardless of whether they serve in such capacity at the time of the Public Offering or the Closing), directors (including without limitation each person who (x) is named in the Initial Registration Statement (or any amendment or supplement thereto) as someone who is selected to be a director of WNC effective immediately after the Closing or (y) becomes a director of WNC effective immediately after the Closing), employees, Affiliates and agents of Conseco and WNC, against any Losses to which any of such Persons may be subject, under the Securities Act or otherwise, arising out of the sale of Shares and (subject to the further provisions of this Section 2.5 and of Section 2.6) to reimburse any of such Persons for any legal or other expenses reasonably incurred in connection with investigating or defending against any such Losses, insofar as such Losses arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Initial Registration Statement, any prospectus (including a preliminary prospectus) contained therein, or any amendment or supplement to the Initial Registration Statement or any such prospectus, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, which gives rise to an actual or threatened claim, action or proceeding on the part of a Person other than one who is or may be an indemnified party under this Section 2.5(a) or (ii) an actual or alleged breach of the terms of the underwriting agreement for the Public Offering (the "Underwriting Agreement") which gives rise to an actual or threatened claim, action or proceeding on the part of an underwriter thereunder or a claim by an underwriter for 6 indemnification thereunder. The indemnity provided in this Section 2.5(a) shall survive and remain in full force and effect regardless of any investigation made by or on behalf of any such indemnified party. (b) Conseco hereby agrees to indemnify and hold harmless the directors, officers, employees, Affiliates and agents of WNC, against any Losses covered by the Company's indemnification in Section 2.5(a) above, and to reimburse any of such Persons for any legal or other expenses reasonably incurred in connection with investigating or defending against any such Losses, but only to the extent that the indemnification of any such Persons by the Company pursuant to Section 2.5(a) above is finally determined by a court of competent jurisdiction to be unenforceable and indemnification by Conseco is similarly determined to be enforceable. The indemnity provided for in this Section 2.5(b) shall survive and remain in full force and effect regardless of any investigation made by or on behalf of any such indemnified party. SECTION 2.6 Indemnification Procedure. Promptly after receipt by a Person of notice of the commencement of any action or proceeding in respect of which indemnity may be sought by such Person pursuant to Section 2.5, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under Section 2.5, notify the indemnifying party of the commencement thereof, but the omission so to notify the indemnified party will not relieve it from any liability which it may have to any indemnified party under Section 2.5 or otherwise, except to the extent the indemnifying party is prejudiced by such omission. In case any such action or proceeding is brought against any indemnified party and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, to assume the defense thereof, and if it assumes such defense it shall retain counsel reasonably satisfactory to such indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless in the reasonable judgment of the indemnified party separate and conflicting defenses are available to such party, in which event the indemnified party may select one firm of separate counsel reasonably satisfactory to the indemnifying party for purposes of defending such action, whose fees and expenses shall be borne by the indemnifying party; provided, however, that the indemnifying party shall not be responsible for the fees and expenses of more than one counsel for all such indemnified parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not (except as otherwise provided herein) be liable to such indemnified party under this Section 2.6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. If the indemnifying party elects not to assume the defense of a claim or action, it will not be obligated to pay the fees and expenses of more than one counsel for the indemnified parties with respect to such claim or action. No indemnifying party shall consent to entry of any judgment or enter into any settlement without the consent of an indemnified party which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such action or proceeding. No indemnifying party shall be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. 7 SECTION 2.7 Contribution. If the indemnity and reimbursement obligation provided for in Section 2.5 is unavailable or insufficient to hold harmless any indemnified party in respect of any losses, claims, liabilities or damages covered thereby then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with statements or alleged statements or omissions or alleged omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2.7 were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this Section 2.7. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this Section 2.7 shall be deemed to include, subject to the limitations set forth in Section 2.5 and 2.6, any legal and other expenses reasonably incurred by such indemnified party in connection with investigating or defending any loss, claim, liability or damage which is the subject of this Section 2.7. No indemnified party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from an indemnifying party if such indemnifying party was not guilty of fraudulent misrepresentation. SECTION 2.8 Indemnification Payments. Any payment required to be made pursuant to Section 2.5 or 2.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or losses, damages or liabilities are incurred. ARTICLE III CORPORATE TRANSACTIONS SECTION 3.1 Transfer of WNL Stock. Prior to the Closing, (a) Conseco shall cause CIHC, the sole stockholder of WNL, to transfer the outstanding shares of common stock of WNL to WNL Holding Corp., a wholly owned subsidiary of CIHC, (b) Conseco shall cause CIHC to contribute the outstanding stock of WNL Holding Corp. to WNC, and (c) in consideration for the contribution by CIHC of the stock of WNL Holding Corp., WNC shall issue to CIHC 59,999,900 Shares and a $150,000,000 principal amount 6.75% promissory note due March 31, 1996. SECTION 3.2 Issuance of WNC Common Stock to Public. On the Closing Date, WNC shall issue to the underwriters of the Public Offering such number of Shares as shall be sufficient to provide for the Primary Offering Shares. Such delivery shall be in exchange for the proceeds due to WNC from the sale of the Primary Offering Shares. SECTION 3.3 Delivery by Conseco in Public Offering. On the Closing Date, Conseco shall cause CIHC to deliver to the underwriters of the Public Offering such number of Shares as shall be sufficient to provide for the Secondary Offering Shares. Such delivery shall be in exchange for the proceeds due to CIHC from the sale of the Secondary Offering Shares. 