-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DILRQwmAmxgPlBMVYWtMNAmT+yfML1HjjmH3bDbLX82Q3YRYG7q80Ddj+3aIdSVU CeLo7WMXAx40iP9zCka7Kw== 0000950114-97-000420.txt : 19970927 0000950114-97-000420.hdr.sgml : 19970927 ACCESSION NUMBER: 0000950114-97-000420 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19970919 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONNING CORP CENTRAL INDEX KEY: 0000801051 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 431719355 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-35993 FILM NUMBER: 97683042 BUSINESS ADDRESS: STREET 1: 700 MARKET ST CITY: ST LOUIS STATE: MO ZIP: 63101 BUSINESS PHONE: 3144440498 MAIL ADDRESS: STREET 1: CONNING CORP STREET 2: 700 MARKET ST CITY: ST LOUIS STATE: MO ZIP: 63101 S-1 1 CONNING CORPORATION FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1997 REGISTRATION NO. 333- -------- =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------------ CONNING CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MISSOURI 6282 43-1719355 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL INCORPORATION OR CLASSIFICATION (I.R.S. EMPLOYER ORGANIZATION) CODE NUMBER) IDENTIFICATION NUMBER)
700 MARKET STREET ST. LOUIS, MO 63101 (314) 444-0498 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------------------------------------------- LEONARD M. RUBENSTEIN CHAIRMAN AND CHIEF EXECUTIVE OFFICER CONNING CORPORATION 700 MARKET STREET ST. LOUIS, MO 63101 (314) 444-0498 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------------------------------------------- COPIES TO: JAMES L. NOUSS, JR., ESQ. GARY I. HOROWITZ, ESQ. R. RANDALL WANG, ESQ. ROBERT M. KANER, ESQ. BRYAN CAVE LLP SIMPSON THACHER & BARTLETT 211 NORTH BROADWAY, SUITE 3600 425 LEXINGTON AVENUE ST. LOUIS, MO 63102 NEW YORK, NY 10017 (314) 259-2000 (212) 455-2000 FAX: (314) 259-2020 FAX: (212) 455-2502
---------------------------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE ==========================================================================================================================
PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share................... $43,125,000 $13,069 - -------------------------------------------------------------------------------------------------------------------------- The proposed maximum aggregate offering price has been estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. =============================================================================== 2 SUBJECT TO COMPLETION, DATED SEPTEMBER 19, 1997 ******************************************************************************** *INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A * *REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE * *SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY * *OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES* *EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE * *SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE * *SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE * *UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF * *ANY SUCH STATE. * ******************************************************************************** PROSPECTUS , 1997 CONNING CORPORATION LOGO 2,500,000 SHARES CONNING CORPORATION COMMON STOCK All of the 2,500,000 shares of Common Stock offered hereby are being sold by Conning Corporation (the "Company" or "Conning"). After completion of the offering, General American Life Insurance Company ("General American") will beneficially own approximately 65% of the Company's Common Stock (approximately 63% if the Underwriters' over-allotment option is exercised in full). See "Risk Factors--Dependence on Principal Shareholder" and "--Potential Conflicts of Interest." Prior to this offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $ ----- and $ ----- per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company intends to apply for inclusion of its Common Stock on the Nasdaq National Market under the proposed symbol "CNNG," subject to official notice of issuance. SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE- SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE UNDERWRITING TO THE DISCOUNTS AND PROCEEDS TO THE PUBLIC COMMISSIONS COMPANY Per Share....................................... $ $ $ Total .................................. $ $ $ The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." Before deducting offering expenses estimated at $ ----------, payable by the Company. The Company has granted to the Underwriters a 30-day option to purchase up to 375,000 additional shares of Common Stock on the same terms and conditions as set forth above solely to cover over-allotments, if any. If such option is exercised in full, the total Price to the Public, Underwriting Discounts and Commissions and Proceeds to the Company will be $ ---------------, $--------------- and $---------------, respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them and subject to various prior conditions, including their right to reject any order in whole or in part. It is expected that delivery of the certificates for such shares will be made against payment therefor in New York, New York on or about , 1997. DONALDSON, LUFKIN & JENRETTE A.G. EDWARDS & SONS, INC. SECURITIES CORPORATION 3 [LOGO] CONNING [REPRESENTATION OF FLOW CHART] PRODUCTS & SERVICES CORE ASSET COMPETENCIES RECURRING MANAGEMENT REVENUE INVESTMENT SPECIALIZED EXPERTISE MARKET ABILITY TO ASSETS -----> LEADER DIFFERENTIATE ------> INSURANCE INVESTMENT INDUSTRY ADVISORY KNOWLEDGE & REPUTATION INVESTMENT ACCOUNTING CLIENT & REPORTING SERVICE HIGH VALUE FOCUS ADDED PRIVATE EQUITY INSURANCE RESEARCH SERVICES "Conning" and the related logo are service marks of the Company. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET. IN ADDITION, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the Consolidated Financial Statements, including the Notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, all information in this Prospectus: (i) reflects the conversion of all outstanding shares of Series A Convertible Preferred Stock into an aggregate of 3,190,000 shares of Common Stock, the conversion of all outstanding shares of Series B Convertible Preferred Stock into an aggregate of 365,000 shares of Common Stock for additional consideration to the Company of $1.67 per share, and the conversion of all outstanding shares of Non-Voting Common Stock into an aggregate of 110,000 shares of Common Stock, upon or prior to the completion of this offering (the "Capital Stock Conversions") and (ii) assumes that the over-allotment option granted to the Underwriters by the Company will not be exercised. Throughout this Prospectus, the terms the "Company" and "Conning" refer to Conning Corporation and its direct and indirect subsidiaries: Conning, Inc., Conning Asset Management Company and Conning & Company. See "Glossary" for definitions of certain terms used in this Prospectus. The Company is the successor to the business conducted by Conning, Inc. and its operating subsidiary, Conning & Company ("Conning, Inc."), an 85-year old Hartford, Connecticut based insurance specialty asset management firm which provided asset management services and research for the insurance industry, and Conning Asset Management Company, formerly known as General American Investment Management Company ("GAIMCO"), a registered investment adviser which provided investment advisory services primarily to its parent, General American Life Insurance Company ("General American"), and its affiliates, pursuant to a merger (the "Strategic Merger") effected in August 1995. The parties effected the Strategic Merger in order to combine complementary businesses, each with specialties in the insurance industry, to build a platform from which to leverage additional growth. See "Certain Relationships and Related Transactions--The Strategic Merger." Other than historical financial statements and data, information herein concerning the Company regarding periods prior to the date of the Strategic Merger, including without limitation with respect to assets under management and private equity funds, includes the Company and its predecessors unless the context indicates otherwise. THE COMPANY GENERAL Conning is a nationally recognized asset management company providing services to the insurance industry and is also a leading provider of insurance research. As of June 30, 1997, the Company had approximately $23.1 billion of assets under discretionary management and, in total, provided services with respect to approximately $58.0 billion of assets for insurance company clients. The Company believes it is well positioned to take advantage of the continued growth in insurance industry assets and a trend among insurance companies to seek external investment management expertise. During the period from 1992 through 1996, assets under discretionary management of the Company increased by an average of 24% per year, on a pro forma basis after giving effect to the Strategic Merger and the inclusion of assets of General American for all years. In 1996, its first full year of operations following the Strategic Merger, the Company had revenues of approximately $53.7 million, net earnings of approximately $6.2 million and earnings before interest, taxes, depreciation and amortization ("EBITDA") of approximately $15.3 million. In the six months ended June 30, 1997, the Company had revenues of approximately $30.9 million, net earnings of approximately $4.1 million and EBITDA of approximately $9.1 million. The Company believes that it possesses competitive strengths in insurance asset management which may support its prospects for growth: INSURANCE INDUSTRY FOCUS AND KNOWLEDGE. The Company believes that its focus on the insurance industry allows it to provide substantially all of the services and products that an insurance company seeks from an asset manager. By utilizing its specialized knowledge of insurance company investment considerations, the Company believes it offers a more comprehensive set of asset management services than many of its competitors, including asset allocation, asset and liability matching, cash forecasts, tax modeling and accounting & reporting. The Company offers expertise in asset classes that many insurance companies traditionally utilize, including commercial mortgage loans, investment real estate and private placements. 3 5 NAME RECOGNITION WITHIN THE INSURANCE INDUSTRY. The Company believes that the established reputation of Conning within the insurance industry provides the Company with a marketing advantage. According to a 1996 survey by Eager & Associates of 848 domestic, non-captive insurance companies with assets over $30 million (the "Eager Study"), the Company ranks among the top two insurance asset management firms in terms of name recognition among survey respondents. The Company's in-depth insurance industry research has been targeted to senior executives in the insurance industry for more than 20 years, and its Strategic Studies Series is subscribed to by 82 of the 100 largest U.S. insurance companies (based on 1996 premiums as reported by industry sources). CLIENT SERVICE AND PERFORMANCE FOCUS. The Company attempts to differentiate itself from competitors through its insurance-specific capabilities, investment performance and frequent, responsive client communication. During the period from 1992 through 1996, the Company retained an average of approximately 95% of unaffiliated clients on an annual basis. EXPERIENCED MANAGEMENT WITH SIGNIFICANT STOCK OWNERSHIP. The Company employs an experienced management team, the members of which have an average of approximately 15 years of experience in the investment or insurance business. In total, the employees of the Company will own in the aggregate approximately 23% of the Common Stock on a fully diluted basis after the offering. COMPANY OPERATIONS The Company's business is asset management for insurance companies, which is supplemented by its in-depth research focused on the insurance industry. The Company's asset management services consist of three components: (i) discretionary asset management services, (ii) investment advisory services and (iii) investment accounting & reporting services. In connection with its discretionary asset management services, the Company originates and services commercial mortgages and manages investments in real estate assets. The Company also sponsors and manages private equity funds investing in insurance and insurance-related companies. ASSET MANAGEMENT. The Company's insurance asset management services are designed to optimize investment returns for clients within the guidelines imposed by insurance regulatory, accounting, tax and asset/liability management considerations. As of June 30, 1997, the Company provided services with respect to approximately $58.0 billion in assets, of which approximately (i) $23.1 billion represented assets under discretionary management, (ii) $20.5 billion represented assets serviced under investment advisory agreements and (iii) $14.4 billion represented assets receiving investment accounting & reporting services on a stand-alone basis. As part of its discretionary asset management services, as of June 30, 1997, the Company managed approximately $2.6 billion of commercial mortgage loans and investment real estate. The Company manages private equity funds which invest in insurance and insurance-related companies. Since 1985, the Company has sponsored five private equity funds, raising approximately $360 million in committed capital and investing more than $187 million of these proceeds in 38 portfolio company investments in connection with financings aggregating to more than $1.0 billion. INSURANCE RESEARCH. The Company believes that Conning & Company is one of the leading insurance industry research firms in the United States. The Company publishes in-depth insurance industry research covering major insurance industry trends, products, markets and business segments. The Company also publishes stock research on a broad group of publicly-traded insurance companies for some of the largest United States institutional money managers as well as pension funds, banks, mutual funds, and insurance companies. Conning & Company also from time to time participates in the underwriting of public offerings of equity securities for insurance or insurance-related companies. The Company's principal executive offices are currently located at 700 Market Street, St. Louis, Missouri 63101 (telephone number: (314) 444-0498) and at CityPlace II, 185 Asylum Street, Hartford, Connecticut 06103 (telephone number: (860) 527-1131). 4 6 DEVELOPING TRENDS IN THE INSURANCE INDUSTRY Certain key insurance industry trends that also affect the management of insurance company assets are as follows: GROWING INSURANCE COMPANY ASSETS. Insurance company assets have grown over several decades and during the period from 1986 to 1996 grew at an average rate of approximately 9% per year, from approximately $1.3 trillion, to approximately $3.1 trillion, according to a standard industry source. ACCEPTANCE OF OUTSOURCING. The Company believes that many insurance companies are utilizing non-affiliated asset managers in order to respond to competitive product requirements and the pressure to achieve higher returns on investments while maintaining an acceptable level of risk. According to the Eager Study, assets under management by external, non-affiliated managers increased at a rate of 17% per year from $300 billion in 1994 to $415 billion in 1996, which represented approximately 15% of industry assets. STRATEGY The Company's primary operating strategy is to grow recurring, fee-based asset management-related revenues, cash flow and profits through the following: LEVERAGE ESTABLISHED ASSET MANAGEMENT PLATFORM TO GENERATE GROWTH AND PROFITABILITY. The Company believes that it has established a platform, made up of core investment professionals, product expertise and systems, to support future growth in fee-based asset management revenues. Opportunities for asset management growth are expected to come from new and existing clients, strategic acquisitions and alliances and through General American and its affiliates. GENERATE GROWTH FROM NEW AND EXISTING CLIENTS. The Company intends to take advantage of the growth in insurance industry assets and a trend among insurance companies to seek external investment management expertise. The Company will pursue growth in assets under management from new clients by increasing the Company's sales and marketing efforts and by leveraging the Company's strong name recognition. Additionally, the Company will continue to pursue growth in assets under management from existing clients by seeking to increase its share of its clients' assets and from underlying growth in existing assets. PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES TO EXPAND MARKET PENETRATION. The Company regularly evaluates strategic acquisitions, joint ventures and marketing alliances as a means of increasing assets under management, expanding the range of its product offerings and increasing its sales and marketing capabilities. LEVERAGE STRATEGIC ALLIANCE WITH GROWING PARTNER. The Company's relationship with General American, the Company's principal shareholder, provides opportunities for distribution of the Company's products and services to General American and its affiliates. The Company has benefited from the internal growth and acquisition activity of General American and its affiliates, with assets under management of General American and its affiliates increasing at an average rate of approximately 14% per year, from approximately $5.6 billion as of December 31, 1991 to approximately $10.6 billion as of December 31, 1996. At June 30, 1997, such affiliated assets under management totaled approximately $12.6 billion. RISK FACTORS No assurances can be given that the Company's objectives or strategies will be achieved. Prospective investors should consider carefully the factors discussed in detail elsewhere in this Prospectus under the captions "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors." 5 7 THE OFFERING
Common Stock offered by the 2,500,000 shares Company..................... Common Stock outstanding after 12,875,000 shares the offering................ Dividend Policy............... The Company currently intends to pay quarterly cash dividends of approximately $0.04 per share of Common Stock ($0.16 annually), commencing in the first quarter of 1998. However, any dividends will be (i) dependent upon the Company's earnings, capital requirements, operating and financial condition and other relevant factors, (ii) subject to declaration by the Company's Board of Directors, and (iii) subject to certain regulatory constraints. See "Risk Fac- tors--Regulation" and "Dividend Policy." Use of Proceeds............... For general corporate purposes, including possible strategic acqui- sitions or alliances. See "Use of Proceeds." Proposed Nasdaq National "CNNG" Market symbol............... - -------- Assumes no exercise of outstanding stock options. As of the date of this Prospectus, there were outstanding options to purchase 1,237,500 shares of Common Stock at a weighted average price of $5.65 per share and options to purchase an additional ------------- shares of Common Stock at the initial public offering price. Does not include an aggregate of -------------- shares of Common Stock reserved for issuance under the Company's employee stock plans. See "Management--Employee Stock Plans" and Note 12 of Notes to the Company's Consolidated Financial Statements.
6 8 SUMMARY CONSOLIDATED FINANCIAL DATA
YEARS ENDED SIX MONTHS ENDED YEARS ENDED DECEMBER 31, DECEMBER 31, JUNE 30, --------------------------------------- ------------------ ------------------ 1992 1993 1994 1995 1995 1996 1996 1997 PRO FORMA (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Revenues: Asset management and related fees......................... $1,716 $2,446 $3,484 $24,050 $30,675 $40,456 $19,109 $24,079 Research services.............. 0 0 0 4,090 9,480 12,148 6,515 6,465 Other income................... 51 36 57 663 996 1,062 602 378 ------ ------ ------ ------- ------- ------- ------- ------- Total revenues............. 1,767 2,482 3,541 28,803 41,151 53,666 26,226 30,922 ------ ------ ------ ------- ------- ------- ------- ------- Operating income................... 832 1,341 2,112 6,292 7,389 11,792 5,946 7,379 Interest expense............... 0 0 0 521 1,365 729 412 162 ------ ------ ------ ------- ------- ------- ------- ------- Income before provision for income taxes............................ 832 1,341 2,112 5,771 6,025 11,063 5,534 7,217 Provision for income taxes......... 311 507 827 2,359 2,739 4,851 2,431 3,119 ------ ------ ------ ------- ------- ------- ------- ------- Net income................. $ 521 $ 834 $1,285 $ 3,412 $ 3,286 $ 6,212 $ 3,104 $ 4,098 ====== ====== ====== ======= ======= ======= ======= ======= Preferred stock dividends.......... 0 0 0 351 906 906 446 503 ------ ------ ------ ------- ------- ------- ------- ------- Net earnings available to common shareholders..................... $ 521 $ 834 $1,285 $ 3,061 $ 2,380 $ 5,306 $ 2,658 $ 3,595 ====== ====== ====== ======= ======= ======= ======= ======= Pro forma net income per common share and common share equivalents ... $ 0.59 $ 0.37 ======= =======
AS OF JUNE 30, ------------------------- 1997 1997 AS ADJUSTED BALANCE SHEET DATA: Total assets.................................................................... $49,959 Long-term debt.................................................................. 0 Convertible preferred stock..................................................... 34,075 Total common shareholders' equity............................................... 68 Number of common shares outstanding end of period............................... 6,820
--------------------------------------------------- AS OF 1992 1993 1994 1995 1996 6/30/97 (IN BILLIONS, EXCEPT AS NOTED) OTHER OPERATING DATA: Average assets under discretionary management: Unaffiliated............................................ $ 3.3 $ 5.4 $ 6.2 $ 7.8 $ 9.5 $ 10.5 General American & affiliates........................... 5.5 6.0 6.6 7.8 9.6 12.6 ------- ------- ------- ------- ------- ------- Total............................................... 8.8 11.4 12.8 15.6 19.1 23.1 Average assets under advisory services...................... 5.2 10.0 14.7 15.3 18.3 20.5 Average assets under accounting & reporting services........ 0.0 1.2 2.6 4.8 9.2 14.4 ------- ------- ------- ------- ------- ------- Total assets serviced........................... $ 14.0 $ 22.6 $ 30.1 $ 35.7 $ 46.6 $ 58.0 ======= ======= ======= ======= ======= ======= Pro forma revenues (in thousands)....................... $23,656 $31,567 $30,787 $41,151 $53,666 $30,922 EBITDA (in thousands)................................... $ 832 $ 1,341 $ 2,112 $ 7,751 $15,331 $ 9,139 - --------- The years 1992 to 1994 reflect the results of GAIMCO only. The year 1995 reflects the results of the consolidated activity, from August 1, 1995 to December 31, 1995 and the results of GAIMCO only from January 1, 1995 to July 31, 1995. See Note 1 to the Company's Consolidated Financial Statements. Pro forma 1995 reflects the consolidated activity for the year assuming the Strategic Merger took place on January 1, 1995. The year 1996 reflects actual consolidated results. See Note 2 to the Company's Consolidated Financial Statements. Pro forma earnings per share is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents considered outstanding during the period after giving effect to all dilutive common stock and common stock equivalents shares issued within twelve months of the public offering of the Company's common stock. Gives effect to the Capital Stock Conversions and the sale of 2,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $ ----------- per share and the receipt of the estimated net proceeds therefrom. Since January 1, 1995, the assets of the general account of General American have been under contract with GAIMCO (now known as Conning Asset Management Company). General account assets prior to January 1, 1995 were managed by the investment division of General American, a predecessor of GAIMCO, and are included in assets under management for 1992, 1993 and 1994. Data for 1995 and prior periods is presented on a pro forma basis to include both Conning and GAIMCO assets under management. Pro forma revenues include revenues as if the Strategic Merger had occurred January 1, 1992 and assumes that the general account assets of General American prior to January 1, 1995 were managed by the Company during such periods, under the fee schedule that was in place at the time of the Strategic Merger and further assumes that the mortgage loans funded by General American prior to January 1, 1995 earned a 1% origination fee. The Company does not believe that the amount of pro forma revenues for any such prior period are indicative of the profitability of any such revenues during such period. Amount shown as of June 30, 1997 is for the six month period ended June 30, 1997. EBITDA is computed by adding operating income and "amortization of goodwill and other" from the statements of income and "depreciation and amortization" from the statements of cash flows. Amount shown as of June 30, 1997 is for the six month period ended June 30, 1997.