8 SECTION 3.4 Sale of WNC Common Stock to Poulos. In connection with the Closing, Conseco shall cause CIHC to deliver to Michael J. Poulos ("Poulos") such number of Shares as shall be determined in accordance with the terms of his Employment Agreement and the stock purchase agreement to be entered into between CIHC and Poulos (the "Stock Purchase Agreement"). Such delivery shall be in exchange for the proceeds due to CIHC from the sale of such Shares pursuant to the terms of the Employment Agreement and the Stock Purchase Agreement. ARTICLE IV FILING OF TAX RETURNS SECTION 4.1 Manner of Filing. All Tax Returns filed after the Closing Date shall be prepared on a basis consistent with the consummation of the transactions as set forth in this Agreement and shall be filed on a timely basis (including extensions) by the party responsible for such filing under this Agreement. In the absence of a controlling change in law or circumstances, all Tax Returns filed after the date of this Agreement with respect to taxable periods beginning before the Closing Date shall be prepared on a basis consistent with the elections, accounting methods, conventions, and principles of taxation used for the most recent taxable periods for which Tax Returns involving similar Tax Items have been filed, to the extent that a failure to do so would result in a Tax Detriment to the other party hereto. Subject to the provisions of this Agreement, all decisions relating to the preparation of Tax Returns shall be made in the sole discretion of the party responsible under this Agreement for such preparation. SECTION 4.2 Pre-Public Offering Tax Returns. (a) Consolidated Returns. The Conseco consolidated federal income Tax Returns required to be filed for all periods beginning before the Closing Date shall be prepared and filed by Conseco. Conseco agrees to cooperate in good faith with WNC to determine the appropriate amount of Tax Items attributable to WNC and WNL to be reflected on the Conseco consolidated federal income Tax Returns. (b) Other Tax Returns. All other Tax Returns not described elsewhere in this Section 4.2 that are required to be filed for periods beginning on or before the Closing Date shall be prepared and filed by Conseco, in the case of Tax Returns that relate to Conseco and its Affiliates other than WNC and WNL (the "Conseco Group"), and WNC, in the case of Tax Returns that relate to WNC, WNL Holding Corp. and WNL (the "WNC Group"). SECTION 4.3 Post-Public Offering Tax Returns. All Tax Returns for periods beginning after the Closing Date shall be prepared and filed by Conseco if the Tax Returns relate solely to the Conseco Group, and shall be prepared and filed by WNC if the Tax Returns relate solely to the WNC Group. SECTION 4.4 Interim Annual Statement. Interim annual statements substantially in accordance with the requirements of the National Association of Insurance Commissioners shall be prepared by WNC within a reasonable period after the Closing Date for the portion of the calendar year ending on the Public Offering Date, to the extent necessary for Conseco to prepare and file its consolidated federal income tax return. WNC and Conseco agree to cooperate in good faith to determine the appropriate items to be reflected on the annual statement. ARTICLE V PAYMENT OF TAXES SECTION 5.1 Allocation of Tax Liabilities With Respect to Unfiled Returns. 9 (a) Consolidated Federal Income Tax Liabilities. Except as otherwise provided in this Section 5.1(a), Conseco shall pay or cause to be paid, on a timely basis, all Taxes due with respect to the consolidated federal income tax liability for the taxable year ending December 31, 1993 and the taxable year that includes the Closing Date of the affiliated group of which Conseco is the common parent. WNC on behalf of the WNC Group hereby assumes and agrees to pay or cause to be paid the WNC Group's share of the 1993 consolidated federal income tax liability for the taxable year ending December 31, 1993 and the period commencing on January 1, 1994 and ending on the Closing Date (the "Short Period"), which payments shall be made directly to Conseco, in accordance with the Consolidated Federal Income Tax Agreement dated February 21, 1989 by and among Conseco and the parties thereto, as amended (the "Prior Agreement"), as if WNC were a party thereto; provided, however, that if WNC generates a loss for federal income tax purposes for the Short Period, Conseco shall pay WNC an amount equal to 35% of such loss to the extent such loss is actually used by the Conseco Group and is not available for carryforward by WNC to a future year. The WNC Group's allocable share of the consolidated federal income tax liability for the twelve months ending December 31, 1993 and the Short Period shall be determined in accordance with the Prior Agreement, as if WNC were a party thereto. The calculation of the WNC's allocable share of Taxes pursuant to this Section 5.1(a) shall be made by Conseco on a basis consistent with the Prior Agreement. (b) Combined Corporate Franchise and Income Taxes. Except as otherwise provided in this Section 5.1(b), Conseco shall pay or cause to be paid, on a timely basis, all Taxes due with respect to the Illinois and Florida consolidated income tax liability or other liability for corporate franchise and income taxes pursuant to a combined return for the taxable years ended December 31, 1993 and the taxable year that includes the Closing Date ("Combined Taxes"). WNC hereby assumes and agrees to pay or cause to be paid the WNC Group's share of Combined Taxes for the taxable year ending December 31, 1993 and the Short Period, which payment shall be made by WNC to Conseco or such other Person as Conseco shall designate. The WNC Group's share of the Combined Taxes shall be determined by Conseco on the same basis as Federal income tax liabilities are determined under the Prior Agreement; provided, however, that appropriate adjustments shall be made to take into account the differences between the calculation of liability on a federal consolidated income tax return and a combined tax return; and provided, further that Conseco shall only pay WNC for any Tax Benefit generated