7 9 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained herein, including, without limitation, under the captions "Prospectus Summary," "Risk Factors," "Business--General," "--Company Operations--Overview," "--Industry Background and Trends," "--Strategy" and "--Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as possible or assumed future results of operations of the Company, and other statements contained herein or therein regarding matters that are not historical facts, are or may constitute forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), including, without limitation, statements relating to the Company's financial position, plans to increase revenues, competitive strengths, business objectives or strategies, insurance industry trends and expectations regarding General American's assets or activities. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially ("the "Cautionary Statements") include, but are not limited to, those discussed under "Risk Factors." All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. Investors are cautioned not to place undue reliance on such statements, which speak only as of the date hereof. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. RISK FACTORS In addition to the other information in this Prospectus, the following risk factors should be considered carefully by prospective investors in evaluating the Company before purchasing the Common Stock offered hereby. RISKS ASSOCIATED WITH INSURANCE INDUSTRY FOCUS Because the Company focuses on providing asset management services to the insurance industry, its business may be materially adversely affected by events impacting the insurance industry. In particular, the insurance industry has been experiencing consolidation as companies merge or are acquired. In the event such consolidation activity continues and the Company's current or prospective clients are acquired, their assets may subsequently be managed by the combined company's internal staff or by another external manager. In such event, the Company's business, financial condition, results of operations and business prospects could be materially adversely affected. Further, as a greater percentage of insurance company assets have shifted to external management, additional opportunities to capture externally managed assets may be limited. In addition, changes affecting the insurance industry, including any changes in federal or state laws or regulations relating thereto, including, without limitation, any change adversely affecting insurance products, may have a materially adverse effect on the Company's business, financial condition, results of operations and business prospects. DEPENDENCE ON PRINCIPAL SHAREHOLDER The Company's business, financial condition, results of operations and business prospects are significantly dependent on its relationship with its principal shareholder, General American, an indirect wholly-owned subsidiary of General American Life Mutual Holding Company. As of June 30, 1997, General American and its affiliates accounted for approximately $12.6 billion of the approximately $23.1 billion in assets which the Company had under discretionary management. The advisory agreements between General American or one of its affiliates and the Company are subject to termination upon 30 to 90 days' notice without penalty. There can be no assurance that General American and its affiliates will maintain or not seek to renegotiate their existing investment advisory relationships with the Company in the future, and the renegotiation of such relationships could have, and the termination of such relationships would have, a materially adverse effect on the Company's business, financial condition, results of operations and business prospects. Additionally, General American presently leases to the Company all of the Company's office space in St. Louis and provides to the Company certain administrative services. There can be no assurance that such arrangements will continue or that the Company would be able to procure replacement office space or services on similar or otherwise favorable terms. See "Business--Asset Management," "Business--Facilities," "Certain Relationships and Related Transactions" and Note 11 of Notes to the Company's Consolidated Financial Statements. 8 10 POTENTIAL CONFLICTS OF INTEREST General American will beneficially own approximately 65% of the Common Stock after the consummation of the offering (approximately 63% if the Underwriters' over-allotment option is exercised in full). The Company's Board of Directors consists of five directors, three of whom are officers of the Company or General American, and two of whom are not otherwise affiliated with the Company or General American (the "Independent Directors"). After the offering, General American will have the power to elect the Board of Directors and to approve certain actions requiring shareholder approval, including adopting amendments to the Company's articles of incorporation, and to control certain other actions requiring shareholder approval, including mergers or sales of substantially all of the assets of the Company or its subsidiaries. For financial reporting purposes, General American will include its share of the Company's net income or loss in its consolidated financial statements. The Company's Board of Directors, including members who also are affiliated with General American, may consider not only the short-term and long-term impact of operating decisions on the Company but also the impact of such decisions on General American. See "--Certain Other Anti-Takeover Provisions," "Management" and "Certain Relationships and Related Transactions." The Company is a party to investment advisory, administrative services, and other agreements with General American and certain of its affiliates. Certain officers of the Company were also officers of General American when such agreements were entered into. Although the Company believes that the terms of such agreements are at least as favorable to the Company as those it could negotiate with unrelated parties, these agreements may be modified or renegotiated in the future and additional agreements or transactions may be entered into between the Company, on the one hand, and General American or its affiliates, on the other hand. Conflicts of interest could arise between General American and its affiliates with respect to any of the foregoing, or any future agreements or arrangements between them. See "Certain Relationships and Related Transactions." Executive officers, directors and employees of the Company from time to time receive a profit interest in, and in the future may invest in, investment funds in which the Company, or an affiliate of the Company, is a sponsor or an investor or for which the Company performs asset management services, publishes research or acts as a market-maker. In addition, the Company may in the future organize businesses in which employees of the Company acquire minority interests. There is a risk that, as a result of any such profit or investment interest, a director, officer or employee may take actions which could conflict with the best interests of the Company. See "Certain Relationships and Related Transactions." DEPENDENCE ON KEY PERSONNEL The Company's future performance depends to a significant degree upon the continued contributions of its officers and key management personnel. In connection with the Strategic Merger in August 1995, the Company entered into three-year employment agreements with all of the then shareholders and option holders, which agreements are terminable at any time by written notice, subject to certain conditions. The Company, however, does not have employment agreements with its senior management members who were hired after August 1995. See "Management--Directors, Executive Officers and Certain Significant Officers" and "Management--Employment Agreements and Other Compensation Arrangements." In addition, the Company's business is dependent on the highly skilled, and often highly specialized, individuals it employs. Retention of asset management, investment advisory, private equity, research, sales and trading and administrative professionals is particularly important to the Company's business, financial condition, results of operations and business prospects. There can be no assurance that losses of key personnel will not occur in the future, which could materially and adversely affect the Company's business, financial condition, results of operations and business prospects. The Company expects further growth in the number of its personnel. Competition for employees with the qualifications desired by the Company is intense, especially with respect to asset management and research professionals with expertise in the insurance industry, and the Company expects that continuing competition will cause its compensation costs to continue to increase. There can be no assurance that the Company will be able to recruit a sufficient number of new employees with the desired qualifications in a timely manner. The failure to recruit new employees could materially and adversely affect the Company's business, financial condition, results of operations and business prospects. 9 11 SIGNIFICANT INDUSTRY COMPETITION All of the Company's businesses are conducted in highly competitive markets. The Company competes with a large number of other asset management firms, as well as broker-dealers, insurance companies, commercial banks and others in the business. The Company's asset management business competes for assets under discretionary management with a large number of other specialty and diversified investment advisory firms and divisions. The asset management industry is characterized by relatively low cost of entry, and new entities may be formed which may compete with the Company. The Company's focus on the insurance industry makes it particularly subject to direct competition from firms or divisions that specialize in providing services to the insurance sector. Additionally, other insurance companies may determine to spin out their investment management divisions, which might then become competitors. The Company's asset management, real estate, private equity and investment accounting & reporting services are also subject to intense competition, and are characterized by limited capital requirements and low barriers to entry. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not materially and adversely affect the Company's business, financial condition, results of operations and business prospects. Many of the Company's current and potential competitors are larger and have access to greater resources than the Company, which resources could be used to compete effectively against the Company. Such competition could have a material adverse effect on the Company's business, financial condition, results of operations and business prospects, as well as its ability to attract and retain highly skilled individuals as employees. See "Business-- Competition." RISKS ASSOCIATED WITH ACQUISITIONS As part of its business strategy, the Company intends to consider acquisitions of similar or complementary businesses. No assurance can be given that the Company will be successful in identifying attractive acquisition candidates or completing acquisitions on favorable terms. In addition, any future acquisitions will be accompanied by the risks commonly associated with acquisitions. These risks include potential exposure to unknown liabilities of acquired companies or to acquisition costs and expenses, the difficulty and expense of integrating the operations and personnel of the acquired companies, the potential disruption to the business of the combined company and potential diversion of management's time and attention, the impairment of relationships with and the possible loss of key employees and clients as a result of the changes in management, the incurrence of amortization expenses if an acquisition is accounted for as a purchase and dilution to the shareholders of the combined company if the acquisition is made for stock of the combined company. There can be no assurance that products, technologies or businesses of acquired companies will be effectively assimilated into the business or product offerings of the combined company or will have a positive effect on the combined company's revenues or earnings. Further, the combined company may incur significant expense to complete acquisitions and to support the acquired products and businesses. Any such acquisitions may be funded with cash, debt or equity, which could have the effect of diluting or otherwise adversely affecting the holdings or the rights of existing shareholders of the Company, including investors acquiring Common Stock in this offering. CHANGES IN ECONOMIC OR MARKET CONDITIONS AFFECTING FEE LEVELS Changes in economic and market conditions may adversely affect the profitability and performance of and demand for the Company's services. A significant portion of the Company's revenue is derived from asset management fees, which are generally based on the value of assets under management. Consequently, significant fluctuations in the values of securities (e.g., as the result of substantial changes in the equity and fixed income markets resulting from changes in interest rates, inflation rates or other economic factors) may affect materially the amount of assets under management and thus the Company's revenues and profitability. Additionally, the Company from time to time serves as an underwriter of publicly offered securities. Underwriting revenues, as well as brokerage commissions, are highly volatile, depending on a variety of factors, including market conditions and transaction activity; accordingly, no assurance can be given as to the amount of such revenues, if any, that may arise in future periods. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Asset Management." 10 12 REGULATION The securities industry and the business of the Company are subject to extensive regulation by the Securities and Exchange Commission (the "SEC" or the "Commission"), state securities regulators and other governmental regulatory authorities. The business of the Company also is regulated by the National Association of Securities Dealers, Inc. (the "NASD"). Conning & Company and Conning Asset Management Company, both subsidiaries of the Company, are registered as investment advisers with the SEC. As registered investment advisers, each is subject to the requirements of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the SEC's regulations thereunder. Conning Asset Management Company acts as an investment adviser to certain registered investment companies, and therefore is also subject to regulation under the Investment Company Act of 1940, as amended (the "Investment Company Act"). Conning & Company is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and various state broker-dealer registration laws. Conning Asset Management Company is a fiduciary under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and regulations thereunder with respect to the investments of its discretionary asset management clients which are employee benefit plans subject to ERISA and with respect to the investments of portfolios managed by the Company that contain assets of plans subject to ERISA. In addition, the Company's mortgage origination activities are subject to the licensing requirements of certain states. Furthermore, Conning & Company is exposed to liability under federal and state securities laws and court decisions, including decisions with respect to underwriters' liability and limitations on indemnification of underwriters by issuers. Violations of federal or state laws or regulations or rules of industry self-regulatory organizations ("SROs"), such as the NASD, could subject the Company, its subsidiaries and/or its employees to disciplinary proceedings or civil or criminal liability, including revocation of licenses, censures, fines or temporary suspension or permanent bar from the conduct of their business. Any such proceeding or liability could have a material adverse effect upon the Company's business, financial condition, results of operations and business prospects. See "Regulation." RISK OF PENALTIES DUE TO NONCOMPLIANCE Compliance with many of the regulations applicable to the Company involves a number of risks, particularly because applicable regulations in a number of areas, such as those governing affiliated transactions involving clients, may be subject to varying interpretation. Regulators make periodic examinations and review annual, monthly and other reports on the Company's operations and financial condition. In the event of non-compliance by the Company with any applicable law or regulation, governmental regulators and SROs may institute administrative or judicial proceedings that may result in censure, fine, civil penalties (including treble damages in the case of insider trading violations), criminal penalties, the issuance of cease-and-desist orders, the deregistration or suspension of the non-compliant broker-dealer or investment adviser, the suspension or disqualification of the broker-dealer's or investment adviser's officers or employees, the removal of the Company from its role as fiduciary with respect to the investment of assets subject to ERISA, and other adverse consequences. The Company has not experienced any such penalties to date. Such violations or noncompliance could also subject the Company and/or its employees to civil actions by private parties. In connection with the Company's private equity activities, Conning & Company, its affiliates and the private equity funds which they manage are relying on exemptions from registration under the Investment Company Act, the Securities Act and state securities laws. Failure to meet the requirements of any such exemptions could have a material adverse effect on the Company's business, financial condition, results of operations and business prospects and the manner in which the Company, its affiliates and the private equity funds they manage carry out their investment activities and on the compensation received by Conning & Company and its affiliates from the private equity funds. RISKS ASSOCIATED WITH CHANGING REGULATORY ENVIRONMENT The regulatory environment in which the Company operates is subject to change. The Company may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other governmental regulatory authorities or SROs. The Company also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and SROs. 11 13 RISK OF CHANGES IN OTHER BUSINESS REGULATIONS The Company's businesses may be materially affected not only by securities regulations but also by regulations of general application. For example, the volume of the Company's asset management revenue in a given time period could be affected by, among other things, existing and proposed tax legislation and other governmental regulations and policies (including, without limitation, the interest rate policies of the Federal Reserve Board) and changes in the interpretation or enforcement of existing laws and rules that affect the business and financial communities. The level of business and financing activity in the insurance industry can be affected not only by such legislation or regulations of general applicability, but also by industry-specific legislation or regulations. POTENTIAL LIMITS ON OPERATIONS AND DIVIDENDS DUE TO NET CAPITAL REQUIREMENTS As a registered broker-dealer and member of the NASD, Conning & Company is subject to the net capital rules of the SEC, various states and the NASD. These rules specify minimum net capital requirements for registered broker-dealers and NASD members, are designed to assure that broker-dealers maintain adequate regulatory capital in relation to their liabilities and the size of their customer business, and have the effect of requiring that a substantial portion of a broker-dealer's assets be kept in cash or highly liquid investments. Such net capital requirements could have a materially adverse effect on the Company's ability to distribute any declared dividends to its shareholders. The Company is a holding company, the principal assets of which consist of the common stock of Conning, Inc. Conning, Inc. owns all of the common stock of Conning & Company. The primary source of funds for the Company to make dividend distributions, if any, will be dividends paid to the Company by Conning, Inc. Conning, Inc.'s principal source of funds is dividends received from Conning & Company, which may be restricted in its distribution of any such dividends by such net capital rules. See "Regulation--Net Capital Requirements." TERMINATION PROVISIONS OF INVESTMENT ADVISORY AGREEMENTS AND OTHER CONSEQUENCES OF A CHANGE OF CONTROL; LIMITATIONS ON VOTING RIGHTS A large portion of the Company's revenues are derived from investment advisory agreements with insurance companies, particularly General American and its affiliates, and institutional clients, which agreements are generally terminable upon 30 to 90 days' notice without penalty. The termination of any of these agreements representing a material portion of assets under management could have a material adverse effect on the Company's business, financial condition, results of operations and business prospects. Under the Advisers Act, advisory agreements are voidable upon assignment unless the client consents to such assignment. Under the Investment Company Act, advisory agreements terminate upon assignment. Under both Acts, an investment advisory agreement is deemed to have been assigned when there is a direct or indirect transfer of the agreement, including a direct assignment or a transfer of a "controlling block" of the firm's voting securities or, under certain circumstances, upon the transfer of a "controlling