by the WNC Group if such Tax Benefit both results in an actual reduction of Taxes for the Conseco Group, and if not utilized by the Conseco Group, would have resulted in a reduction of Taxes for the WNC Group. The calculation of the WNC Group's allocable share of Taxes pursuant to this Section 5.1(b) shall be made by Conseco on a basis consistent with prior years. (c) All other Taxes not covered by Section 5.1(a) or (b) for a taxable year beginning before the Closing Date shall be paid by the party responsible under this Agreement for filing the Tax Return pursuant to which such Taxes are due. (d) Any payments required to be made pursuant to Section 5.1 (b) or (c) shall be made within 30 days of receiving written notice from the other party stating the amount required to be paid. 10 SECTION 5.2 (a) Change in Filed Returns. Subject to subsection (b) hereof, if a Final Determination has been made regarding a Tax Return with respect to any taxable period beginning before the Closing Date (a "Pre-Offering Return"), and as a result thereof any Tax Benefit or Tax Detriment is changed (a "Change"), then: (i) Subject of subsection (b), if in connection with any such Change, the amount of the Tax Detriments generated by or attributable to WNL with respect to such return ("WNL Tax Detriments") exceeds the amount of Tax Benefits generated by or attributable to WNL with respect to such return ("WNL Tax Benefits"), WNC hereby assumes and agrees to pay or cause to be paid to Conseco, an amount equal to the sum of (A) the product of (x) the amount by which WNL Tax Detriments exceed WNL Tax Benefits and (y) the actual marginal tax rate applicable with respect to the relevant Tax Return, with appropriate adjustment to account for Tax credits included in such calculation, and (B) any applicable interest or penalties, if any, which is or has been imposed by any taxing authority with respect to such WNL Tax Detriments or any interest which would have been imposed but for an offsetting Tax Benefit solely attributable to the Conseco Group. In no event shall the amount payable by WNC pursuant to Section 5.2(a)(i)(A) exceed the amount that would be payable by including any such Change in computing amounts payable under the Prior Agreement plus applicable interest and penalties. (ii) Subject to subsection (b), if in connection with any such Change, the WNL Tax Benefits exceed the WNL Tax Detriments, Conseco shall pay or cause to be paid to WNC the sum of (A) the product of (x) the amount by which WNL Tax Benefits exceed WNL Tax Detriments and (y) the actual marginal Tax rate applicable with respect to the relevant Tax Return, with appropriate adjustment to account for Tax credits included in such calculation, and (B) any applicable interest that is or has been paid by the applicable taxing authority or that would have been payable but for any offsetting Tax Detriment solely attributable to the Conseco Group. In no event shall the amount payable by Conseco pursuant to this section 5.2(a)(ii)(A) exceed the greater of (x) the amount received from the applicable tax authority attributable to the excess of WNL Tax Benefits over WNL Tax Detriments, or (y) the amount that would be payable by Conseco by including any such Change in computing amounts payable under the Prior Agreement plus interest. (iii) All calculations and determinations required to be made pursuant to this section 5.2 shall be made by Conseco on a basis consistent with prior years. (c) Manner of Payment. Any payment required to be made pursuant to this Section 5.2 with respect to any Tax Return shall be made by the party obligated to make such payment within 15 days of receiving written notice from the other party, which notice shall state the amount required to be paid and explain and provide written documentation for the Change that resulted in the payment obligation. Interest will begin to accrue on all amounts at the federal rate for deficiencies 30 days after receipt of the notice. SECTION 5.3 Liability for Taxes with respect to Post-Public Offering Periods. Unless otherwise provided in this Agreement, the Conseco Group shall pay all Taxes and shall be entitled to receive and retain all refunds of Taxes with respect to periods beginning after the Closing Date that are attributable to the businesses of members of the Conseco Group. Unless otherwise provided in this Agreement, the WNC Group shall pay all Taxes and shall be entitled to receive and retain all refunds of Taxes with respect to periods beginning after the Closing Date that are attributable to WNC and WNL. 11 SECTION 5.4 Carrybacks. In the event any member of the WNC Group carries back any Tax Item arising after the Closing Date to a taxable period ending on or before the Closing Date (a "Prior Period") with respect to a Tax Return which includes a member of the Conseco Group, in determining whether WNC shall be entitled to the benefit of the Tax Item, the Tax Item shall be deemed to be the last Tax Item utilized in determining the amount of Taxes due or refunds payable with respect to the Prior Period. In the event that carryback of Tax Item by a member of the WNC Group to a Prior Period increases the Taxes payable or decreases the refunds due to a member of the Conseco Group in another taxable period, WNC shall pay or cause to be paid to Conseco the lesser of (x) the amount of such increase in Taxes or decrease in refunds, and (y) the Tax Benefit realized by the WNC Group as a result of such carryback. ARTICLE VI INTERCOMPANY AGREEMENTS AND OTHER MATTERS SECTION 6.1 Loan Servicing and Origination Agreement. WNC agrees that it will cause WNL not to terminate that certain Loan Servicing and Origination Agreement dated as of January 1, 1989 between WNL and Conseco Capital Management, Inc. (CCM"), as assigned by CCM to Conseco Mortgage Capital, Inc., for a period of 10 years after the Closing Date. SECTION 6.2 Structured Settlements. On or before the Closing Date, Conseco and WNC shall enter into an agreement in the form attached hereto as Exhibit "A". ARTICLE VII INSURANCE AND EMPLOYEE MATTERS SECTION 7.1 Insurance Coverage. All insurance coverage provided by Conseco to WNC and WNL insuring the properties, employees, assets and operations of WNC and WNL (including coverage for professional liability, auto and general liability, workers' compensation, property, fidelity bonds, surety bonds and fiduciary liabilities) shall continue in full force and effect through the Closing Date and WNC or WNL shall pay or cause to be paid to Conseco the premiums for such coverage in accordance with the past practices established by Conseco. WNC shall be responsible for obtaining insurance coverage for itself and WNL, at its expense, from and after the Closing Date. If requested by WNL, Conseco, through its subsidiary, Conseco Risk Management, Inc. ("CRM"), will offer reasonable assistance to WNL in obtaining such insurance coverage, provided that Conseco shall have no responsibility for the placement of, or failure to place, such insurance. The parties acknowledge and agree that from and after the Closing Date Conseco shall have no responsibility whatsoever for the provision of insurance coverage to or for WNC or WNL, except as they may otherwise agree in writing. SECTION 7.2 Employee Matters. For all periods after December 31, 1993, WNC shall pay or cause to be paid all costs of any kind or nature associated with the employees working at the WNC or WNL offices located in Houston, Texas and Amarillo, Texas. ARTICLE VIII INDEMNIFICATION SECTION 8.1 Indemnification by Conseco. Except with respect to those matters governed by Articles II, IV, V or VII of this Agreement, Conseco shall indemnify, defend and hold harmless WNC, each Affiliate of WNC and each of their respective directors, officers and employees and each of the heirs, executors, successors and assigns of any of the foregoing (the "WNC Indemnitees") from and against any and all Losses of the WNC Indemnitees arising out of the businesses currently conducted or to be conducted by Conseco or any Conseco subsidiary, whether such Losses relate to events occurring, or whether such losses are asserted, before, on or after the Closing Date, excluding the businesses conducted (formerly or currently) or to be conducted by WNC, WNL and any previously owned division, subsidiary or Affiliate of WNL. 12 SECTION 8.2 Indemnification by WNC. Except with respect to those matters governed by Articles II, IV, V or VII of this Agreement, WNC shall indemnify, defend and hold harmless Conseco, each Affiliate of Conseco and each of their respective directors, officers and employees and each of the heirs, executors, successors and assigns of any of the foregoing (the "Conseco Indemnitees") from and against any and all Losses of the Conseco Indemnitees arising out of (i) any guarantees or obligations to third parties of Conseco or any Conseco Affiliate with respect to any obligations of WNC or any WNC Affiliate to third parties; or (ii) the businesses conducted (formerly or currently) or to be conducted by WNC, WNL and any previously owned division, subsidiary or Affiliate of WNL, whether such Losses relate to events occurring, or whether such Losses are asserted, before, on or after the Closing Date, except to the extent that Conseco or a Conseco Subsidiary has assumed liability for losses under this Agreement or any agreement referred to herein. SECTION 8.3 Limitations on Indemnification Obligations. The amount which any party (an "Indemnifying Party") is or may be required to pay to any other party (an "Indemnitee") pursuant to Section 8.1 or Section 8.2 shall be reduced (including, without limitation, retroactively) by any Insurance Proceeds or other amounts actually recovered by or on behalf of such Indemnitee, in reduction of the related Loss. If an Indemnitee shall have received the payment required by this Agreement from an Indemnifying Party in respect of any Loss and shall subsequently actually receive Insurance Proceeds or other amounts in respect of such Loss, then such indemnitee shall pay to such Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other amounts actually received (up to but not in excess of the amount of any indemnity payment made hereunder). An insurer who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto, or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or any other third party shall be entitled to a "windfall" (i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof. SECTION 8.4 Procedures for Indemnification of Third Party Claims. The procedures for indemnification of Third Party Claims shall be as follows: (a) If an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including, without limitation, any governmental entity) who is not a party to this Agreement, of any claim or of the commencement by any such Person of any Action (a "Third Party Claim") with respect to which an Indemnifying Party may be obligated to provide indemnification pursuant to Section 8.1 or 8.2 of this Agreement, such Indemnitee shall give such Indemnifying Party written notice thereof promptly after becoming aware of such Third Party Claim; provided, however, that the failure of any Indemnitee to give notice as provided in this Section 8.4(a) shall not relieve the related Indemnifying Party of its obligations under this Article VIII, except to the extent that such Indemnifying Party is prejudiced by such failure to give notice. Such notice shall describe the Third Party Claim in reasonable detail and, if ascertainable, shall indicate the amount (estimated if necessary) of the Loss that has been or may be sustained by such Indemnitee. (b) An Indemnifying Party may elect to defend or to seek to settle or compromise, at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any Third Party Claim. Within 30 days of the receipt of notice from an Indemnitee in accordance with Section 8.4(a) (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnitee of its election whether the Indemnifying Party will assume responsibility for defending such Third Party Claim, which election shall specify any reservations or exceptions. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third Party Claim, such Indemnifying 13 Party shall not be liable to such Indemnitee under this Article VIII for any legal or other expenses (except expenses approved in advance by the Indemnifying Party) subsequently incurred by such Indemnitee in connection with the defense thereof; provided, however, that if the defendants in any such claim include both the Indemnifying Party and one or more Indemnitees and in any Indemnitee's reasonable judgment a conflict of interest between one or more of such Indemnitees and such Indemnifying Party exists in respect of such claim or if the Indemnifying Party shall have assumed responsibility for such claim with any reservations or exceptions, such Indemnitees shall have the right to employ separate counsel to represent such Indemnitees and in that event the reasonable fees and expenses of such separate counsel (but not more than one separate counsel reasonably satisfactory to the Indemnifying Party) shall be paid by such Indemnifying Party. If an Indemnifying Party elects not to assume responsibility for defending a Third Party Claim, or fails to notify an Indemnitee of its election as provided in this Section 8.4(b), such Indemnitee may defend or (subject to the remainder of this Section 8.4(b) and