block" of the voting securities of its parent corporation. Under Section 15(f) of the Investment Company Act, during the two-year period after a change of control of an investment adviser of a registered investment company, there may not be imposed an "unfair burden" on such company as a result of a change in control. Section 15(f) could be interpreted to restrict increases in investment advisory fees during such two-year period and, accordingly, may discourage potential purchasers from acquiring any interest in the Company that might constitute a change of control under the Investment Company Act. See "Regulation." Following the completion of the offering, sales of Common Stock by General American or other shareholders of the Company or issuances of Common Stock by the Company, among other things, could result in a deemed assignment of the Company's investment advisory agreements under the Advisers Act and the Investment Company Act. Any assignment of the Company's investment advisory agreements would require, as to any registered investment company client, the prior approval by a majority of its shareholders, and as to the Company's other clients, the prior consent of such clients. There can be no assurance that the Company's clients would consent to the assignment of investment advisory agreements or approve new investment advisory agreements with the Company in such an event. The Company's Amended and Restated Articles of Incorporation (the "Articles") provide that no person or group deemed to be a beneficial owner (as defined therein) of the Common Stock may vote more than 20% of the total number of shares of Common Stock outstanding. This provision of the Articles does not apply to General American, subsidiaries or affiliates of General American, direct or indirect subsidiaries of the Company and certain employee plans established or to be established by the Company. The Company's Board of Directors may approve the exemption of other persons or groups from the provisions described above. While this voting limitation is in place 12 14 to reduce the likelihood, under certain circumstances, of inadvertent terminations of the Company's advisory agreements as a result of "assignments" of the Company's investment advisory contracts, there can be no guarantees that this limitation will prevent such a termination from occurring. In addition, such limitation could be deemed to have an anti-takeover effect and to make changes in management more difficult. See "Regulation," "Description of Capital Stock--Common Stock" and "Certain Charter and Bylaw Provisions." CERTAIN OTHER ANTI-TAKEOVER PROVISIONS In addition to the provision in the Articles described in the preceding paragraph, certain other provisions of Missouri law, the Articles and the Company's Bylaws (the "Bylaws") could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company, including, without limitation, the business combination provisions of the Missouri General and Business Corporation Law. See "Certain Charter and Bylaw Provisions." Such provisions could also limit or depress the price that certain investors might be willing to pay in the future for shares of the Common Stock. The Company is also authorized to issue preferred stock with rights senior to, and that may adversely affect, the Common Stock, without the necessity of shareholder approval and with such rights, preferences and privileges as the Company's Board of Directors may determine. The Company, however, has no present plans to issue any shares of preferred stock. See "Principal Shareholders" and "Description of Capital Stock." NO PRIOR PUBLIC MARKET FOR COMMON STOCK Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that an active public market will develop or be sustained after this offering or that investors will be able to sell the Common Stock should they desire to do so. The initial public offering price will be determined by negotiations between the Company and the Underwriters and may bear no relationship to the price at which the Common Stock will trade upon completion of this offering. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICES Following the completion of the offering, sales of substantial numbers of additional shares of Common Stock in the public market, or the perception that such sales could occur, could adversely affect the market price of the Common Stock and make it more difficult for the Company to raise funds through future equity offerings. General American will beneficially own approximately 65% of the Common Stock after the consummation of the offering (approximately 63% if the Underwriters' over-allotment option is exercised in full) and a sale of such shares could adversely affect the market price of the Common Stock. The Company's directors and executive officers and other shareholders holding all of the 10,375,000 shares outstanding on the date hereof have entered into lock-up agreements under which they have agreed, other than with the consent of Donaldson, Lufkin & Jenrette Securities Corporation, not to sell such shares for a period of -- days following the completion of the offering. The Company believes that, following the lock-up period, up to 1,453,856 shares held by existing shareholders could be eligible for sale without restriction and up to 8,921,144 "affiliate" shares held by executive officers, directors and other affiliates could be eligible for sale, subject to certain volume and other limitations of Rule 144; all such shares, however, may be subject to additional holding periods under Rule 144 based on, among other things, particular interpretative considerations, facts and circumstances relating to such shareholders. Following effectiveness of the registration statement covering the shares offered hereby, the Company will register on Form S-8 under the Securities Act an aggregate of --------shares of Common Stock issuable under employee stock plans, which registrations are expected to become effective upon filing. There are options to purchase 1,237,500 shares of Common Stock outstanding on the date hereof, 400,000 of which are currently exercisable, an additional 600,000 of which will be exercisable upon completion of the offering and the remaining 237,500 of which will become exercisable over a five-year vesting period commencing November 1997. Upon the first anniversary of the date hereof, General American and the other shareholders of the Company have certain rights to require the Company to register 8,780,005 of their 10,375,000 shares of Common Stock for sale under the Securities Act. See "Management--Employee Stock Plans," "Certain Relationships and Related Transactions," "Description of Capital Stock" and "Shares Eligible for Future Sale." 13 15 POSSIBLE VOLATILITY OF STOCK PRICE The market price of the shares of Common Stock could be subject to wide fluctuations in response to factors such as actual or anticipated variations in the Company's operating results, changes in financial estimates by securities analysts, conditions and trends in the asset management or insurance industries, adoption of new accounting standards affecting the investment advisory or insurance industries, general market conditions and other factors. Further, the stock market in general has experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of such companies. These market fluctuations, as well as general economic, political and market conditions, may adversely affect the market price of the Common Stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such company. Such litigation, if instituted, could result in substantial costs and a diversion of management attention and resources, which would have a material adverse effect on the Company's business, financial condition, results of operations and business prospects. DILUTION Purchasers of the Common Stock offered hereby will experience immediate and significant dilution in the net tangible book value of their shares from the initial public offering price. To the extent outstanding options to purchase Common Stock are exercised, there will be further dilution. See "Dilution." DISCRETIONARY USE OF PROCEEDS Although the Company has not yet identified specific uses for the net proceeds to be received by it from this offering, such proceeds are expected to be used for general corporate purposes, including possible acquisitions of related businesses or investments in strategic or joint venture relationships. The Company has no present understandings, agreements or commitments with respect to any such acquisitions or investments, and no assurance can be given that any such acquisition or investment will take place. Pending application to such purposes, the net proceeds will be invested in short-term, investment grade, interest-bearing securities. The Company's management will have discretion over the use and investment of such net proceeds. Accordingly, there can be no assurance regarding the utilization or timing of the utilization of the remaining net proceeds of this offering. See "Use of Proceeds." RISK OF SYSTEMS FAILURE; DEPENDENCE ON VENDORS The Company's business is highly dependent on communications and information systems and certain third-party vendors for securities pricing information and updates on certain software. There can be no assurance that the Company will not suffer a systems failure or interruption, whether caused by an earthquake, fire, other natural disaster, power or telecommunications failure, act of God, act of war or otherwise, or that the Company's back-up procedures and capabilities in the event of any such failure or interruption will be adequate. Significant portions of the Company's business are dependent on the Company's ability to protect its computer equipment and the information stored in its data processing centers against damage that may be caused by fire, power loss, telecommunications failures, unauthorized access and other events. The Company's data processing centers are located in Hartford, Connecticut and St. Louis, Missouri. Software and related data files are expected to be backed-up regularly and stored off-site. The Company has contracted with an outside service to provide disaster recovery services. There can be no assurance that these measures are sufficient to eliminate the risk of extended interruption in the Company's operations. Further, there can be no assurance that the Company will continue to be able to obtain timely and accurate securities pricing information from third-party vendors on an ongoing basis, which is vital to the Company's ability to provide investment accounting & reporting services because it enables the Company to value its clients' portfolios. Any delays or inaccuracies in securities pricing information could give rise to claims against the Company, which could have a material adverse effect on the Company's business, financial condition, results of operations and business prospects. Under a software license agreement with SS&C Technologies, Inc. ("SS&C"), effective as of January 27, 1996 (the "License Agreement"), the Company has a perpetual non-exclusive license to use, maintain and modify its investment accounting & reporting software, including both CAMRA(TM) and FILMS(TM), in both source code and object code (the "Software"). SS&C Technologies, Inc. represents that it is the owner of the trademarks CAMRA(TM) and FILMS(TM). The License Agreement permits the Software to be used by the Company for accounting, reporting and 14 16 similar purposes in the asset management business and for outsourcing to customers in the insurance industry and by General American and its subsidiaries in certain circumstances. The Company is obligated to make annual payments under the License Agreement until the year 2000. Additional license fees may be due as a result of an increase of assets under management or advisement only if the assets under management or advisement increase as the result of certain business combinations involving the Company. SS&C may terminate the License Agreement in the event of, among other things, a breach by the Company which is not cured after written notice, certain bankruptcy, insolvency or similar events affecting the Company or certain other transactions such as the acquisition of a controlling interest in the Company by, or the entering into of certain transactions between the Company and, an entity that competes with SS&C. While the Company has contracted to receive certain updates to its software, there can be no assurance that it will obtain updated software in a timely manner. Any failure or interruption of the Company's systems or a failure to receive timely and accurate securities pricing information or updates to software could have a material adverse effect on the Company's business, financial condition, results of operations and business prospects. See "Business--Asset Management--Investment Accounting & Reporting." YEAR 2000 COMPLIANCE As the year 2000 approaches, a critical business issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. In brief, many existing application software products in the marketplace were designed to only accommodate a two digit date position which represents the year (e.g., '95 is stored on the system and represents the year 1995). As a result, the year 1999 (i.e., '99) could be the maximum date value these systems will be able to accurately process. Management is in the process of working with its software vendors to assure that the Company is prepared for the year 2000. Based on information currently available, management does not anticipate that the Company will incur significant operating expenses or be required to invest heavily in computer system improvements to be year 2000 compliant, however the Company is still in the preliminary stages of analyzing its systems and requirements. USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,500,000 shares of Common Stock offered by the Company hereby are estimated to be approximately $ million, assuming an initial public offering price of $ per share ----- ----- and after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company. The principal purposes of this offering are to increase the Company's equity capital and to create a public market for the Common Stock, which will facilitate the Company's future access to the public equity markets and enhance the ability of the Company to use its Common Stock as consideration for acquisitions and as a means of attracting and retaining key employees. The net proceeds of this offering will be used for general corporate purposes. The Company's business strategy contemplates that it will seek to complement internal growth with strategic investments and acquisitions. Accordingly, a portion of the net proceeds may also be used for acquiring related businesses or investing in strategic or joint venture relationships. The Company has no present understandings, agreements or commitments with respect to any such acquisition or investment, and no assurance can be given that any such acquisition or investment will take place. Pending application to the uses described above, the Company intends to invest the net proceeds of this offering in short-term, investment-grade, interest-bearing securities. DIVIDEND POLICY The Company initially intends to establish a policy after this offering of declaring quarterly dividends, commencing in the first quarter of 1998, at the rate of approximately $0.04 per share ($0.16 annually) on the Common Stock. The declaration and payment of dividends to holders of Common Stock will be at the discretion of the Company's Board of Directors and will depend upon the Company's capital requirements and operating and financial condition, as well as the legal and regulatory restrictions from net capital rules of various regulatory bodies applicable to Conning & Company and such other factors as the Board of Directors may deem relevant. See "Regulation." 15 17 CAPITALIZATION The following table sets forth the long-term borrowings and capitalization of the Company at June 30, 1997 on a historical basis, and as adjusted to give effect to the Capital Stock Conversions and the sale by the Company of 2,500,000 shares of Common Stock offered in the offering (assuming the Underwriters' over-allotment option is not exercised) at an assumed initial public offering price of $ per share, less the underwriting discounts, ----- commissions and estimated offering expenses and applying the estimated net proceeds therefrom. See "Use of Proceeds". This table should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus.
AS OF JUNE 30, 1997 ------------------------- ACTUAL AS ADJUSTED (DOLLARS IN THOUSANDS) Long-term debt............................................................................ $ -0- $ -0- Series A Convertible Preferred Stock, $.01 par value: 3,190,000 shares authorized, issued and outstanding; no as adjusted shares issued and outstanding....................... 30,977 -0- Series B Convertible Preferred Stock, $.01 par value: 600,000 shares authorized, 365,000 shares issued and outstanding; no as adjusted shares issued and outstanding......... 3,098 -0- Non-Voting Common Stock, $.01 par value: 20,000,000 shares authorized; 110,000 shares issued and outstanding; no as adjusted shares issued and outstanding................ 1 -0- Common Stock, $.01 par value: 50,000,000 shares authorized; 6,710,000 actual shares issued and outstanding; 12,875,000 as adjusted shares issued and outstanding........... 67 Additional paid-in capital................................................................ -0- Retained earnings......................................................................... -0- -0- ------- -------- Total common shareholders' equity................................................. 68 ------- -------- Total capitalization.......................................................... $34,143 $ ======= ======== - -------- Gives effect to changes in the Company's capitalization effected in June 1997, including the increase in the numbers of authorized shares of Common Stock and authorized but undesignated shares of preferred stock. Upon the completion of this offering, the Company intends to file an amendment to its Articles to eliminate the Series A and Series B Convertible Preferred Stock and the Non-Voting Common Stock. See "Description of Capital Stock." Assumes no exercise of outstanding stock options. As of the date of this Prospectus, there were outstanding options to purchase 1,237,500 shares of Common Stock at a weighted average exercise price of $5.65 per share, and options to purchase an additional shares of Common Stock at ------------- the initial public offering price. An additional shares are ------------- currently reserved for future grants under the Company's employee benefit plans. See "Management--Employee Stock Plans" and Note 12 of Notes to the Company's Consolidated Financial Statements.
16 18 DILUTION The adjusted net tangible book value of the Company as of June 30, 1997, was approximately $12.2 million, or $1.18 per share of Common Stock. Adjusted net tangible book value per share is equal to the Company's total tangible assets less total liabilities, divided by the number of shares of Common Stock outstanding, after giving effect to the Capital Stock Conversions. After giving effect to the sale by the Company of 2,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $ per share and the ----- application of the estimated net proceeds therefrom (see "Use of Proceeds"), the pro forma adjusted net tangible book value of the Company at June 30, 1997 would have been approximately $ million, or $ per share. This represents ----- ----- an immediate increase in adjusted net tangible book value of $ per share ----- to existing shareholders and an immediate dilution of $ per share to new ----- investors purchasing shares in the offering. The following table illustrates this per share dilution: Assumed initial public offering price per share............................. $ Adjusted net tangible book value per share as of June 30, 1997.............. $1.18 Increase in adjusted net tangible book value per share attributable to new investors.................................................................. Pro forma adjusted net tangible book value per share after the offering......... ------- Dilution in adjusted net tangible book value per share to new investors......... $ ======= - -------- Before deducting estimated underwriting discounts and commissions and estimated expenses of the offering payable by the Company.
The following table summarizes on a pro forma basis, at June 30, 1997, the difference between existing shareholders and new investors with respect to the number of shares of Common Stock purchased from the Company (assuming no exercise of the Underwriters' over-allotment option), the approximate total consideration paid, and the average price per share paid, by existing holders of Common Stock and by the investors purchasing shares of Common Stock in this offering before deduction of underwriting discounts and commissions and estimated offering expenses and assuming an initial public offering price of $ per share. -----
SHARES PURCHASED TOTAL CONSIDERATION ------------------------ ------------------------ AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE Existing shareholders................... 10,375,000 81.0% $32,793,917 $3.16 New investors........................... 2,500,000 19.0% % ---------- ----- ----------- ----- Total........................... 12,875,000 100.0% $ 100.0% - -------- A portion of the total consideration with respect to existing shareholders other than General American is calculated based on values established in connection with the Strategic Merger, and in the case of General American reflects book value of assets contributed pursuant to the Strategic Merger plus subsequent purchases.