Section 8.4(d)) seek to compromise or settle such Third Party Claim at the expense of the Indemnifying Party. Neither an Indemnifying Party nor an Indemnitee shall consent to entry of any judgment or enter into any settlement of any Third Party Claim which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnitee, in the case of a consent or settlement by an Indemnifying Party, or the Indemnifying Party, in the case of a consent or settlement by the Indemnitee, of a written release from all liability in respect to such Third Party Claim. (c) If an Indemnifying Party chooses to defend or to seek compromise or settle any Third Party Claim, the related Indemnitee shall make available to such Indemnifying Party any personnel or any bonds, records or other documents within its control or which it otherwise has the ability to make available that are necessary or appropriate for such defense, settlement of compromise, and shall otherwise cooperate in the defense, settlement or compromise of such Third Party Claim. (d) Notwithstanding anything in this Section 8.4 to the contrary, neither an Indemnifying Party nor an Indemnitee may settle or compromise any claim over the objection of the other; provided, however, that consent to settlement or compromise shall not be unreasonably withheld. If an Indemnifying Party notifies the related Indemnitee in writing of such Indemnifying Party's desire to settle or compromise a Third Party Claim on the basis set forth in such notice (provided that such settlement or compromise includes as an unconditional term thereof the giving by the claimant or plaintiff or a written release of the Indemnitee from all liability in respect thereof) and the Indemnitee shall notify the Indemnifying Party in writing that such Indemnitee declines to accept any such settlement or compromise, such Indemnitee may continue to contest such Third Party Claim, free of any participation by such Indemnifying Party, at such Indemnitee's sole expense. In such event, the obligation of such Indemnifying Party to such Indemnitee with respect to such Third Party Claim shall be equal to (i) the costs and expenses of such Indemnitee prior to the date such Indemnifying Party notifies such Indemnitee of the offer to settle or compromise (to the extent such costs and expenses are otherwise indemnifiable hereunder) plus (ii) the lesser of (A) the amount of any offer of settlement or compromise which such Indemnitee declined to accept and (B) the actual out-of-pocket amount such Indemnitee is obligated to pay subsequent to such date as a result of such Indemnitee's continuing to pursue such Third Party Claim. (e) In the event of payment by an Indemnifying Party to any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other Person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim. 14 SECTION 8.5 Other Procedures for Indemnification. (a) Any claim on account of a Loss which does not result from a Third Party Claim shall be asserted by written notice given by the Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have a period of 30 days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30 day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 30 day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such party under this Agreement or under applicable law. (b) In addition to any adjustments required pursuant to Section 8.3, if the amount of any Loss shall, at any time subsequent to the payment required by this Agreement, be reduced by recovery, settlement or otherwise, the amount of such reduction, less any expenses incurred in connection therewith, shall promptly be repaid by the Indemnitee to the Indemnifying Party. SECTION 8.6 Remedies Cumulative. The remedies provided in this Article VIII shall be cumulative and shall not preclude assertion by an Indemnitee of any other rights or the seeking of any an all other remedies against any Indemnifying Party. SECTION 8.7 Survival of Indemnities. The obligations of each of the parties under this Article VIII shall survive the sale or other transfer by it of any assets or businesses or the assignment by it of any liabilities with respect to any Loss of the other related to such assets, businesses or liabilities. ARTICLE IX MISCELLANEOUS SECTION 9.1 Complete Agreement; Construction. This Agreement and other agreements and documents referred to herein or therein, shall constitute the entire agreement among the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. SECTION 9.2 Survival. All representations, covenants and agreements contained or provided for herein shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the party benefiting from any such covenant or agreement, and shall survive the execution of this Agreement and the Closing. SECTION 9.3 Governing Law. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Indiana. SECTION 9.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand, or when sent by telex or telecopier (with receipt confirmed), provided a copy is also sent by certified mail, postage prepaid and return receipt requested, addressed as follows (or to such other address as a part may designate by notice to the others) and shall be deemed given on the date on which such notice is received: If to Conseco: Conseco, Inc. 11825 N. Pennsylvania St. Carmel, Indiana 46032 Attention: General Counsel Telecopier No.: (317) 573-6327 15 If to WNC: Western National Corporation 5555 San Felipe Road Suite 900 Houston, Texas 77056 Attn: General Counsel Telecopier No.: (713) 888-7894 SECTION 9.5 Amendment and Modification. The parties may by written agreement (a) extend the time for the performance of any of the obligations or other acts of the parties hereto, (b) waive any inaccuracies in the documents delivered pursuant to this Agreement, and (c) waive compliance with or modify, amend or supplement any of the agreements contained in this Agreement or waive or modify performance of any of the obligations of any of the parties hereto. This Agreement may not be amended or modified except by an instrument in writing duly signed on behalf of the parties hereto. SECTION 9.6 Successors and Assigns. This Agreement shall be binding upon the inure to the benefit of the parties hereto and their respective successors and assigns, but shall not be assignable by either party hereto without the prior written consent of the other party. SECTION 9.7 No Third Party Beneficiaries. Except as provided herein with respect to certain indemnifications, this Agreement is solely for the benefit of the parties hereto and their respective Affiliates and shall not be deemed to confer upon third parties any remedy, claim, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. SECTION 9.8 Headings. The Article and Section headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. SECTION 9.9 Enforcement; Remedies. In the event of any breach by any party of any material term, condition or covenant hereof which breach shall be continuing, any other party shall be entitled to proceed to protect and enforce its rights by a suit in equity (including a right to injunctive relief) or an action at law. No right, power or remedy of the party entitled to remedies hereunder shall be exclusive and each such right, power or remedy shall be cumulative and in addition to all other rights, powers and remedies conferred upon such party hereunder or by any security issued by the other party, now or hereafter available at law or in equity or by statute or otherwise. SECTION 9.10 Severability. To the extent any provision of this Agreement shall be invalid of unenforceable, it shall be considered deleted herefrom and the remaining provisions of this Agreement shall be unaffected and shall continue in full force and effect. SECTION 9.11 Waiver. No failure by any party to take any action or assert any right hereunder shall be deemed to be a waiver of such right in the event of the continuation or repetition of the circumstances giving rise to such right, unless expressly waived in writing as contemplated by the terms of Section 9.5 hereof. SECTION 9.12 Termination. Notwithstanding any provision hereof, this Agreement may be terminated and the Public Offering abandoned at any time prior to the effective date of the Registration Statement relating to the Public Offering. Any termination of the Public Offering shall result in the termination of this Agreement. In the event of such termination, no party hereto shall have any liability to any Person by reason of this Agreement. 16 SECTION 9.13 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. CONSECO, INC. By:/s/ ROLLIN M. DICK Printed: Rollin M. Dick Title: Executive Vice President "Conseco" WESTERN NATIONAL CORPORATION By:/s/ MICHAEL J. POULOS Printed: Michael J. Poulos Title: President "WNC" 17 EXHIBIT A AGREEMENT FOR ASSIGNMENT AND ASSUMPTION OF STRUCTURED SETTLEMENT OBLIGATIONS This Agreement for Assignment and Assumption of Structured Settlement Obligations is made this ___ day of February, 1994, by and among CONSECO, INC., an Indiana corporation ("Conseco"), WESTERN NATIONAL CORPORATION, a Delaware corporation ("WNC"), and WESTERN NATIONAL LIFE INSURANCE COMPANY, a Texas stock life insurance corporation ("Western"). WHEREAS, Conseco and WNC have entered into a Separation Agreement dated of even date herewith which provides, in part, for a public offering of common stock of WNC and for the transfer to WNC of all of the issued and outstanding capital stock of Western; and WHEREAS, there are presently in effect a number of agreements which are entitled "Assignment and Assumption of Obligation to Make Periodic Payments" or words of similar import ("Assignments"), pursuant to which, in connection with the settlement of personal injury claims against unrelated third parties, (a) Conseco Annuity Guarantee Company, a wholly-owned subsidiary of Conseco ("CAGC"), has assumed obligations to make periodic payments in respect of settlement and release agreements ("Settlement Obligations") and has purchased and holds single premium annuity policies issued by Western ("Western Annuities") to satisfy CAGC's payment obligations under certain such Assignments (the "Western Assignments"); and (b) Western has assumed Settlement Obligations and has purchased and holds single premium annuity policies issued by National Fidelity Life Insurance Company, an indirect wholly-owned subsidiary of Conseco ("NFLIC"), (the "NFLIC Annuities") to satisfy Western's payment obligations under certain other such Assignments (the "NFLIC Assignments"); and WHEREAS, there are also in effect a number of agreements entitled "Guarantee Agreement" or words of similar import ("Guarantees") pursuant to which (a) Conseco has guaranteed the payment of certain other Western Annuities issued in structured settlement transactions and held by third parties unrelated to Conseco ("Conseco Guarantees") and (b) Western has guaranteed the payment of certain other NFLIC Annuities issued in structured settlement transactions and held by third parties unrelated to Western ("Western Guarantees"); and WHEREAS, in connection with the public offering of WNC common stock, Conseco desires to sever its connection with the structured settlement annuity business of Western by transferring ownership of CAGC to WNC and by obtaining indemnification from WNC for all liability under the Conseco Guarantees, and WNC desires for Western to sever its connection with the structured settlement annuity business of NFLIC by assigning to Conseco all of its future obligations under the NFLIC Assignments and by obtaining indemnification from Conseco for all liability under the Western Guarantees; NOW THEREFORE, in consideration of the premises and the mutual covenants and provisions contained herein, the parties hereby agree as follows: 1. Western hereby assigns to Conseco all of its right, title and interest in, to and under the NFLIC Assignments and the NFLIC Annuities. Conseco hereby accepts the assignment of the NFLIC Assignments and the NFLIC Annuities and agrees to perform all of the obligations of Western under the Assignments effective with the date of this Agreement. Conseco further agrees to promptly indemnify and hold harmless WNC and Western, and their successors and assigns, for and against (i) the full amount of any payments and related expenses, net of amounts for which WNC or Western shall be reimbursed by NFLIC, which they shall make or incur or be called upon to make or incur on or subsequent to the date hereof pursuant to any of the NFLIC Assignments and (ii) any payments which NFLIC or its successors shall fail to make under the NFLIC Annuities. 18 The indemnity obligations of Conseco under this paragraph shall remain in full force and effect notwithstanding the performance or nonperformance by NFLIC or any of its successors under the NFLIC Annuities, or any waiver by or delay of WNC or Western in seeking indemnification hereunder. 2. Western hereby assigns to Conseco all of its obligations under the Western Guarantees and Conseco hereby accepts such obligations and agrees to perform such Guarantees in the same manner and to the same extent as if Conseco had been named as the guarantor in place of Western in the Western Guarantees. Conseco hereby assigns to WNC all of its obligations under the Conseco Guarantees and WNC hereby accepts such obligations and agrees to perform the Conseco Guarantees in the same manner and to the same extent as if WNC had been named as the guarantor in place of Conseco in the Conseco Guarantees. 