The above computations assume no exercise of outstanding stock options. As of the date of this Prospectus, there were outstanding options to purchase 1,237,500 shares of Common Stock at a weighted average exercise price of $5.65 per share and options to purchase an additional - -------- shares of Common Stock at the initial public offering price. An additional -------- shares are currently reserved for future grants under the Company's employee benefit plans. To the extent these options are exercised, there will be further dilution to new investors. See "Management--Employee Stock Plans" and Note 12 of Notes to the Company's Consolidated Financial Statements. 17 19 BUSINESS GENERAL Conning is a nationally recognized asset management company providing services to the insurance industry, and is also a leading provider of insurance research. As of June 30, 1997, the Company had approximately $23.1 billion of assets under discretionary management and, in total, provided services with respect to approximately $58.0 billion of assets for insurance company clients. The Company believes it is well positioned to take advantage of the continued growth in insurance industry assets and a trend among insurance companies to seek external investment management expertise. The Company believes that many insurance companies are responding to increasing competitive, financial and regulatory pressures by engaging outside asset managers for (i) sophisticated asset management, (ii) access to specialized asset classes supported by a comprehensive analytical methodology, and (iii) comprehensive investment accounting & reporting services. During the period from 1992 through 1996, assets under discretionary management of the Company increased by an average of 24% per year, on a pro forma basis after giving effect to the Strategic Merger and the inclusion of assets of General American for all years. In 1996, its first full year of operations following the Strategic Merger, the Company had revenues of approximately $53.7 million, net earnings of approximately $6.2 million and earnings before interest, taxes, depreciation and amortization ("EBITDA") of approximately $15.3 million. In the six months ended June 30, 1997, the Company had revenues of approximately $30.9 million, net earnings of approximately $4.1 million and EBITDA of approximately $9.1 million. The Company believes that it possesses competitive strengths in insurance asset management which may support its prospects for growth: INSURANCE INDUSTRY FOCUS AND KNOWLEDGE. The Company believes that its focus on the insurance industry allows it to provide substantially all of the services and products that an insurance company seeks from an asset manager. By utilizing its specialized knowledge of insurance company investment considerations, the Company believes it offers a more comprehensive set of asset management services than many of its competitors, including asset allocation, asset and liability matching, cash forecasts, tax modeling and accounting & reporting. The Company offers expertise in asset classes that many insurance companies traditionally utilize, including commercial mortgage loans, investment real estate and private placements. NAME RECOGNITION WITHIN THE INSURANCE INDUSTRY. The Company believes that the established reputation of Conning within the insurance industry provides the Company with a marketing advantage. According to the Eager Study, the Company ranks among the top two insurance asset management firms in terms of name recognition among domestic, non-captive insurance companies with assets over $30 million which responded to the survey. The Company's in-depth insurance industry research has been targeted to senior executives in the insurance industry for more than 40 years, and its Strategic Studies Series is subscribed to by 82 of the 100 largest U.S. insurance companies (based on 1996 premiums as reported by industry sources). CLIENT SERVICE AND PERFORMANCE FOCUS. The Company attempts to differentiate itself from competitors through its insurance-specific capabilities, investment performance and frequent, responsive client communication. During the period from 1992 through 1996, the Company retained an average of approximately 95% of unaffiliated clients on an annual basis. * Capabilities--The Company utilizes a team approach to managing each client's portfolios, combining the talents of investment, insurance, actuarial, tax and accounting specialists. The Company utilizes a set of insurance-related research products, including property/casualty and life/health profitability models, a loss ratio and loss reserve analysis service and a tax optimization model. * Performance--The Company tailors its asset management services to the specific needs and objectives of each client's investment portfolio and seeks to achieve favorable results based upon risk and return parameters established for each client's portfolio. * Responsiveness--The Company communicates frequently with its clients to pursue the clients' investment objectives in light of changing business and market conditions. The Company believes such responsiveness is critical to strong client relationships and client satisfaction. The Company believes that its comprehensive investment accounting & reporting services are integral to client communications. 18 20 EXPERIENCED MANAGEMENT WITH SIGNIFICANT STOCK OWNERSHIP. The Company employs an experienced management team, the members of which have an average of approximately 20 years of experience in the investment or insurance business. In total, the employees of the Company will own in the aggregate approximately 23% of the Common Stock on a fully diluted basis after the offering. COMPANY OPERATIONS--OVERVIEW The Company's business is asset management for insurance companies, which is supplemented by its in-depth research focused on the insurance industry. The Company's asset management services consist of three components: (i) discretionary asset management services, (ii) investment advisory services and (iii) investment accounting & reporting services. In connection with its discretionary asset management services, the Company originates and services commercial mortgages and manages investments in real estate assets. The Company also sponsors and manages private equity funds investing in insurance and insurance-related companies. ASSET MANAGEMENT. The Company's insurance asset management services are designed to optimize investment returns for clients within the guidelines imposed by insurance regulatory, accounting, tax and asset/liability management considerations. As of June 30, 1997, the Company provided services with respect to approximately $58.0 billion in assets, of which approximately (i) $23.1 billion represented assets under discretionary management, (ii) $20.5 billion represented assets serviced under investment advisory agreements and (iii) $14.4 billion represented assets receiving investment accounting & reporting services on a stand-alone basis. As part of its discretionary asset management services, as of June 30, 1997, the Company managed approximately $2.6 billion of commercial mortgage loans and investment real estate. The Company manages private equity funds which invest in insurance and insurance-related companies. Since 1985, the Company has sponsored five private equity funds, raising approximately $360 million in committed capital and investing more than $187 million of these proceeds in 38 portfolio company investments in connection with financings aggregating to more than $1.0 billion. INSURANCE RESEARCH. The Company believes that Conning & Company is one of the leading insurance industry investment research firms in the United States. The Company publishes in-depth insurance industry research covering major insurance industry trends, products, markets and business segments. The Company also publishes stock research on a broad group of publicly-traded insurance companies for some of the largest United States institutional money managers as well as pension funds, banks, mutual funds, and insurance companies. Conning & Company also from time to time participates in the underwriting of public offerings of equity securities for insurance or insurance-related companies. INDUSTRY BACKGROUND AND TRENDS Due to the unique financial characteristics and the regulatory environment governing the various segments of the insurance industry, effective management of insurance company assets requires specialized industry knowledge. In addition to an in-depth understanding of an insurance company's business and products, the Company believes that insurance companies expect that their assets should be carefully tailored to meet the company's specific regulatory and tax requirements and profitability objectives, and that the asset manager would manage investment risk to reflect the underlying income and cash flow characteristics of the insurance products which the investments support. INSURANCE INDUSTRY OVERVIEW Dynamics of Insurance. The insurance industry reduces the risk of significant financial loss for individuals, families and businesses resulting from the loss of life or ability to lead a productive life or from a property or casualty-related loss. The dynamics of the insurance industry are significantly influenced on a broad level by changes in economic or market conditions, regulations, natural disasters and by individual factors such as personal health and longevity, accidents and personal misfortune. Unique Financial Characteristics. Insurance companies must carefully monitor cash flow patterns with respect to premium collections and claims payments in order to ensure that invested assets are adequate to cover the payment of potential future claims. Cash flow patterns vary depending on the type of insurance (i.e., life/health and property/casualty). For example, life insurance policies typically have either an up-front premium or steady premiums 19 21 collected over the life of the policy, and claims are typically paid in a lump sum or a stream of payments many years after the policy's inception. Many life insurance products combine a tax-efficient savings component with the insurance component. Health insurance premiums, on the other hand, are generally collected in a steady stream and closely match the projected stream of medical claims payments. Property insurance premiums are typically collected over the life of the policy and claims are typically paid within the life of the policy or shortly after the policy term expires. Casualty insurance premiums are typically paid over the life of the policy and if claims are made, usually after litigation, typically many years after the policy period. Regulatory Environment. Insurance companies are heavily regulated by state laws and regulatory agencies, which require, among other things, that insurance companies comply with risk-based capital requirements. Additionally, insurance company portfolios are constrained in the asset classes and allocations they can hold and are typically heavily weighted toward fixed income securities of investment grade or higher. Property/casualty companies typically hold limited amounts of real estate investments, while life insurance companies invest more heavily in real estate. Further, insurance companies must submit to state regulators statutory financial statements which conform to regulatory requirements. The Company believes that its understanding of the dynamics of the insurance industry, the unique financial characteristics of different insurance products, and the insurance industry's regulatory environment enables it to provide comprehensive asset management services to insurance companies. DEVELOPING TRENDS IN THE INSURANCE INDUSTRY Certain key insurance industry trends that also affect the management of insurance company assets are as follows: Growing Insurance Company Assets. Insurance company assets have grown over several decades and during the period from 1986 to 1996 grew at an average rate of approximately 9% per year, from approximately $1.3 trillion to approximately $3.1 trillion, according to a standard industry source, as shown in the following table: INSURANCE COMPANY ASSETS (IN BILLIONS) [GRAPH]
1986 1987 1988 1989 1990 1991 - -------------- -------------- -------------- -------------- -------------- -------------- $1,305,366,000 $1,460,108,000 $1,634,187,000 $1,811,072,000 $1,946,859,000 $2,105,149,000 1992 1993 1994 1995 1996 - -------------- -------------- -------------- -------------- -------------- $2,259,688,000 $2,473,839,000 $2,628,944,000 $2,890,914,000 $3,105,321,000
Continuing Trend Towards Increased Savings. As the "baby-boom" generation continues to age, the Company believes that the demographics of the population of the United States should favor wealth accumulation. Thus, the Company anticipates that the growth of asset accumulation products (e.g., annuities) will outpace the growth of mortality based products (e.g., term life insurance). The Company believes this trend will cause insurance companies to focus increasingly on the importance of investment management to support competition in investment-oriented products. Acceptance of Outsourcing. The Company believes that many insurance companies are utilizing non-affiliated asset managers in order to respond to competitive product requirements and the pressure to achieve higher returns on investments while maintaining an acceptable level of risk. According to the Eager Study, assets under management by external, non-affiliated managers increased at a rate of 17% per year from $300 billion in 1994 to $415 billion in 1996, which represented approximately 15% of industry assets. 20 22 The Company believes that outsourcing can provide insurance companies the opportunity to access the specialized expertise, scale and technology needed to manage assets more effectively. The Company also believes outsourcing has become an accepted business approach in the insurance industry. The Company believes many insurance companies and other financial service providers, including banks and investment managers, will be driven by increased competition, regulatory considerations and increased capital needs to divest themselves of non-core businesses and to seek to acquire, merge with or otherwise strategically align themselves with complementary businesses in order to achieve economies of scale. The Company also believes that such merger or consolidation activity in the insurance industry may create additional outsourcing opportunities as the remaining companies seek ways to achieve increased efficiencies. See "Risk Factors--Risks Associated with Insurance Industry Focus." STRATEGY The Company's growth is built on a foundation of recurring, fee-based revenues. Fee-based revenues represented approximately 80% of the Company's total revenues both in 1996 and for the first six months of 1997. The Company's primary operating strategy is to grow recurring, fee-based asset management related revenues through the following strategies: LEVERAGE ESTABLISHED ASSET MANAGEMENT PLATFORM TO GENERATE GROWTH AND PROFITABILITY The Company believes that it has established a platform, made up of core investment professionals, product expertise and systems, to support future growth in fee-based asset management revenues. Opportunities for asset management growth are expected to come from new and existing clients, strategic acquisitions and alliances and from General American and its affiliates. GENERATE GROWTH FROM NEW AND EXISTING CLIENTS The Company intends to take advantage of the growth in insurance industry assets and a trend among insurance companies to seek external investment management expertise. The Company will pursue growth in assets under management from new clients by increasing the Company's sales and marketing efforts and by leveraging the Company's strong name recognition. Additionally, the Company will continue to pursue growth in assets under management from existing clients by seeking to increase its share of its clients' assets and from underlying growth in existing assets. PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES TO EXPAND MARKET PENETRATION The Company regularly evaluates strategic acquisitions, joint ventures and marketing alliances as a means of increasing assets under management, expanding the range of its product offerings and increasing its sales and marketing capabilities. LEVERAGE STRATEGIC ALLIANCE WITH GROWING PARTNER The Company's relationship with General American, the Company's principal shareholder, provides opportunities for distribution of the Company's products and services to General American and its affiliates. The Company has benefited from the internal growth and acquisition activity of General American and its subsidiaries, with assets under management of General American and its affiliates increasing at an average rate of approximately 14% per year, from approximately $5.6 billion as of December 31, 1991 to approximately $10.6 billion as of December 31, 1996. At June 30, 1997, such affiliated assets under management totaled approximately $12.6 billion. No assurance can be given that the Company's objectives or strategies will be achieved. See "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors." ASSET MANAGEMENT The Company's business is asset management for insurance companies, which is supplemented by its in-depth research focused on the insurance industry. The Company's asset management services consist of three components: (i) discretionary asset management services, (ii) investment advisory services and (iii) investment accounting & 21 23 reporting services. In connection with its discretionary asset management services, the Company originates and services commercial mortgages and manages investments in real estate assets. The Company also sponsors and manages private equity funds investing in insurance and insurance-related companies. As of June 30, 1997, the Company provided services with respect to approximately $58.0 billion in assets, of which approximately (i) $23.1 billion represented assets under discretionary management, (ii) $20.5 billion represented assets serviced under investment advisory agreements and (iii) $14.4 billion represented assets receiving investment accounting & reporting services on a stand-alone basis. This array of services allows the Company to provide a fully integrated product offering, with some clients utilizing all of the asset management services the Company offers, and others utilizing only selected services. Assets serviced by the Company have increased at a compound annual rate of approximately 35% from December 31, 1991 to December 31, 1996, as shown in the following table: ASSETS SERVICED BY THE COMPANY (IN BILLIONS)
AVERAGE ASSETS AS OF ---------------------------------------- AS OF AS OF 12/31/91 1992 1993 1994 1995 1996 12/31/96 6/30/97 Assets under discretionary management Unaffiliated.................................. $ 1.5 $ 3.3 $ 5.4 $ 6.2 $ 7.8 $ 9.5 $10.1 $10.5 Affiliated.................................... 5.6 5.5 6.0 6.6 7.8 9.6 10.6 12.6 ----- ----- ----- ----- ----- ----- ----- ----- Total..................................... 7.1 8.8 11.4 12.8 15.6 19.1 20.7 23.1 ----- ----- ----- ----- ----- ----- ----- ----- Investment advisory............................... 4.9 5.2 10.0 14.7 15.3 18.3 20.8 20.5 Investment accounting & reporting................. -- -- 1.2 2.6 4.8 9.2 11.7 14.4 ----- ----- ----- ----- ----- ----- ----- ----- Total................................. $12.0 $14.0 $22.6 $30.1 $35.7 $46.6 $53.2 $58.0 ===== ===== ===== ===== ===== ===== ===== ===== - -------- Since January 1, 1995, the assets of the general account of General American have been under contract with GAIMCO (now known as Conning Asset Management Company). General account assets prior to January 1, 1995 were managed by the investment division of General American, a predecessor of GAIMCO, and are included in assets under management for years prior to 1995. Data for 1995 and prior periods are presented on a pro forma basis to include both Conning and GAIMCO assets under management.
22 24 Discretionary Asset Management & Investment Advisory Services. The Company's assets under discretionary management have increased at a compounded annualized rate of approximately 24% from December 31, 1991 through December 31, 1996, with assets of General American-related (affiliated) accounts increasing approximately 14% and assets of other clients (unaffiliated) increasing approximately 46% over the period. The Company's insurance asset management services are designed to optimize investment returns for clients within the constraints imposed by insurance regulatory, accounting, tax and asset/liability management considerations. The Company utilizes a team-based, client-oriented approach, drawing upon a variety of insurance specialists, including researchers, actuaries and investment, financial and tax professionals, with specific industry expertise, investment class knowledge, insurance product knowledge, risk analysis, portfolio management and client relationship skills. The Company supports a variety of asset classes, as shown in the following table: ASSETS UNDER DISCRETIONARY MANAGEMENT (IN BILLIONS)
AS OF ASSET CLASSES JUNE 30, 1997 Corporate bonds................................... $ 6.0 Asset-backed securities........................... 4.9 Mortgage loans.................................... 2.4 Municipal bonds................................... 2.2 Government bonds.................................. 1.9 Private placements................................ 2.0 Indexed equity.................................... 1.7 Short-term obligations............................ 1.0 Equity............................................ 0.8 Real estate....................................... 0.2 ----- Total..................................... $23.1 =====
The Company works with each client individually to conduct an in-depth analysis of its insurance operations and investment objectives. This broad strategic approach is designed to address each client's core needs to model asset and liability durations and manage risk and maximize returns. In particular, the Company analyzes the client's strategic objectives, operational forecasts, business needs, cash flows, regulatory and rating agency concerns, and accounting and tax issues. The Company utilizes a "top down" investment methodology, beginning with an analysis of macro-economic and capital market conditions. Additionally, the Company considers the client's current portfolio characteristics, management's risk tolerance, investment guidelines, performance benchmarks and desired asset allocation. The Company undertakes quantitative analyses, including (i) asset/liability analyses, (ii) analyses of cash flows, interest rate risk and surplus adequacy, (iii) peer group comparisons and (iv) asset allocation modeling. The Company also utilizes its insurance related research products, including property/casualty and life/health profitability models, a loss ratio and loss reserve analysis service, and a tax optimization model. The Company assists its clients in the development of new insurance products by advising them as to investment strategies required to meet the profitability goals set for such products. The Company is integral to the product management, administration and distribution of one of General American's stable value insurance products. The Company also serves as the investment adviser to several registered investment companies and unit investment trusts sponsored by General American. Investment advisory agreements with registered investment companies and unit investment trusts may be terminated at any time by the entity upon specified notice, terminate automatically in the event of their assignment, and are subject to annual renewal by the board of the entity. The Company also provides stand-alone investment advisory services to clients who are seeking only business analysis and asset allocation or diversification advice. Such advice typically includes a review of the portfolio from the standpoint of liability structure, capital adequacy, return on equity, asset allocation, regulatory and rating agency implications, and income and cash flow requirements. As of June 30, 1997, the Company had approximately $20.5 billion in assets under investment advisory contracts on a stand-alone basis. 23 25 The Company's asset management accounts are each managed pursuant to a written investment management agreement with the client. Such agreements are terminable upon relatively short notice (typically 30-90 days) by either party. In providing discretionary asset management services, the Company generally is compensated on the basis of fees calculated as a percentage of assets under management. Fees generally are billed and are payable quarterly and typically are calculated on the asset value of an account at the beginning or end of a quarter. The fee schedules typically provide lower incremental fees above certain levels of managed assets. The Company's investment advisory accounts are managed pursuant to a written agreement for a specified term, generally one to three years, pursuant to which the Company generally receives a fixed periodic fee. Mortgage Origination and Service of Real Estate. The Company has developed expertise in the origination and servicing of commercial mortgage loans and the management of real estate, asset classes which are frequently utilized by life insurance companies. As of June 30, 1997, the Company managed approximately $2.5 billion in commercial mortgage loans and approximately $143 million in investment real estate. The Company has originated more than $2.1 billion of mortgage loans for its clients since January 1, 1994, most of which were on behalf of General American and its affiliates. In addition, the Company is developing opportunities for placements for other insurance company clients and pension funds. The Company believes it has the capacity, under favorable market conditions, to generate approximately $900 million in commercial mortgage loans annually. During the first six months of 1997, the Company originated approximately $325 million of new mortgage loans. The following chart shows the growth of the amount of new mortgage loans that the Company has originated during the period from 1992 through 1996. NEW MORTGAGE LOAN FUNDINGS (IN MILLIONS) [GRAPH]
1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- 89.3 139.1 361.5 529.0 819.7
The Company has traditionally focused on originating commercial mortgage loans generally ranging in size from $2 million to $15 million, with varying maturities of five to twenty years, secured by office, industrial or retail properties. The Company also provides development, advisory and management services with respect to real estate investment properties. The Company originates, actively monitors and manages its commercial mortgage loan and real estate portfolios through its St. Louis home office location and eleven field offices located in Arizona, California , Colorado , Florida, Georgia, Illinois, Missouri, Texas and Washington, D.C. The Company performs a full array of mortgage loan origination and portfolio management services including lease analysis, property valuation, economic and financial reviews, tenant analysis and oversight of default and bankruptcy proceedings. All properties are inspected each year and evaluated periodically based on internal quality ratings for purposes of loan loss reserve and internal management. The Company also provides ongoing servicing, generally as part of an integrated mortgage loan origination program and in several cases on a stand-alone basis. As of June 30, 1997, the Company provided mortgage loan servicing for approximately $2.6 billion of mortgage loans, primarily for General American and its affiliates. The Company is rated as a master servicer by Fitch Investors Service, L.P. ("Fitch") and Standard & Poor's, and a special servicer by Fitch for purposes of servicing securitized loan portfolios. The Company also provides a wide range of mortgage loan and real estate accounting services, including reconciliation reports, mortgage loan and real estate 24 26 reporting for regulatory agencies, management and outside clients, and tax analysis and support. See "--Investment Accounting & Reporting." The Company established a relationship with an investment banking firm to originate mortgage loans. In 1995 the Company originated loans for a securitized offering by such investment banking firm in an amount of $273 million, and the Company retained the master servicing of the loan portfolio. During the first quarter of 1997, the Company originated approximately $200 million of mortgage loans for such firm. Additionally, the Company is expanding efforts to market its mortgage loan origination and servicing and accounting capabilities to other life insurance companies. The Company generally receives a fee associated with loan origination, which is usually approximately 1% of the loan balance. The Company also receives ongoing servicing fees and management fees with respect to mortgage loans in portfolios managed by the Company. Private Placement Investing. The Company believes it has considerable expertise in evaluating private placement securities. As of June 30, 1997, the Company managed approximately $2.0 billion in private placement securities, most of which were purchased on behalf of General American and its affiliates. Private placement securities are acquired pursuant to negotiated transactions between investors and issuers pursuant to exemptions from registration with the SEC. While less liquid than public securities, private placements often contain investment characteristics favorable to investors such as more stringent financial covenants, prepayment protection, collateral or higher yields than similar public securities. The Company purchases both fixed and floating rate, U.S. dollar denominated private securities on behalf of its client accounts, primarily of investment grade quality and primarily according to a "buy and hold" strategy. Such an investment in a private placement is generally between $5 million and $15 million. The Company conducts in-depth reviews of each private placement security's credit, structure, terms and proposed pricing prior to making a commitment to purchase a private placement on behalf of a client. The Company considers credit analysis to be critical to its success in private placement investing and such credit analysis consists of an evaluation of all aspects of a borrowing, including analysis of financial statements and ratios, cash flow, industry and competitive position, operating trends and any collateral securing the loan. Investment Accounting & Reporting. As of June 30, 1997, the Company's investment accounting & reporting services provided stand-alone investment accounting for approximately $14.4 billion in assets. All $58.0 billion in assets serviced by the Company are supported by the Company's investment accounting & reporting system. The Company's investment accounting & reporting services include management and regulatory reporting on invested assets, operating income and capital gains and losses. These services have been designed to address the needs of clients for timely and accurate reporting for management purposes, as well as the increased information required in filings with state and federal regulatory authorities regarding assets and liabilities as well as risk-based capital allocations, including Schedules B and D of the standard insurance industry annual statutory financial report. The Company's accounting & reporting system utilizes the Complete Asset Management, Reporting and Accounting software system (known as CAMRA(TM)) and the Fully Integrated Loan Management Information Software System (known as FILMS(TM)) under a software license agreement with SS&C Technologies, Inc. ("SS&C"), effective as of January 27, 1996 (the "License Agreement"). SS&C represents that it is the owner of the trademarks CAMRA(TM) and FILMS(TM). In connection with insurance investment accounting, the Company obtains pertinent client information through frequent and ongoing contact with the client, portfolio manager, brokers and custodians, in addition to standard industry sources. The Company utilizes detailed portfolio information as the foundation for asset allocation and portfolio management as well as to support its clients' operational and information needs. By utilizing CAMRA(TM), the Company is able to provide a number of services, such as: (i) portfolio management and market analyses, including a comprehensive securities database supporting on-line daily, monthly, quarterly and on-demand calculation of a range of information, including book and market value, yields, duration, average life and various user-selected scenarios; (ii) comprehensive accounting and reporting capabilities, including four accounting bases-- GAAP, statutory, management and tax--exporting data directly to spreadsheets, word processors and databases for ease of delivery and presentation; (iii) multi-currency processing, calculating transaction and translation values in accordance with applicable accounting and insurance industry rules; and (iv) regulatory compliance, providing performance measurement calculations. The Company utilizes FILMS(TM) to enable its mortgage professionals to process, analyze and report on a comprehensive basis information regarding their loan portfolios. CAMRA(TM) and FILMS(TM) allow for detailed and timely reporting to the Company's clients, providing them with valuable management tools. Such reporting is an integral component of the Company's focus on client service. 25 27 Under the License Agreement, the Company has a perpetual non-exclusive license to use, maintain and modify its investment accounting & reporting software, including both CAMRA(TM) and FILMS(TM), in both source code and object code (the "Software"). The License Agreement permits the Software to be used by the Company and General American and its subsidiaries for accounting, reporting and similar purposes in the asset management business and for outsourcing to customers in the insurance industry. See "Risk Factors--Risk of System Failure; Dependence on Vendors." Investment accounting & reporting services are typically provided in conjunction with insurance asset management services and are therefore subject to the terms of an overall management agreement. See "--Discretionary Asset Management & Investment Advisory Services." In a number of cases, however, clients have retained the Company to provide such services on a stand-alone basis. In those cases, the services are subject to the terms of a separate agreement and the Company is generally compensated on the basis of fees calculated as a percentage of assets serviced. Private Equity Funds. The Company believes it is a leader in facilitating the provision of private equity capital to the insurance and insurance-related industries. Since 1985, the Company has organized five funds that have raised approximately $360 million in committed capital. The private equity funds have invested more than $187 million of these proceeds in 38 portfolio company investments, in connection with financings aggregating to more than $1.0 billion. The Company or a subsidiary acts as the general partner of the funds and maintains a 1% general partner capital interest. The Company may also invest as a limited partner in future funds it may organize. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Relationships and Related Transactions." Management believes that limited partners invest in the Company's private equity funds to obtain the opportunity for potential private equity returns on investments in insurance or insurance-related enterprises. Investors also receive exposure to new business strategies and entrepreneurial developments in the insurance industry. More than 70 limited partners have invested in the Company's private equity funds since 1985, including financial companies, banks, pension funds and some of the largest insurance companies in the world. A number of limited partners have invested in multiple private equity funds over time. The following table shows the average private equity committed capital over the past five years. PRIVATE EQUITY COMMITTED CAPITAL (IN MILLIONS)
AVERAGE COMMITTED CAPITAL ---------------------------------------------- AS OF 1992 1993 1994 1995 1996 8/31/97 Fund I.............. $ 50.5 $ 42.5 $ 28.5 $ 19.0 $ 7.7 $ -0- Fund II............. 67.7 67.7 67.7 67.7 67.7 67.7 Fund III............ -- 21.2 49.5 56.6 56.6 56.6 Fund IV............. -- -- -- 18.7 38.9 40.4 Fund V.............. -- -- -- -- -- 146.5 ------ ------ ------ ------ ------ ------ Total....... $118.2 $131.4 $145.7 $162.0 $170.9 $311.2 ====== ====== ====== ====== ====== ======
These funds have invested in a wide range of insurance, healthcare and insurance service company segments, including specialty property-casualty, life, health, managed care, agency, software, and service companies. The portfolio companies have been in various stages of development, including start-ups, expansion rounds, buy-outs and recapitalizations. The Company seeks to develop a working relationship with senior management of the portfolio companies to jointly maximize shareholder value. An employee of the Company generally serves as a representative on the board of directors of the portfolio companies. By providing guidance through board of director participation, the Company seeks to assist senior management in developing business strategies, raising capital in the public and private markets and acquiring new or complementary businesses. Investors in the funds have become co-investors, joint venture partners, reinsurers or customers to over half of the funds' portfolio companies. 26 28 Subject to the ability to raise capital, the Company currently plans to maintain several funds at any point in time, reflecting the approximate ten year life cycle of the funds. The objective of the funds is to liquidate their investments through public offerings, sale of the portfolio company or the fund's investment, redemption or otherwise. Since inception, approximately 15 portfolio companies have emerged as public entities. The Company receives annual management fees from the private equity funds of approximately 2% of committed funds and a specified interest in the cumulative net profit. Certain of the Company's professionals share in the Company's share of any profit participation. See "Certain Relationships and Related Transactions-- Participation in Private Equity Funds." INSURANCE RESEARCH Name recognition associated with the Company's insurance research business is an integral component of the marketing strategy for the Company's insurance asset management services. The Company believes that Conning & Company is viewed as one of the leading insurance industry investment research firms in the United States. The Company publishes in-depth insurance industry research covering major insurance industry trends, products, markets and business segments. The Company also publishes stock research on a broad group of publicly-traded insurance companies for some of the largest United States institutional money managers as well as pension funds, banks, mutual funds, and insurance companies. The Company's in-depth insurance industry research has been targeted to senior executives in the insurance industry for more than 40 years, and its Strategic Studies Series is subscribed to by 82 of the 100 largest U.S. insurance companies (based on 1996 premiums as reported by industry sources). During 1996 and the first six months of 1997, the Company published the following studies: LIFE/HEALTH/ASSET ACCUMULATION The High Net Worth Market for Financial Services--Leveraging Customer Specialization to Achieve Sustainable Competitive Advantage The Pension/Retirement Assets Business--Sleeping With the Enemy The Rise of Multiple Life Distribution Channels--Covering All Bases Individual Annuities--Rising Tide Will Not Lift All Carriers FINANCIAL Alternative Markets--Evolving to a New Layer Lloyd's of London--A New World of Capital. Is the Genie Out of the Bottle? Mergers & Acquisitions and Public Equity Offerings--Sink, Swim Fast or be Swallowed Technology I--Electronic Commerce and the Internet Banking--New Opportunities for Banks in Insurance HEALTHCARE Medicare and Medicaid--The Private Sector Steps to the Plate Reinvesting Individual Disability Income Insurance--The Long Road Back The Health Care Marketplace--The Move Toward Managed Care Accelerates PROPERTY/CASUALTY The Property-Casualty Underwriting Cycle--Lifting the Veil of Abnormal Losses Insurance Fraud--The Quiet Catastrophe Property-Casualty Expenses--Building Muscles While Losing Fat Personal Auto Insurance--Winning Strategies for the Year 2000 The Independent P/C Agent--The Squeeze Is Still On Strategic Customer Specialization--The Patchwork Quilt of Minority Owned Businesses REINSURANCE Outlook for the Reinsurance Industry--A New Definition of Quality Life and Health Reinsurance--Pockets of Opportunity 27 29 In addition, the Company from time to time participates in the underwriting of public offerings of equity securities for insurance and insurance-related companies. Since 1993, the Company has participated in syndicates for approximately 120 insurance-related underwritings for both initial and follow-on public offerings. Payment for the Company's research services is primarily in the form of commissions derived from securities transactions effected by the Company and, to a lesser extent, subscription fees for research publications. In addition, the research services revenues received by the Company reflect underwriting fees with participation in public offerings of insurance and insurance-related companies. ACCOUNTING, ADMINISTRATION AND OPERATIONS The Company's accounting, administration and operations personnel are responsible for financial controls, internal and external financial reporting, compliance with regulatory and legal requirements, office and personnel services, the Company's management information and telecommunications systems, and the processing of the Company's securities transactions. General American provides certain of these functions pursuant to an Administrative Services Agreement. See "Certain Relationships and Related Transactions--Transactions with General American." The Company contracts with outside services for securities pricing information in connection with its asset management and investment accounting & reporting services. See "Risk Factors--Risk of Systems Failure; Dependence on Vendors." COMPETITION All of the Company's businesses are conducted in highly competitive markets. The Company competes with a large number of other asset management firms as well as broker-dealers, insurance companies, commercial banks and others in the business. Conning Asset Management Company competes for assets under discretionary management with a large number of specialty and diversified investment advisory firms and divisions, many of whom are larger and have access to greater resources than the Company. The asset management industry is characterized by relatively low cost of entry, and new investment advisory entities may be formed which may compete with the Company. The Company's focus on the insurance industry makes it particularly subject to direct competition from firms or divisions which specialize in providing services to the insurance industry. Additionally, other insurance companies may determine to spin out their investment management divisions, which might then become significant competitors. The Company believes that the most important factors affecting competition for investment management clients are the knowledge and reputations of investment managers, customer service, performance records and pricing policies. The Company's mortgage origination and servicing business faces competition from local and national mortgage brokerage firms, other direct institutional lenders and services, lending programs from investment banking firms and other financial institutions, many of whom are larger and have access to greater resources than the Company. The Company believes that the most important factors affecting competition for the origination of commercial mortgage loans are price, loan quality and service. For most customers, the Company's investment accounting & reporting services face competition from certain other asset management firms as well as software companies, including SS&C. The Company believes the most important factors affecting competition for investment accounting & reporting services are the quality and performance of the Company's software and service, and to a lesser extent price. The Company's private equity business faces competition for raising capital and making equity investments from securities firms, venture capitalists, commercial banks, investment banks and insurance companies, many of whom are larger and have access to greater resources than the Company. The Company believes that the most important factors affecting competition for the sponsorship and management of such funds are performance records and the reputations and expertise of sponsors. The Company's insurance research business faces competition from traditional securities firms and investment banks in providing research on publicly-traded insurance industry related companies and research on the insurance industry. The Company believes that the most important factors affecting competition are the quality and number of the insurance research professionals, the breadth of coverage and the number of topics covered. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not materially and adversely affect the Company's business, financial condition, results of operations and business prospects. See "Risk Factors--Significant Industry Competition." 28 30 FACILITIES The Company's headquarters and certain of its executive offices are located in an approximately 25,000 square foot office space located at 700 Market Street, St. Louis, Missouri 63101 pursuant to a lease from General American. The Company anticipates leasing up to an additional 10,000 square feet at this location during 1997 on substantially the same terms and conditions. See "Certain Relationships and Related Transactions--Transactions with General American." The Company also maintains executive offices in a 49,500 square foot office space located at 185 Asylum Street, Hartford, Connecticut pursuant to a lease expiring in 2005 with annual base rental expense of approximately $1.0 million until 1999 and a base rental expense of approximately $1.2 million from 1999 until 2004, subject to increases for taxes, insurance and operating expenses. The Company also leases from third parties, or subleases from General American, each of eleven other office sites for its various mortgage loan and real estate offices located in Arizona, California (2), Colorado (2), Florida, Georgia, Illinois, Missouri, Texas and Washington, D.C. The Company's principal offices in St. Louis and all but one of the remote office spaces described above are rented pursuant to written leases and a sublease between the Company and General American. See "Certain Relationships and Related Transactions--Transactions with General American." The terms of such leases and the sublease (collectively, the "Leases"), were designed to approximate the cost to General American of owning or leasing such spaces. The Company believes that the prices and other terms under the Leases are at least as favorable as those prices and terms being offered generally in the same marketplaces by unrelated parties for comparable spaces. The Company believes its facilities have been generally well maintained, are in good operating condition, and, upon lease of the additional space described above, will be adequate for its current requirements. EMPLOYEES As of June 30, 1997, the Company employed approximately 250 employees. None of the Company's employees is subject to a collective bargaining agreement. The Company believes that its relations with its employees are good. LEGAL PROCEEDINGS On November 14, 1994, the Insurance Commissioner of the Commonwealth of Pennsylvania, in its capacity as statutory liquidator of Rockwood Insurance Company ("Rockwood"), initiated an action in the Commonwealth Court of Pennsylvania against Conning & Company and certain of the officers of Conning & Company styled Maleski v. Conning & Company, et al., No. 94-7507 (subsequently amended to Linda S. Kaiser v. Conning). The action arises out of the Commissioner's previous retention of Conning & Company as placement agent for the sale of one of Rockwood's subsidiaries. The complaint alleges breach of fiduciary duty, breach of contract, professional negligence, bad faith and conspiracy, and seeks compensatory damages for approximately $6.5 million and unspecified punitive damages, costs and interest. Conning & Company is defending the action vigorously and the Company believes that Conning & Company has meritorious defenses to all claims. Although the matter is subject to uncertainty, as it remains in the preliminary stages and discovery has not been completed, the Company believes that the probable outcome should not have a material adverse effect upon the Company. 29 31 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus. The income statement and balance sheet data for, and as of the end of, each of the years in the three-year period ended December 31, 1996 are derived from the financial statements of the Company, which financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The consolidated financial statements for each of the years in the three-year period ended December 31, 1996, and the report thereon, are included elsewhere in this Prospectus. The selected financial data presented below for the years ended December 31, 1992 and 1993 and as of December 31, 1992, 1993 and 1994 are derived from audited financial statements not included in this Prospectus. The selected consolidated financial data for the six months ended June 30, 1997 and the six months ended June 30, 1996 have been derived from the unaudited consolidated financial statements of the Company, which have been prepared on the same basis as the audited consolidated financial statements of the Company and, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations as of the end of and for such periods. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus. Also set forth below is certain operating and financial information.
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, -------------------------------------- ------------------ ---------------- 1992 1993 1994 1995 1995 1996 1996 1997 PRO FORMA (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Revenues: Asset management and related fees......................... $1,716 $2,446 $3,484 $24,050 $30,675 $40,456 $19,109 $24,079 Research services.............. 0 0 0 4,090 9,480 12,148 6,515 6,465 Other income................... 51 36 57 663 996 1,062 602 378 ------ ------ ------ ------- ------- ------- ------- ------- Total revenues............. 1,767 2,482 3,541 28,803 41,151 53,666 26,226 30,922 ------ ------ ------ ------- ------- ------- ------- ------- Expenses: Employee compensation and benefits..................... 0 0 0 12,027 18,336 26,002 11,927 15,091 Amortization of goodwill and other........................ 0 0 0 1,289 2,911 2,721 1,391 1,318 All other expenses............. 935 1,141 1,429 9,195 12,515 13,151 6,962 7,134 ------ ------ ------ ------- ------- ------- ------- ------- Total expenses............. 935 1,141 1,429 22,511 33,762 41,874 20,280 23,543 ------ ------ ------ ------- ------- ------- ------- ------- Operating income................... 832 1,341 2,112 6,292 7,389 11,792 5,946 7,379 Interest expense............... 0 0 0 521 1,365 729 412 162 ------ ------ ------ ------- ------- ------- ------- ------- Income before provision for income taxes............................ 832 1,341 2,112 5,771 6,025 11,063 5,534 7,217 Provision for income taxes......... 311 507 827 2,359 2,739 4,851 2,431 3,119 ------ ------ ------ ------- ------- ------- ------- ------- Net income................. $ 521 $ 834 $1,285 $ 3,412 $ 3,286 $ 6,212 $ 3,104 $ 4,098 ====== ====== ====== ======= ======= ======= ======= ======= Preferred stock dividends.......... 0 0 0 351 906 906 446 503 ------ ------ ------ ------- ------- ------- ------- ------- Net earnings available to common shareholder...................... $ 521 $ 834 $1,285 $ 3,061 $ 2,380 $ 5,306 $ 2,658 $ 3,595 ====== ====== ====== ======= ======= ======= ======= ======= Pro forma net income per common share and common share equivalents.............. $ 0.59 $ 0.37 ======= ======= - -------- Footnotes on next page. 30 32 AS OF DECEMBER 31, AS OF JUNE 30, -------------------------------------------------- --------------------- 1992 1993 1994 1995 1996 1997 1997 AS ADJUSTED (IN THOUSANDS) BALANCE SHEET DATA: Total assets....................... $1,395 $1,386 $1,683 $46,177 $50,020 $49,959 $ Long term debt..................... 0 0 0 9,000 2,000 0 Total liabilities.................. 437 594 356 24,552 20,870 15,816 Convertible preferred stock........ 0 0 0 17,003 24,782 34,075 Total common shareholder's equity........................... 958 792 1,327 4,623 4,368 68 Number of common shares outstanding end of period.................... 0.1 0.1 0.1 6,710 6,710 6,820 Set forth below is certain operating and financial information. --------------------------------------------------- AS OF 1992 1993 1994 1995 1996 6/30/97 (IN BILLIONS, EXCEPT AS NOTED) OTHER OPERATING DATA: Average assets under discretionary management: Unaffiliated.................................. $ 3.3 $ 5.4 $ 6.2 $ 7.8 $ 9.5 $ 10.5 General American & affiliates................. 5.5 6.0 6.6 7.8 9.6 12.6 ------- ------- ------- ------- ------- ------- Total..................................... 8.8 11.4 12.8 15.6 19.1 23.1 Average assets under advisory services............ 5.2 10.0 14.7 15.3 18.3 20.5 Average assets under accounting & reporting services........................................ 0.0 1.2 2.6 4.8 9.2 14.4 ------- ------- ------- ------- ------- ------- Total assets serviced..................... $ 14.0 $ 22.6 $ 30.1 $ 35.7 $ 46.6 $ 58.0 ======= ======= ======= ======= ======= ======= Pro forma revenues (in thousands)............. $23,656 $31,567 $30,787 $41,151 $53,666 $30,922 EBITDA (in thousands)......................... $ 832 $ 1,341 $ 2,112 $ 7,751 $15,331 $ 9,139 - -------- The years 1992 to 1994 reflect the results of GAIMCO only. The year 1995 reflects the results of the consolidated activity, from August 1, 1995 to December 31, 1995 and the results of GAIMCO only from January 1, 1995 to July 31, 1995. See Note 1 to the Company's Consolidated Financial Statements. Pro forma 1995 reflects the consolidated activity for the year assuming the Strategic Merger took place on January 1, 1995. The year 1996 reflects actual consolidated results. See Note 2 to the Company's Consolidated Financial Statements. Pro forma earnings per share is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents considered outstanding during the period after giving effect to all dilutive common stock and common stock equivalents shares issued within twelve months of the public offering of the Company's common stock. Gives effect to the Capital Stock Conversions and the sale of 2,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $ ---------- per share and the receipt of the estimated net proceeds therefrom. Since January 1, 1995, the assets of the general account of General American have been under contract with GAIMCO (now known as Conning Asset Management Company). General account assets prior to January 1, 1995 were managed by the investment division of General American, a predecessor or GAIMCO, and are included in assets under management for 1992, 1993 and 1994. Data for 1995 and prior periods is presented on a pro forma basis to include both Conning and GAIMCO assets under management. Pro forma revenues include revenues as if the Strategic Merger had occurred January 1, 1992 and assumes that the general account assets of General American prior to January 1, 1995 were managed by the Company during such periods, under the fee schedule that was in place at the time of the Strategic Merger and further assumes that the mortgage loans funded by General American prior to January 1, 1995 earned a 1% origination fee. The Company does not believe that the amount of pro forma revenues for any such prior period are indicative of the profitability of any such revenues during such period. Amount shown as of June 30, 1997 is for the six month period ended June 30, 1997. EBITDA is computed by adding operating income and "amortization of goodwill and other" from the statements of income and "depreciation and amortization" from the statements of cash flows. Amount shown as of June 30, 1997 is for the six month period ended June 30, 1997.