3. Conseco agrees to transfer and convey to WNC, without recourse and free and clear of all liens and encumbrances, all of its right, title and interest in and to CAGC by delivering to WNC all certificates, duly endorsed for transfer, representing issued and outstanding shares of capital stock of CAGC. 4. WNC shall cause Western to deliver to Conseco at its offices in Carmel, Indiana, the original executed copies of the Western Assignments and the Western Guarantees, together with the books and records pertaining thereto and to Western's performance of its obligations thereunder prior to the date hereof. Conseco shall deliver to WNC at its offices in Houston, Texas, the original executed copies of the Conseco Guarantees, together with the books and records pertaining thereto and to Conseco's performance of its obligations thereunder prior to the date hereof. The parties hereto further agree to execute and deliver such further documentation, including specific instruments of assignment, as may be reasonably necessary to effectuate the transactions provided for in this Agreement. IN WITNESS WHEREOF, this Agreement has been entered into on the date first set forth above. CONSECO, INC. By: ----------------------------------------- WESTERN NATIONAL CORPORATION By: ----------------------------------------- WESTERN NATIONAL LIFE INSURANCE COMPANY By: ----------------------------------------- EX-11.1 17 EXHIBIT 11.1 TO CONSECO, INC. 1993 FORM 10-K 1 CONSECO, INC. AND SUBSIDIARIES Exhibit 11.1 COMPUTATION OF EARNINGS PER SHARE - PRIMARY
Years ended December 31, ------------------------------------------ 1993 1992 1991 ---- ---- ---- Shares outstanding, beginning of year 24,911,148 24,676,658 20,586,196 Weighted average shares issued (acquired) during the year: Shares issued in public offering - - 357,306 Shares issued under employee stock plans 1,666 15,127 17,258 Treasury stock acquired (226,116) (1,043,909) (982,542) Exercise of stock options 512,072 1,399,224 151,514 Preferred stock conversions 161 - - Common equivalent shares related to: Stock options at average market price 3,680,380 4,167,851 4,641,806 Employee stock plans 365,538 263,649 146,168 ------------ ------------ ------------ Weighted average primary shares outstanding 29,244,849 29,478,600 24,917,706 ------------ ------------ ------------ ------------ ------------ ------------ Net income for primary earnings per share: Net income as reported $297,016,000 $169,461,000 $116,016,000 Elimination of income as if warrants to purchase common stock of an affiliate and certain subsidiaries of the Partnership were exercised - (3,962,000) (7,032,000) ------------ ------------ ------------ Adjusted net income 297,016,000 165,499,000 108,984,000 Less preferred stock dividends (20,567,000) (5,500,000) (6,830,000) ------------ ------------ ------------ Net income for primary earnings per share $276,449,000 $159,999,000 $102,154,000 ------------ ------------ ------------ ------------ ------------ ------------ Net income per primary common share $9.45 $5.43 $4.10 ----- ----- ----- ----- ----- -----
EX-11.2 18 EXHIBIT 11.2 TO CONSECO, INC. 1993 FORM 10-K 1 CONSECO, INC. AND SUBSIDIARIES Exhibit 11.2 COMPUTATION OF EARNINGS PER SHARE - FULLY DILUTED
Years ended December 31, ---------------------------------------- 1993 1992 1991 ---- ---- ---- Weighted average primary shares outstanding 29,244,849 29,478,600 24,917,706 Incremental common equivalent shares: Related to options and employee stock plans based on market price at end of period 53,966 124,708 497,958 Related to convertible preferred stock 4,196,370 - - ------------ ------------ ------------ Weighted average fully diluted shares outstanding 33,495,185 29,603,308 25,415,664 ------------ ------------ ------------ ------------ ------------ ------------ Net income for fully diluted earnings per share: Net income as reported $297,016,000 $169,461,000 $116,016,000 Elimination of income as if warrants to purchase common stock of an affiliate and certain subsidiaries of the Partnership were exercised - (3,962,000) (7,032,000) ------------ ------------ ------------ Adjusted net income 297,016,000 165,499,000 108,984,000 Less preferred stock dividends (3,178,000) (5,500,000) (6,830,000) ------------ ------------ ------------ Net income for fully diluted earnings per share $293,838,000 $159,999,000 $102,154,000 ------------ ------------ ------------ ------------ ------------ ------------ Net income per fully diluted common share $8.77 $5.40 $4.02 ----- ----- ----- ----- ----- -----
EX-12.1 19 EXHIBIT 12.1 TO CONSECO, INC. 1993 FORM 10-K 1 CONSECO, INC. AND SUBSIDIARIES Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends for the years ended December 31, 1993, 1992 and 1991 (Dollars in millions)
1993 1992 1991 ---- ---- ---- Pretax income from operations: Net income $297.0 $169.5 $116.0 Add income tax expense 223.1 124.6 78.2 Add extraordinary charge on extinguishment of debt 11.9 5.3 5.0 Add minority interest 78.2 30.6 24.0 Less equity in undistributed earnings of CCP Insurance, Inc. (36.6) (15.8) - Less gain on sale of stock by subsidiaries (101.5) (11.1) - Less incentive earnings allocation from the Partnership (36.6) (9.3) - Less equity in undistributed earnings of Life Re - (11.3) (9.3) ----- ----- ----- Pretax income 435.5 282.5 213.9 ----- ----- ----- Add fixed charges: Interest expense on annuities and financial products 408.5 506.8 576.7 Interest expense on long-term debt, including amortization 58.0 46.2 69.9 Interest expense on investment borrowings 10.6 8.8 17.1 Other .6 .8 .4 Portion of rental(1) 3.9 2.0 1.2 ----- ----- ----- Fixed charges 481.6 564.6 665.3 ----- ----- ----- Adjusted earnings $917.1 $847.1 $879.2 ----- ----- ----- ----- ----- ----- Ratio of earnings to fixed charges 1.90X 1.50X 1.32X ----- ----- ----- ----- ----- ----- Ratio of earnings to fixed charges, excluding interest on annuities and financial products 6.96X 5.89X 3.41X ----- ----- ----- ----- ----- ----- Fixed charges $481.6 $564.6 $665.3 Add dividends on preferred stock (multiplied by the rate of pretax income to income before minority interest and extraordinary charge) 34.6 13.1 13.9 ----- ----- ----- Adjusted fixed charges 516.2 577.7 679.2 ----- ----- ----- Adjusted earnings $917.1 $847.1 $879.2 ----- ----- ----- ----- ----- ----- Ratio of earnings to fixed charges and preferred dividends 1.78X 1.47X 1.29X ----- ----- ----- ----- ----- ----- Ratio of earnings to fixed charges and preferred dividends, excluding interest on annuities and financial products 4.72X 4.80X 2.95X ----- ----- ----- ----- ----- ----- (1) Interest portion of rental is assumed to be 33 percent.