31 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's revenues consist of asset management and related fees, research service fees and other income. The Company's asset management and related revenues derive from three sources: asset management fees, private equity fund management fees and fees related to the Company's mortgage and real estate activities. Asset management fees primarily reflect fees for discretionary asset management services provided to insurance company clients, including General American and its affiliates. Asset management fees are generally a function of the overall fee rate charged to each account and the level of assets under management. A portion of revenues are generated when the Company provides investment advisory services as well as when the Company provides investment accounting and reporting services on a stand-alone basis. Assets under management are affected by the addition of new client accounts or client contributions to existing accounts, withdrawals of assets from or terminations of client accounts and investment performance, which may depend on general market conditions. The Company's private equity fund management fees represent annual management fees based on a percentage of committed capital and a participation in specified net gains of the funds. The Company's commercial mortgage fees primarily reflect fees associated with loan originations, which usually approximate 1% of the loan balance, as well as fees associated with ongoing servicing and management fees with respect to loans in portfolios managed by the Company. In addition to loans for General American and its affiliates, the Company has originated mortgage loans in a securitized offering for an investment banking firm. Payment for the Company's research services is primarily in the form of commissions derived from securities transactions effected by the Company and, to a lesser extent, subscription fees for research publications. In addition, the research services revenues received by the Company reflect underwriting fees with participation in public offerings of insurance and insurance-related companies. Because amortization and depreciation do not require the use of cash, for purposes of the following discussion, management believes earnings before interest, taxes, depreciation and amortization ("EBITDA") to be an additional important measure of the Company's performance. EBITDA is commonly referred to as a non-GAAP measure and therefore may not be comparable to similarly titled measures reported by other companies. The Company's EBITDA is computed by adding operating income and "amortization of goodwill and other" from the statements of income and "depreciation and amortization" from the statements of cash flows. EFFECTS OF THE STRATEGIC MERGER The Company was formed on August 11, 1995 as a holding company to effect the Strategic Merger. See "Certain Relationships and Related Transactions" and Note 1 of Notes to the Company's Consolidated Financial Statements. Upon consummation of the Strategic Merger, General American owned 100% of the outstanding Common Stock. If all of the outstanding shares of convertible preferred stock were converted as of the date of the Strategic Merger, General American would have owned approximately 65% of the outstanding Common Stock, without giving effect to outstanding stock options. Under generally accepted accounting principles, the GAIMCO contribution was recorded at historical book value as a combination of entities under common control. The Conning & Company contribution was recorded utilizing the purchase accounting method. The historical financial statements include the operations and financial position of GAIMCO through July 31, 1995, and consolidated operations thereafter and consolidated financial position at December 31, 1995 and December 31, 1996. The excess of purchase price over the fair value of net assets acquired resulted in goodwill of $20.3 million. As a result of the required accounting presentation and the inherent difficulties of analyzing the historical financial statements for periods prior to 1996 and comparing them to the 1996 results, also included is financial information on a pro forma basis as if the Strategic Merger occurred on January 1, 1995. The following discussion begins with a comparison of the historical financial statements and follows with a discussion of results based on the pro forma financial information which is found in Note 2 of Notes to the Company's Consolidated Financial Statements. See also "Selected Consolidated Financial Data." 32 34 RESULTS OF OPERATIONS HISTORICAL FINANCIAL STATEMENTS Statement of Income for the six months ended June 30, 1997 compared to the six months ended June 30, 1996 Total revenues increased 18% from $26.2 million for the first six months of 1996 to $30.9 million for the first six months of 1997, primarily as the result of the addition of new clients and growth in assets of existing clients. Assets under discretionary management increased from approximately $19.0 billion at June 30, 1996 to approximately $23.1 billion at June 30, 1997. Asset management and related fees increased 26% from $19.1 million for the six month period ended June 30, 1996 to $24.1 million for the six month period ended June 30, 1997. Fees for research services remained relatively constant at $6.5 million for the first six months of 1996 and for the first six months of 1997. During the second quarter of 1996, Conning & Company was a co-manager of a public offering which produced revenues of $1.4 million. Excluding the effect on revenues from this transaction, fees for research services would have increased 27% from the first six months of 1996 to the first six months of 1997. Other income decreased by approximately $0.2 million from $0.6 million for the first six months of 1996 to $0.4 million for the first six months of 1997 due to the $0.3 million non-recurring realized gain from the sale of securities that occurred in the first quarter of 1996. Total expenses increased 16% from $20.3 million for the first six months of 1996 to $23.5 million for the first six months of 1997, due primarily to increased employee compensation and benefits. Employee compensation and benefits increased 27% from $11.9 million for the six months ended June 30, 1996 to $15.1 million for the six months ended June 30, 1997, primarily due to additional staffing to keep pace with increased revenue activity and additional incentive compensation accruals as a result of the increased operating income. EBITDA increased 18% from $7.7 million in the first six months of 1996 to $9.1 million in the first six months of 1997 from the increased activity described above. Interest expense decreased by more than half from $0.4 million for the six months ended June 30, 1996 to $0.2 million for the six months ended June 30, 1997 due to the continuing reduction of principal on long term debt payable to affiliates. The final principal payment was made in February, 1997. Provision for income taxes increased 29% from $2.4 million for the first six months of 1996 to $3.1 million for the first six months of 1997 as a direct result of the increase in income before provision for income taxes. The effective federal and state income tax rates remained relatively constant for the six month periods ended June 30, 1997 and June 30, 1996 and were 43.9% and 43.2%, respectively. As a result of all of the above, net income increased 32% from $3.1 million for the first six months of 1996 to $4.1 million for the first six months of 1997. Statement of Income for 1996 compared to 1995 All consolidated revenue and expense categories are greater in 1996 than 1995 because each consolidated revenue and expense category includes the full year's results of Conning & Company in 1996 and only five months of Conning & Company results in 1995. The effective federal and state tax rate increased from 40.9% in 1995 to 43.8% in 1996. The higher state tax rate from Conning & Company's operations is included for the full year in 1996 and for only five months in 1995. Goodwill arising from the Strategic Merger in the amount of $20.3 million is being amortized on a straight-line basis over 20 years. This resulted in amortization expense of $0.4 million in 1995 and $1.0 million in 1996. Statement of Income for 1995 compared to 1994 All revenue and expense categories increased substantially from 1994 to 1995 principally due to the following: (i) 1995 includes the results of Conning & Company for the five months ended December 31, 1995 and there are no Conning & Company results included in 1994; and (ii) the contract to manage the general account assets of General American by GAIMCO was entered into effective January 1, 1995. The effective federal and state income tax rate increased from 39.2% in 1994 to 40.9% in 1995 due to the inclusion of goodwill in 1995 and the higher state tax rate applied to Conning & Company's results for the five months ended December 31, 1995. 33 35 PRO FORMA FINANCIAL INFORMATION Statement of Income for 1996 compared to Pro Forma 1995 Asset Management and Related Fees. Asset management and related fees increased 32% from $30.7 million in 1995 to $40.5 million in 1996 primarily due to the addition of new clients and growth in assets of existing clients, and to a lesser extent as a result of a resurgence in the real estate market and growth in mortgage assets from new and existing clients. Assets under management increased 18% from $17.6 billion at December 31, 1995 to $20.7 billion at December 31, 1996, 6% because of additions of new clients and 12% because of growth of assets of existing clients. Private equity fund management and related fees increased 21% from $3.9 million in 1995 to $4.7 million in 1996 due primarily to the March 1996 completion of Fund IV with committed capital of $40 million. See "Business--Private Equity Funds." Research Fees. Research services revenues increased 28% from $9.5 million in 1995 to $12.1 million in 1996 due primarily to the increased capital markets activity in the insurance industry and the increase in core research revenues in 1996. Conning is often a member of underwriting syndicates of insurance company offerings and twice during 1996 acted as co-manager of a secondary offering. In the aggregate, the Company generated revenues from underwriting activities of $4.0 million in 1996, as compared to $1.2 million in 1995. Underwriting revenues are highly volatile, depending on a variety of factors, including market conditions and transaction activity; accordingly, no assurance can be given as to the amount of such revenues, if any, that may arise in future periods. Other Income. Other income remained virtually unchanged at $1.1 million, primarily reflecting miscellaneous non-recurring revenues. Expenses. Employee compensation and benefits increased 42% from $18.3 million in 1995 to $26.0 million in 1996 primarily due to the higher incentive compensation as a result of the large increase in operating results from 1995 to 1996, as well as additions to staff during 1996. The Company's incentive compensation practice is based on the level of and growth in the Company's operating profits. Other operating expenses increased 6% from $12.5 million in 1995 to $13.2 million in 1996, reflecting additional ancillary costs from increased hiring and increased marketing expenses. Goodwill of $20.3 million resulting from the Strategic Merger is being amortized on a straight-line basis over 20 years. Amortization of goodwill and other charges totaling $2.9 million in 1995 and $2.7 million in 1996 are noncash expenses and do not affect cash available for other operating or capital needs. EBITDA increased 46% from $10.5 million in 1995 to $15.3 million in 1996 from the increased activity described above. Interest Expense. Interest expense decreased 47% from $1.4 million in 1995 to $0.7 million in 1996 due primarily to prepayments of debt during 1996. Debt outstanding was $9.0 million and $2.0 million at December 31, 1995 and 1996, respectively. Such debt arose from the Strategic Merger and was payable to General American. See "Certain Relationships and Related Transactions." Income Taxes. The provision for income taxes increased $2.1 million from $2.7 million in 1995 to $4.8 million in 1996 due to the increase in pre-tax earnings of the Company. Net Income. As a result of all of the above, net income increased $2.9 million from $3.3 million in 1995 to $6.2 million in 1996. Statement of Income for 1995 compared to 1994 The investment management contract between GAIMCO and General American relating to the General American--General Account assets of $5.2 billion was entered into effective January 1, 1995. As such, the Company believes comparisons between 1995 and 1994, even on a pro forma basis after giving effect to the Strategic Merger, are not useful. LIQUIDITY AND CAPITAL RESOURCES For purposes of this discussion, see Note 1 of Notes to the Company's Consolidated Financial Statements for the principal operating entities that are included as part of the Company. The Company's business is not capital intensive. Working capital requirements for the Company have historically been provided almost exclusively by operating cash flow. It is expected that such cash flows will continue to serve as the principal source of working capital for the Company for the near future. 34 36 At June 30, 1997, the Company's capital structure included 6,710,000 shares of Common Stock, 110,000 shares of Non-Voting Common Stock, 3,190,000 shares of Series A Convertible Preferred Stock and 365,000 shares of Series B Convertible Preferred Stock. The Series A Convertible Stock is entitled to quarterly dividends, equal to the 90 day United States Treasury Bill rate as in effect from time to time. Such dividends amounted to approximately $446,600 for the period commencing on January 1, 1997 and ending on June 30, 1997. The Series B Convertible Preferred Stock which was issued commencing in November 1996 is entitled to quarterly dividends of 5% per annum, or $56,280 in the aggregate, through June 30, 1997. Upon the completion of this offering, it is anticipated that all of the Non-Voting Common Stock and Series A and Series B Convertible Preferred Stock will have been converted to Common Stock and the Company will no longer have any preferred stock outstanding. Conning & Company is subject to the net capital requirements imposed on registered broker-dealers by the Exchange Act. See "Regulation." At December 31, 1996, Conning & Company had net capital (as defined by the Exchange Act) of approximately $2.4 million, which was approximately $1.8 million in excess of the regulatory minimum, and at June 30, 1997, Conning & Company had net capital of approximately $3.5 million, which was approximately $2.9 million in excess of the regulatory minimum. Conning & Company has in place a revolving subordinated loan facility with a commercial bank for $2.0 million that, when utilized, qualifies as capital for purposes of the Exchange Act's net capital rules. The agreement expires on December 31, 1997 and management believes that such line will be renewed at the end of its current term. Any amounts drawn under such facility would bear interest based on a fixed rate at the then prevailing rate plus a specified amount per annum. As of June 30, 1997, the Company had no outstanding long-term debt. The Company had total outstanding long-term debt at December 31, 1996 in the principal amount of $2.0 million. Such debt arose from the Strategic Merger and was payable to General American in the initial principal amount of $13.0 million bearing interest at an annual rate of 7.0%. See "Certain Relationships and Related Transactions." The remaining debt was paid in full in February 1997. The Company or a subsidiary acts as the general partner of certain private equity funds and maintains a 1% general partner capital interest in such funds. The Company may also invest as a limited partner in future funds it may organize. See "Certain Relationships and Related Transactions." Interests in such private equity funds are generally illiquid. The $ ----- in estimated net proceeds of this offering will be used for general corporate purposes. The Company's business strategy contemplates that it will seek to complement internal growth with strategic investments and acquisitions. Accordingly, a portion of the net proceeds may also be used for acquiring related businesses or investing in strategic or joint venture relationships. The Company has no present understandings, agreements or commitments with respect to any such acquisition, and no assurance can be given that any such acquisition will take place. Pending application to the uses described above, the Company intends to invest the net proceeds of this offering in short-term, investment-grade, interest-bearing securities. NEW ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 specifies new standards designed to improve the earnings per share ("EPS") information provided in financial statements by simplifying the existing computational guidelines, reviewing the disclosure requirements and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include: (a) eliminating the presentation of primary EPS and replacing it with basic EPS, with the principal difference being that common stock equivalents are not considered in computing basic EPS, (b) eliminating the modified treasury stock method and the three percent materiality provision and (c) revising the contingent share provisions and the supplemental EPS data requirements. SFAS No. 128 also makes a number of changes to existing disclosure requirements. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company has not yet determined impact of the implementation of SFAS No. 128. IMPACT OF INFLATION The Company does not believe that inflation has had a significant impact on the Company's consolidated operations. 35 37 REGULATION The Company's business and the investment management industry in general are subject to extensive regulation in the United States at both the federal and state level, as well as by SROs. A number of federal regulatory agencies are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of customers participating in those markets. The SEC is the federal agency that is primarily responsible for the regulation of investment advisers and broker-dealers doing business in the United States, and the Board of Governors of the Federal Reserve System promulgates regulations applicable to securities credit transactions involving broker-dealers and certain other United States institutions. Investment advisers and broker-dealers are subject to registration and regulation by state securities regulators in those states in which they conduct business. Industry SROs, each of which has authority over the firms that are its members, include the NASD and national securities exchanges. Conning & Company and Conning Asset Management Company are registered as investment advisers with the SEC. As investment advisers, each is subject to the requirements of the Advisers Act and the SEC's regulations thereunder. They, and their employees engaged in advisory services, are also subject to certain state securities laws and regulations, and to state laws regarding fiduciaries. Federal and state regulations provide, among other things, limitations on the ability of investment advisers to charge performance-based or non-refundable fees to clients, record-keeping and reporting requirements, disclosure requirements, limitations on principal transactions between an adviser or its affiliates and advisory clients, requirements as to fees paid to solicitors, restrictions on commission and fee arrangements with broker-dealers, and advertising restrictions, as well as general anti-fraud prohibitions. The state securities law requirements applicable to employees of investment advisers include certain qualification requirements as to advisory employees. In addition, Conning Asset Management Company, as investment adviser to two mutual funds registered under the Investment Company Act, is subject to requirements under the Investment Company Act and the SEC's regulations thereunder. The Company's mortgage origination and servicing activities are subject to the licensing requirements of certain states. Such requirements include, among other things, record-keeping and reporting requirements, procedures for handling funds, and requirements that certain employees obtain and maintain appropriate licenses. In connection with the Company's private equity activities, Conning & Company, its affiliates and the private equity funds which they manage are relying on exemptions from registration under the Investment Company Act, the Securities Act and state securities laws. Failure to meet the requirements of any such exemptions could have a material adverse effect on the Company, its affiliates and the private equity funds they manage, including, without limitation, with respect to the manner in which they carry out their investment activities and on the compensation received by Conning & Company and its affiliates from the private equity funds. Conning & Company is registered as a broker-dealer with the SEC and in Connecticut, New York and Texas, and is a member of, and subject to regulation by, the NASD. As a result of federal and state broker-dealer registration and SRO memberships, Conning & Company is subject to overlapping schemes of regulation which cover many aspects of its securities business. Such regulations cover matters including capital requirements, the use and safekeeping of customers' funds and securities, record keeping and reporting requirements, supervisory and organizational procedures intended to assure compliance with securities laws and to prevent the improper trading on material nonpublic information, employee-related matters, including qualification and licensing of supervisory and sales personnel, limitations on extensions of credit in securities transactions, clearance and settlement procedures, requirements for the registration, underwriting, sale and distribution of securities and rules of the SROs designed to promote high standards of commercial honor and just and equitable principles of trade. A particular focus of the applicable regulations concerns the relationship between broker-dealers and their customers. As a result, many aspects of the broker-dealer customer relationship are subject to regulation, including in some instances "suitability" determinations as to certain customer transactions, limitations in the amounts that may be charged to customers, timing of proprietary trading in relation to customers' trades and disclosures to customers. Conning Asset Management Company is a fiduciary under ERISA and the Internal Revenue Code of 1986, as amended (the "Code"), and regulations thereunder with respect to the investments of its discretionary asset management clients which are employee benefit plans subject to ERISA and with respect to the investments of portfolios managed by the Company that contain assets of plans subject to ERISA. ERISA and the Code impose 36 38 certain duties on persons who are fiduciaries of a plan and prohibit certain transactions involving the assets of a plan and its fiduciaries or other interested parties. Under ERISA and the Code, any person who exercises any authority or control over the management or disposition of the assets of a plan is generally considered to be a fiduciary of the plan. Under ERISA or the Code, in situations where the Company and its affiliates are providing investment management or other services to a plan, (i) the Company's actions would be governed by prudence and other fiduciary responsibility standards and (ii) certain transactions in which the Company might seek to engage could constitute "prohibited transactions." If a prohibited transaction occurs for which no exemption is available, the Company and any other party in interest that has engaged in the prohibited transaction could be required, among other things, (i) to restore to the plan any profit realized on the transaction, (ii) to reimburse the plan for any losses suffered as a result of the transaction, (iii) to pay an excise tax equal to 10% of the amount involved in the prohibited transaction for each year the transaction continues and (iv) unless the transaction is corrected within statutorily required periods, to pay an additional tax equal to 100% of the amount involved in the transaction. Plan fiduciaries who participate in transactions with the Company could, under certain circumstances, be liable for prohibited transactions or other violations as a result of an investment or as co-fiduciaries for actions taken by or on behalf of the plan by the Company. Compliance with many of the regulations applicable to the Company involves a number of risks, particularly because applicable regulations in a number of areas, such as those governing affiliated transactions involving clients, may be subject to varying interpretation. Regulators make periodic examinations and review annual, monthly and other reports on the Company's operations and financial condition. In the event of a violation of or non-compliance with any applicable law or regulation, governmental regulators and SROs may institute administrative or judicial proceedings that may result in censure, fine, civil penalties (including treble damages in the case of insider trading violations), criminal penalties, the issuance of cease-and-desist orders, the deregistration or suspension of the non-compliant broker-dealer or investment adviser, the suspension or disqualification of the broker-dealer's or investment adviser's officers or employees, the removal of the Company from its role as a fiduciary with respect to the investments of assets subject to ERISA and other adverse consequences. The Company has not experienced any such penalties to date. Such violations or non-compliance could also subject the Company, and/or its employees to civil actions by private persons. As an underwriter from time to time, Conning & Company is exposed to liability under federal and state securities laws and court decisions, including decisions with respect to underwriters' liability and limitations on indemnification of underwriters by issuers. For example, a firm that acts as an underwriter may be held liable for material misstatements or omissions of fact in a prospectus used in connection with the securities being offered or for statements made by its securities analysts or other personnel. Any governmental, SRO or private proceeding alleging violation of or non-compliance with laws or regulations could have a material adverse effect upon the Company's business, financial condition, results of operations and business prospects. The regulatory environment in which the Company operates is subject to change. The Company may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other United States, state or foreign governmental regulatory authorities or SROs. The Company also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and SROs. The Company's businesses may be materially affected not only by securities regulations but also by regulations of general application. For example, the volume of the Company's principal investment advisory businesses in a given time period could be affected by, among other things, existing and proposed tax legislation and other governmental regulations and policies (including the interest rate policies of the Federal Reserve Board) and changes in the interpretation or enforcement of existing laws and rules that affect the business and financial communities. The level of business and financing activity in the insurance industry can be affected not only by such legislation or regulations of general applicability, but also by industry-specific legislation or regulations. Under the Advisers Act, every investment advisory agreement with its clients must expressly provide that it may not be assigned by the investment adviser without the consent of the client. Under the Investment Company Act, every investment adviser's agreement with a registered investment company must provide for the agreement's automatic termination on the event of its assignment. Under both Acts, an investment advisory agreement is deemed to have been assigned when there is a direct or indirect transfer of the agreement, including a direct assignment or a transfer of a "controlling block" of the firm's voting securities or, under certain circumstances, upon the transfer of a "controlling block" of the voting securities of its parent corporation. A transaction is not, however, an assignment 37 39 under the Advisers Act or the Investment Company Act if it does not result in a change of actual control or management of the investment adviser. Any assignment of the Company's investment advisory agreements would require, as to any registered investment company client, the prior approval by a majority of its shareholders, and as to the Company's other clients, the prior consent of such clients to such assignments. Following completion of the offering, sales by General American or other shareholders or issuances of Common Stock by the Company, among other things, could result in a deemed assignment of the Company's investment advisory agreements under such statutes. The Company's Articles provide that no person or group deemed to be a beneficial owner (as defined therein) of the Common Stock may vote more than 20% of the total number of shares of Common Stock outstanding. These provisions of the Articles do not apply to General American, subsidiaries or affiliates of General American, direct or indirect subsidiaries of the Company and certain employee plans established or to be established by the Company. The Company's Board of Directors may approve the exemption of other persons or groups from the provisions described above. While this voting limitation is in place to reduce the likelihood, under certain circumstances, of inadvertent terminations of the Company's advisory agreements as a result of "assignments" of the Company's investment advisory contracts, there can be no guarantees that this limitation will prevent such a termination from occurring. In addition, such limitation could be deemed to have an anti-takeover effect and to make changes in management more difficult. See "Risk Factors--Regulation," "Risk Factors--Termination Provisions of Investment Advisory Agreements and Other Consequences of a Change of Control; Limitations on Voting Rights," "Description of Capital Stock--Common Stock" and "Certain Charter and Bylaw Provisions." The officers, directors and employees of the Company's investment management subsidiaries may from time to time own securities which are also owned by one or more of their clients. Each subsidiary has internal policies with respect to individual investments and requires reporting of securities transactions and restricts certain transactions so as to reduce the possibility of conflicts of interest. NET CAPITAL REQUIREMENTS As a broker-dealer registered with the SEC and various states and a member firm of the NASD, Conning & Company is subject to the capital requirements of the SEC, the states, and the NASD. These capital requirements specify minimum levels of capital, computed in accordance with regulatory requirements ("net capital"), that such firm is required to maintain and also limit the amount of leverage that such firm is able to obtain in its respective business. A failure of a broker-dealer to maintain its minimum required capital would require it to cease executing customer transactions until it returned to capital compliance, and could cause it to lose its membership on an exchange, or in an SRO, to lose its registration with the SEC or a state, or require its liquidation. Further, the decline in a broker-dealer's net capital below certain "early warning levels," even though above minimum capital requirements, could cause material adverse consequences to the broker-dealer. For example, the SEC's capital regulations prohibit payment of dividends, redemption of stock and the prepayment of subordinated indebtedness if a broker-dealer's net capital thereafter would be less than 5% of aggregate debit items. These regulations also prohibit principal payments in respect of subordinated indebtedness if a broker-dealer's net capital thereafter would be less than 5% of aggregate debit items. Compliance with regulatory capital requirements could limit the operations of Conning & Company or Conning Asset Management Company that require the intensive use of capital, such as underwriting and trading activities, and financing of customer account balances, and also could restrict the Company's ability to withdraw capital from Conning & Company and Conning Asset Management Company, which in turn could limit its ability to pay dividends, repay debt and redeem or purchase shares of its outstanding capital stock. At June 30, 1997, Conning & Company was required to maintain minimum net capital, in accordance with SEC rules, of approximately $600,000 and had total net capital of approximately $3.5 million, or approximately $2.9 million in excess of the amount required. 38 40 MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT OFFICERS Directors and Executive Officers The directors and executive officers of the Company are as follows:
NAME AGE POSITION Leonard M. Rubenstein................... 51 Chairman and Chief Executive Officer Maurice W. Slayton...................... 59 President and Director John A. Fibiger......................... 65 Director Richard A. Liddy........................ 61 Director John C. Shaw............................ 63 Director Mark E. Hansen.......................... 48 Executive Vice President Fred M. Schpero......................... 43 Senior Vice President and Chief Financial Officer
Following is certain additional information concerning each director and executive officer of the Company. Each such individual has served in his present capacity of his principal occupation for the last five years, unless otherwise indicated. LEONARD M. RUBENSTEIN, C.F.A., is in the Office of the Chairman and has been Chairman and Chief Executive Officer of the Company since 1995 and also serves as Chairman, Chief Executive Officer and Chief Investment Officer of Conning Asset Management Company. Mr. Rubenstein has 25 years of investment experience. Prior to his position with Conning, Mr. Rubenstein spent 23 years in the investment operations of General American, where he held various positions, including Executive Vice President of Investments. Mr. Rubenstein is a director of a number of General American subsidiaries, including Reinsurance Group of America, Incorporated. From 1984 to 1991, he served as Vice President of General American. He is a past president of the St. Louis Society of Financial Analysts. Mr. Rubenstein and the Company entered into an Employment Agreement in August 1995. See "--Employment Agreements and Other Compensation Arrangements." MAURICE W. SLAYTON is in the Office of the Chairman and has been the President of the Company since 1995 and also serves as President and Chief Executive Officer of Conning & Company. Mr. Slayton joined Conning in 1973. Prior thereto, he had 12 years of experience with Hartford Steam Boiler Inspection and Insurance Company and National Life of Vermont in a number of insurance and investment positions. He is currently a director of several insurance related entities including PennCorp Financial Group, Inc. Mr. Slayton is a member and past president of The Hartford Society of Financial Analysts. Mr. Slayton and the Company entered into an Employment Agreement in August 1995. See "--Employment Agreements and Other Compensation Arrangements." JOHN A. FIBIGER has been a director of the Company since June 1997. Until April 1997, he was Chairman of the Board of Transamerica Occidental Life Insurance Company as well as a director of four of its wholly owned life insurance subsidiaries. He remains a director of two of such subsidiaries--Transamerica Life Company of Canada and Transamerica Life Company of New York. Mr. Fibiger joined Transamerica Life Companies as chief financial officer in 1991. He was named president of Transamerica Occidental Life Insurance Company, one of the seven Transamerica Life Companies, in December 1994. A 38-year veteran of the life insurance industry, Mr. Fibiger was vice chairman, president and chief operating officer of New England Mutual Life Insurance Company in Boston. Prior to that, he held positions with Bankers Life Nebraska (now Ameritas) and Lincoln National Life. A past board member of the Society of Actuaries, Mr. Fibiger was the first chairman of the Interim Actuarial Standards Board and served as president of the American Academy of Actuaries. He is a past member of the Council of the International Actuarial Association. RICHARD A. LIDDY has been a director of the Company since November 1996. He is President, Chief Executive Officer and Chairman of the Board of General American Life Insurance Company, and President and Chairman of GenAmerica Corporation and General American Life Mutual Holding Company. From 1982 through 1988 he was Senior Vice President and Executive Vice President of Continental Corporation, and President, Financial Services 39 41 Group of Continental Insurance Company. He is also Chairman of the Board of General American Capital Company and The Walnut Street Funds, Inc., each a registered investment company, Chairman of Paragon Life Insurance Company, Chairman of Reinsurance Group of America, Incorporated, Chairman of Security Equity Life Insurance Company, Chairman of Security Mutual Life Insurance Company of New York and a director of Brown Group, Inc., Ralston Purina Company and Union Electric Company. JOHN C. SHAW has been a director of the Company since June 1997. He is the founding partner of the Shaw Group LLC, a management consulting firm specializing in transformation management. From 1994 to 1997, he served in the Office of Chairman of Well Point Health Network, Inc., a large, publicly-traded managed healthcare company. From 1966 to 1994, he was a partner of Deloitte & Touche, most recently serving as Vice Chairman. Previously he has served as national director for Strategic Planning, Partner-In-Charge of the New York office and a member of the Board of Directors and Board of Governors for Touche Ross. Mr. Shaw has taught at Stanford Business School and the Wharton School, lectured at several national seminars and authored several books and articles on modern business techniques. MARK E. HANSEN, C.F.A., has been the Executive Vice President of the Company since 1995, Executive Vice President of Conning & Company since 1993 and Executive Vice President of Conning Asset Management Company since August 1996. Mr. Hansen also served as a director of the Company from August 1995 until March 1997. Mr. Hansen has over 25 years of investment experience, having joined Conning in 1984 from the Bank of Boston-Connecticut. Mr. Hansen and the Company entered into an Employment Agreement in August 1995. See "--Employment Agreements and Other Compensation Arrangements." FRED M. SCHPERO, C.P.A., has been a Senior Vice President and Chief Financial Officer of the Company since January 1997. Prior to that time, Mr. Schpero was Vice President and Chief Financial Officer of Conning & Company from 1985 through 1996 and at Conning Asset Management Company from August 1996 through December 1996. Prior to joining Conning, he was 2nd Vice President--Finance with Security Connecticut Life Insurance Company and a senior accountant at the public accounting firm of Coopers & Lybrand LLP. Mr. Schpero and the Company entered into an Employment Agreement in August 1995. See "--Employment Agreements and Other Compensation Arrangements." Classified Board of Directors All of the current directors were elected pursuant to action of the Company's shareholders in June 1997 and have been divided into three classes with terms expiring, respectively, at the annual meetings of shareholders in 1998 (Mr. Fibiger), 1999 (Messrs. Liddy and Shaw) and 2000 (Messrs. Rubenstein and Slayton). Commencing with the next annual meeting of shareholders in 1998, directors then standing for election will be elected for three-year terms, with one class of directors being elected at each annual meeting of shareholders thereafter. See "Certain Charter and Bylaw Provisions." Officers are elected annually and serve at the discretion of the Board of Directors, subject to the terms of applicable employment agreements. See "--Employment Agreements and Other Compensation Arrangements." 40 42 Certain Other Significant Officers Certain other significant officers of the Company or its subsidiaries who are not directors or executive officers (the "Other Significant Officers") are as follows:
NAME AGE POSITION DIVISION Bruce B. Brodie............... 43 Senior Vice President Corporate Thomas A. Byrne............... 39 Senior Vice President Research Stephan L. Christiansen....... 47 Senior Vice President Private Equity John B. Clinton............... 42 Senior Vice President Private Equity Paul S. Goulekas.............. 41 Senior Vice President Research Charles P. Kapp............... 37 Senior Vice President Mortgage Loans and Real Estate Glen D. Keller................ 44 Senior Vice President Asset Management Douglas R. Koester............ 43 Senior Vice President Asset Management Donald L. McDonald............ 35 Senior Vice President Asset Management Michael D. McLellan........... 41 Senior Vice President Mortgage Loans and Real Estate Steven F. Piaker.............. 34 Senior Vice President Private Equity Stephen R. Pivacek............ 54 Senior Vice President Research Gordon G. Pratt............... 35 Senior Vice President Private Equity Gary K. Ransom................ 44 Senior Vice President Research David N. Reid................. 36 Senior Vice President Asset Management Thomas D. Sargent............. 39 Senior Vice President Research William C. Shenton............ 43 Senior Vice President Asset Management J. Terri Tanaka............... 35 Senior Vice President Asset Management John W. Zimmerman............. 34 Senior Vice President Asset Management - -------- Mr. Brodie also serves as Chief Administrative Officer of the Company.