EX-12.2 20 EXHIBIT 12.2 TO CONSECO, INC. 1993 FORM 10-K 1 CONSECO, INC. AND SUBSIDIARIES Exhibit 12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends for Which Conseco is Directly Liable for the years ended December 31, 1993, 1992 and 1991 (Dollars in millions)
1993 1992 1991 ---- ---- ---- Pretax income from operations: Net income $297.0 $169.5 $116.0 Add income tax expense 146.6 93.0 48.1 Add extraordinary charge on extinguishment of debt 11.9 5.3 5.0 Less equity in undistributed earnings of CCP Insurance, Inc. (36.6) (15.8) - Less equity in undistributed earnings of Bankers Life Holding Corporation (49.4) - - Less gain on sale of stock by subsidiaries (101.5) (11.1) - Less incentive earnings allocation from the Partnership (36.6) (9.3) - Less Conseco's equity in undistributed earnings of the Partnership - (19.8) (26.6) Less equity in undistributed earnings of Life Re - (11.3) (9.3) ----- ----- ----- Pretax income 231.4 200.5 133.2 ----- ----- ----- Add fixed charges: Interest expense on annuities and financial products 372.0 377.0 359.6 Interest expense on long-term debt for which Conseco is directly liable, including amortization 22.3 22.8 36.2 Interest expense on investment borrowings 6.6 7.0 11.2 Other .6 .5 1.2 Portion of rental(1) 2.0 2.0 1.2 ----- ----- ----- Fixed charges 403.5 409.3 409.4 ----- ----- ----- Adjusted earnings $634.9 $609.8 $542.6 ----- ----- ----- ----- ----- ----- Ratio of earnings to fixed charges 1.57X 1.49X 1.33X ----- ----- ----- ----- ----- ----- Ratio of earnings to fixed charges, excluding interest on annuities and financial products 8.34X 7.21X 3.67X ----- ----- ----- ----- ----- ----- Fixed charges $403.5 $409.3 $409.4 Add dividends on preferred stock (multiplied by the rate of pretax income to income before minority interest and extraordinary charge) 30.3 8.8 10.3 ----- ----- ----- Adjusted fixed charges 433.8 418.1 419.7 ----- ----- ----- Adjusted earnings $634.9 $609.8 $542.6 ----- ----- ----- ----- ----- ----- Ratio of earnings to fixed charges and preferred dividends 1.46X 1.46X 1.29X ----- ----- ----- ----- ----- ----- Ratio of earnings to fixed charges and preferred dividends, excluding interest on annuities and financial products 4.25X 5.66X 3.04X ----- ----- ----- ----- ----- ----- (1) Interest portion of rental is assumed to be 33 percent.
EX-21 21 EXHIBIT 21 TO CONSECO, INC. 1993 FORM 10-K Exhibit 21 LIST OF SUBSIDIARIES
NAME(1) JURISDICTION ------- ------------ Bankers National Life Insurance Company Texas National Fidelity Life Insurance Company Missouri Conseco Investment Holding Company Delaware Conseco Capital Management, Inc. Delaware Conseco Mortgage Capital, Inc. Delaware Conseco Partnership Management, Inc. Indiana Conseco Private Capital Group, Inc. Indiana Conseco Risk Management, Inc. Indiana Lincoln American Life Insurance Company Tennessee Bankers Life Holding Corporation (2) Delaware Bankers Life Insurance Company of Illinois (3) Illinois Bankers Life and Casualty Company (3) Illinois Certified Life Insurance Company (3) California Marketing Distribution Systems Consulting Group, Inc. (4) Delaware (1) Except as otherwise indicated, each company is a direct or indirect, wholly owned subsidiary of Conseco, Inc. (2) Conseco owns approximately 56 percent of the outstanding shares. (3) Wholly owned subsidiary of Bankers Life Holding Corporation. (4) Conseco owns approximately 95 percent of the outstanding shares.
EX-23 22 EXHIBIT 23 TO CONSECO, INC. 1993 FORM 10-K Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Conseco, Inc. on Form S-8 (File Nos. 33-40556, 33-58710 and 33-58712) of our report dated March 24, 1994, on our audits of the consolidated financial statements and financial statement schedules of Conseco, Inc. as of December 31, 1993 and 1992, and for the years ended December 31, 1993, 1992 and 1991, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand Indianapolis, Indiana March 24, 1994 -----END PRIVACY-ENHANCED MESSAGE-----