Following is certain information concerning the Other Significant Officers. Each such individual has served in his or her present capacity of his or her principal occupation for the last five years, unless otherwise indicated. BRUCE B. BRODIE has been Senior Vice President and Chief Administrative Officer since January 1997. Prior to joining the Company, Mr. Brodie spent 15 years with Continental Insurance Company ("Continental") and the CNA Insurance Company ("CNA") working in various positions, including Chief of Staff in the Financial Services Division, Chief Financial Officer in the Specialty Operations Division and most recently as the Chief Information Officer for Continental and then CNA. THOMAS A. BYRNE has been a Senior Vice President of the Company since 1993 and has been with the Company since 1984. Before joining the Company, Mr. Byrne had prior experience at Travelers Insurance Companies. STEPHAN L. CHRISTIANSEN, F.C.A.S., M.A.A.A., has been a Senior Vice President of the Company since 1989. Prior to joining the Company in 1986, Mr. Christiansen had 16 years of insurance industry experience with Colonial Penn Insurance and Insurance Company of North America. JOHN B. CLINTON, C.P.C.U., C.P.A., has been a Senior Vice President of the Company since 1992. Mr. Clinton's previous experience has been with KCP Holding Company and its subsidiary, National American Insurance Company of California, where he was CFO and Director. Prior to this, he was a Vice President of Dillon Read & Co., Inc. and a founding partner of Concord Partners, a private equity fund. He previously worked for New Court Securities and KPMG Peat Marwick LLP. PAUL S. GOULEKAS has been a Senior Vice President of the Company since 1994. Mr. Goulekas joined the firm after 12 years experience at Aetna Life & Casualty, most recently as operations controller/treasurer of Aetna Health Plans, and prior to that worked as an economist at The Hartford Insurance Group. 41 43 CHARLES P. KAPP joined the Company as Senior Vice President in July 1997. For seven years prior to joining the Company, Mr. Kapp held various positions with Mark Twain Bancshares in Chicago, Illinois, most recently as Senior Vice President in the area of institutional bond sales. GLEN D. KELLER, F. S. A., has been a Senior Vice President at the Company since 1996. Mr. Keller has over 20 years of experience in the life insurance industry. Prior to joining the Company, he managed the Canadian Pension and Annuity business for Metropolitan Life. Prior to that, he was the investment actuary for National Life of Vermont. DOUGLAS R. KOESTER, C.F.A., is Senior Vice President and has been with the Company since 1986. Prior to his current position, Mr. Koester spent 14 years with GAIMCO and in the investment operations division of General American. He served as a director of the Company from August 1995 until April 1997 and has been an executive officer of Conning Asset Management Company and its predecessor GAIMCO from 1988 to present. DONALD L. MCDONALD has been a Senior Vice President at the Company since 1993. Mr. McDonald joined the Company in 1992 from Daiwa Securities of America and his prior investment experience includes Roosevelt & Cross and Salomon Brothers. MICHAEL D. MCLELLAN is a Senior Vice President and has been with the Company since 1995. Mr. McLellan served as a director of the Company from August 1995 until April 1997. Prior to his position with the Company, Mr. McLellan spent 13 years with GAIMCO and General American where he held various positions including Vice President of Mortgage Loans and Real Estate. Mr. McLellan is an M.A.I. candidate (Member Appraisal Institute). STEVEN F. PIAKER, C.F.A., has been a Senior Vice President for the Company since January 1997. Prior to joining the Company, Mr. Piaker was a Senior Vice President of Conseco, Inc., where he worked on the company's acquisitions and private equity-linked investments. His previous experience was with G.E. Capital as Vice President of the Corporate Finance Group. STEPHEN R. PIVACEK has been a Senior Vice President of the Company since 1993. Mr. Pivacek joined the Company in 1986 from Aetna Life & Casualty where he was employed as a Director in the trading department. GORDON G. PRATT has been a Senior Vice President of the Company since 1994. Prior to joining the Company in 1992 he was Vice President and Product Manager in the Insurance M&A and Insurance Leveraged Acquisitions areas of The Chase Manhattan Bank, N.A. Prior to that, he was with the Consulting Division of The First National Bank of Chicago. GARY K. RANSOM, F.C.A.S., M.A.A.A., has been a Senior Vice President since 1989. Prior to joining the Company in 1979, Mr. Ransom worked at Travelers Insurance Companies in various actuarial positions. DAVID N. REID has been a Senior Vice President of the Company since 1996. Mr. Reid has over 13 years of investment accounting, operations, reporting and systems experience. Prior to joining the Company in 1991, Mr. Reid spent four years with SS&C Technologies, Inc. (formerly known as Securities Software & Consulting, Inc.) where he directed the development and marketing of LAN based investment management and accounting system, and five years with The Hartford Insurance Group. THOMAS D. SARGENT, C.F.A., has been a Senior Vice President of the Company since 1993. Prior to joining the Company in 1986, Mr. Sargent was in the commercial lending area at Connecticut Bank & Trust Company. He also completed an internship with Willis Faber, a London-based insurance broker. WILLIAM C. SHENTON has been a Senior Vice President of the Company since 1993. Prior to joining the Company in 1990, he held numerous management positions with Control Data, including domestic and international assignments concentrating on the financial services industry, most recently involving the international insurance investment community. J. TERRI TANAKA, C.F.A., has been a Senior Vice President of the Company since 1995. Ms. Tanaka also served as a director of the Company from August 1995 until April 1997. Prior to her current position, Ms. Tanaka spent eight years with GAIMCO and in the investment operations division of General American. She has been an executive officer of Conning Asset Management Company and its predecessor GAIMCO from 1995 to present. 42 44 JOHN W. ZIMMERMAN, C.F.A., joined the Company as a Senior Vice President in April 1997. Prior to joining the Company, Mr. Zimmerman worked for NationsBank Private Investments (formerly Boatmen's Trust Company), where he held various positions since 1987, most recently as Vice President, Manager of Fundamental Research. DIRECTORS' COMPENSATION The Board pays each director who is not employed by the Company or General American a $10,000 annual retainer and a $1,000 fee for each Board meeting attended, plus expenses, and may also award stock options. Officers of the Company do not receive any additional compensation for serving the Company as members of the Board of Directors or any of its Committees. Messrs. McClellan and Koester and Ms. Tanaka, who served as directors until June 1997, and Mr. Liddy have also received stock options and purchased shares of Series B Convertible Preferred Stock of the Company as described in "Certain Relationships and Related Transactions." EXECUTIVE COMPENSATION Compensation Summary. The following table sets forth the compensation paid to the Chief Executive Officer and the three other executive officers of the Company. SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION
LONG-TERM COMPENSATION ------------------- SECURITIES NAME AND FISCAL UNDERLYING OPTIONS ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS (#SHS) COMPENSATION Leonard M. Rubenstein................... 1996 $270,000 $325,000 20,000 $32,913 Chairman and Chief Executive Officer Maurice W. Slayton...................... 1996 $260,000 $325,000 -- $12,300 President Mark E. Hansen.......................... 1996 $235,000 $275,000 -- $12,300 Executive Vice President Fred M. Schpero......................... 1996 $120,000 $120,000 10,000 $11,604 Senior Vice President and Chief Financial Officer - -------- Perquisites and other personal benefits are not included, as they do not exceed the lesser of $50,000 and 10% of total of salary and bonus for any named executive officer. Includes amounts deferred at the election of the officer under the General American Life Insurance Company Executive Deferred Savings Plan (a defined contribution plan), with respect to Mr. Rubenstein, and the Conning & Company Profit Sharing and 401(k) Savings Plan, with respect to Messrs. Slayton, Hansen and Schpero. Bonuses are for services performed during 1996. Does not include award of or distributions with respect to participation interests in private investment funds sponsored by the Company. See "Certain Relationships and Related Transactions--Participation in Private Equity Funds." See "Option Grants in Last Fiscal Year." For Mr. Rubenstein, amount represents contributions by the Company to the General American Executive Deferred Savings Plan and Augmented Progress Sharing Plan (defined contribution plans). For Messrs. Slayton, Hansen and Schpero, amounts represent contributions by the Company to the Conning & Company Profit Sharing and 401(k) Savings Plan. Mr. Rubenstein continues to accrue certain pension and post-retirement health benefits under General American benefit plans. See "Management--Employee Agreements and Other Compensation Arrangements." Although the cost of such benefits for 1996 was deducted from Mr. Rubenstein's bonus, such cost has not been deducted from the bonus shown above. The actual bonus paid to Mr. Rubenstein for 1996 was $292,100.
43 45 Stock Option Awards. The following tables show information regarding awards of stock options in 1996 and the number and value of unexercised options held by the named executive officers at the end of fiscal 1996. The value of unexercised options is based on a value of $ - ----- per share for the Company's Common Stock, which is the assumed initial public offering price. No stock options were exercised by the named executive officers in fiscal 1996. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE NUMBER OF % OF TOTAL VALUE AT ASSUMED SHARES OPTIONS ANNUAL RATES OF STOCK UNDERLYING GRANTED TO PRICE APPRECIATION FOR OPTIONS EMPLOYEES EXERCISE OR OPTION TERM GRANTED IN BASE PRICE EXPIRATION ------------------------------ NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($) Leonard M. Rubenstein......... 20,000 8.70% $7.00 11/21/06 $88,000 $223,200 Maurice W. Slayton............ -- -- -- -- -- -- Mark E. Hansen................ -- -- -- -- -- -- Fred M. Schpero............... 10,000 4.35% $7.00 11/21/06 $44,000 $111,600 - -------- Options granted in 1996 are exercisable with respect to 20% of the option shares on the first anniversary of the grant date and with respect to an additional 20% on each of the four succeeding anniversary dates. Options are intended to qualify as incentive stock options under the Internal Revenue Code. Each option is forfeitable if not exercised within a specified time after the holder's death, disability or termination for any reason. See "Management--Employee Stock Plans." The options have terms of 10 years, subject to earlier termination in certain events related to termination of employment. Amounts represent the potential realizable value of each grant of options at the time of grant, assuming that the price of the underlying shares appreciates in value from the date of grant to the end of the term, at annualized rates of 5% and 10%, respectively.
AGGREGATED OPTIONS AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END --------------------------- --------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE Leonard M. Rubenstein......... 24,000 116,000 Maurice M. Slayton............ 24,000 96,000 Mark E. Hansen................ 24,000 96,000 Fred M. Schpero............... 2,000 18,000 - -------- Represents the estimated fair value of the shares of Common Stock subject to outstanding options, based on the assumed initial offering price of $----------- per share, less the aggregate exercise price of the options. Includes options to purchase 96,000 shares that will become exercisable upon closing of the offering. All such options will become exercisable upon closing of the offering. Includes options to purchase 8,000 shares that will become exercisable upon closing of the offering.
All options have been issued as incentive stock options under the Internal Revenue Code; the Company intends to compensate the individual for the additional federal income taxes that accrue to such optionholder in excess of then applicable federal income tax on capital gain transactions as a result of the recharacterization as other than incentive stock options. In such an event, the Company would be entitled to a tax deduction for any compensation recognized by the option holder. EMPLOYEE STOCK PLANS The Board of Directors and shareholders of the Company approved the 1997 Flexible Stock Plan in ----, 1997 (the "1997 Plan"). The 1997 Plan provides for the award of benefits (collectively, "Benefits") of various types, including stock options, stock appreciation rights ("SARs"), restricted stock, performance shares, cash awards and other stock-based awards. Set forth below is a description of the principal features of the 1997 Plan. This description is 44 46 subject to and qualified in its entirety by the full text of the 1997 Plan, which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Company has adopted the 1997 Plan to attract, retain, motivate, and reward officers, employees and other individuals, to encourage ownership of Common Stock by officers, employees and other individuals, and to promote and further the best interests of the Company. The number of shares of Common Stock which may be issued in connection with Benefits is -------- shares. The 1997 Plan will be administered by a committee (the "Committee") consisting of two or more members of the Board who are not Employees and not eligible to participate in the 1997 Plan. The Board may amend the 1997 Plan at any time, provided that the Board may not amend the 1997 Plan without shareholder approval if such amendment would (i) cause options that are intended to qualify as incentive stock options to fail to qualify as such, (ii) cause the Plan to fail to meet the requirements of Rule 16b-3 under the Exchange Act, or (iii) violate applicable law. The 1997 Plan has no fixed termination date and will continue in effect until terminated by the Board. Under the 1997 Plan, the Committee may grant Benefits at such times, in such amounts, and to such recipients as the Committee may determine. Benefits may be awarded only to employees of the Company and its subsidiaries, employees and owners of non-affiliated entities and entities with which the Company or its affiliates have business relationships, and persons providing services to the Company or a subsidiary or affiliate. Incentive stock options and non-qualified stock options may be granted under the 1997 Plan. In the case of non-qualified stock options, the option price shall be no less than the fair market value of the shares of Common Stock on the date the option is granted, and, in the case of incentive stock options, the price will be determined by the Committee but shall be not less than the fair market value of the shares of Common Stock on the date the option is granted. The other terms of options will be determined by the Committee. The maximum number of shares subject to options which may be granted to a participant in any year is --------. The 1997 Plan also permits the award of SARs, restricted stock, performance shares, cash awards and other stock-based awards. The maximum number of SARs which may be granted to a participant in any year is --------. The aggregate maximum cash award that an individual who is subject to Section 16 of the Exchange Act may receive in any calendar year is the greater of $100,000 and 50% of such individual's compensation (excluding any cash award) for such year. The Committee may also grant other awards valued in whole or in part by reference to, or otherwise based on, the Common Stock. In the event of a Change in Control, as defined below, the Committee may provide such protection as it deems necessary to maintain a participant's rights. Without in any way limiting the generality of the foregoing sentence or requiring any specific protection, the Committee may: (i) provide for the acceleration of the exercise or realization of any Benefit; (ii) provide for the purchase of a Benefit upon the participant's request for an amount in cash equal to the amount which could have been attained upon the exercise or realization of the Benefit had it been currently exercisable or payable; (iii) make such adjustment to the outstanding Benefits as the Committee deems appropriate; and/or (iv) cause the outstanding Benefits to be assumed, or new Benefits substituted therefor, by the surviving corporation. "Change in Control" means: (i) the acquisition after the adoption of the 1997 Plan, without the approval of the Board, by any person, other than the Company and certain related entities, of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 20% of the combined voting power in the election of directors of the then outstanding shares of the Company's voting securities; (ii) the liquidation or dissolution of the Company following a sale or other disposition of all or substantially all of its assets; (iii) a merger or consolidation involving the Company as a result of which persons who were shareholders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined combined voting power in the election of directors of the surviving corporation following the effective date of such merger or consolidation; or (iv) a change in the majority of the members of the Board during any two-year period which is not approved by at least two-thirds of the members of the Board who were members at the beginning of the two-year period. Awards may be granted by the Committee in tandem. However, no Benefit may be granted in tandem with an incentive stock option except an SAR. Upon the exercise of any option or in the case of any other Benefit that requires a payment to the Company, payment may be made either (i) in cash, or (ii) with the consent of the Committee, (a) by the tender to the Company of shares of Non-Voting Common Stock having an aggregate fair market value equal to the amount due the Company, (b) in other property, or (c) by any combination of the foregoing. At the time any Benefit is distributed under the Plan, the Company may withhold, in cash or in shares of 45 47 Common Stock, from such distribution any amount necessary to satisfy income withholding requirements applicable to such distribution. Any Benefit granted to an individual who is subject to Section 16 of the Exchange Act will not be transferable other than by will or the laws of descent and distribution and will be exercisable during his lifetime only by him. The Committee may impose restrictions upon the transferability of any Benefit. The Board has approved two other plans, the 1996 Flexible Stock Plan in November, 1996 (the "1996 Plan") and the 1995 Flexible Stock Plan in August, 1995 (the "1995 Plan") that are substantially similar to the 1997 Plan, except that such plans also permit the award of stock appreciation rights, restricted stock, performance shares and cash awards. They authorize the award of 2,100,000 shares for each Plan and options for a total of 1,237,500 shares have been granted. As a result of the approval of the 1997 Plan, the Company has determined not to award any additional benefits pursuant to the 1995 Plan or the 1996 Plan. Options to purchase a total of -------- shares at the initial public offering price have been granted to -------- of the Company's employees, including options to purchase --------, -------- and --------shares to Messrs. - --------, -------- and --------, respectively. All of the options are subject to the same terms. Each award becomes exercisable with respect to --% of the shares it covers ratably over -- years, beginning on the first anniversary of the date hereof. Such options may only be exercised if the individual is an employee of the Company at the time of exercise, subject to certain exceptions in the case of death, disability or a Change of Control. EMPLOYMENT AGREEMENTS AND OTHER COMPENSATION ARRANGEMENTS Concurrently with the Strategic Merger in August, 1995, the Company entered into employment agreements (the "Employment Agreements") with all of its then executive officers and certain other employees, each with a term of three years. Under each Employment Agreement, the employee (the "Employee") receives an annual base salary, in the case of Messrs. Rubenstein, Slayton, Hansen and Schpero, of $257,500, $250,000, $225,000 and $115,000, respectively, subject to increases pursuant to periodic salary reviews consistent with the Company's corporate policies. In addition, each Employee is eligible, in the sole discretion of the Board of Directors, to participate as a limited partner in Conning Investment Partners LP III or in the Company's Venture Capital Carried Interest Allocation Plan and the Company's Bonus Plan, as modified to reflect the Strategic Merger. The Employee's employment may be terminated without cause: (i) at any time upon the mutual written agreement of the parties; (ii) immediately upon the Employee's death or total disability; or (iii) upon not less than 30 days' advance written notice by either party. The Employee's employment may be terminated by the Company upon written notice to the Employee at any time for any of the following reasons, each of which shall constitute "termination for cause": (i) any material breach of the agreement by the Employee which is not cured within 20 days after written notice by the Company; (ii) the Employee's fraud, embezzlement, dishonesty or unlawful acts in connection with the business of the Company or its affiliates; (iii) the Employee's conviction for any felony; or (iv) the Employee's substantial and continuing willful failure to perform, or grossly negligent performance of, the duties of the Employee's position. Upon termination of employment, the Company has no obligation to the Employee except for compensation due the Employee under the agreement through the termination date; provided that, in the event of a termination by the Company other than for cause (as defined above) (excluding terminations by agreement or on account of death or disability), the Company is required to pay the Employee an amount equal to 150% of the annual base salary for each year (or portion thereof, pro rated) for the balance of the term of the agreement and provide all insurance, welfare, sick leave and other benefits described in the agreement through the balance of the term. Upon execution of the applicable Employment Agreement, Messrs. Slayton, Hansen and Schpero were paid a signing bonus in cash (the "Signing Bonus"), subject to the forfeiture described below, equal to $195,000, $95,000 and $35,000, respectively. Certain other employees also received signing bonuses. See "Certain Relationships and Related Transactions--The Strategic Merger." Upon termination of the agreement for cause (as defined above) or because such employee has resigned, the employee is required to repay the specified percentage of the Signing Bonus indicated in parentheses, depending upon the year in which such termination occurs: Year 1 (100%), Year 2 (66.6%), and Year 3 (33.3%). Each Employee is prohibited from disclosing, directly or indirectly, to any other firm or person any of the Company's or its affiliates' confidential information, including customer lists, trade secrets, and know-how relating to its or their businesses. Additionally, each Employee has agreed that until August, 1998, regardless of whether the 46 48 Employee remains employed by the Company and regardless of whether the Employee's termination, if any, is with or without cause, neither the Employee nor any entity controlling, controlled by or under common control with the Employee will (i) engage in, or have any direct or indirect interest in any other person, firm, corporation, or other entity engaged in any business activities competitive with the business activities of the Company and the subsidiaries it controls, or (ii) become an employee, director, adviser, consultant, independent contractor, or agent of any such person, firm, corporation, or other entity, except with the Company's prior written consent. Mr. Slayton's Employment Agreement provides that for the term of the Agreement Mr. Slayton will be employed as President of the Company and have responsibility for (i) marketing for the Company, (ii) managing the Company's Hartford office, (iii) participating in identifying and negotiating acquisitions, and (iv) participating in the development and execution of any initial public offering of the Common Stock. Pursuant to an Amended and Restated Shareholders' Agreement among the Company and its shareholders and optionholders and General American, as amended (the "Shareholders Agreement"), the Company has agreed to place Mr. Slayton on the Board of Directors until the earlier of August 11, 2000 or the consummation of an initial public offering of the Common Stock. See "Certain Relationships and Related Transactions--The Strategic Merger." The Company does not have a defined benefit plan. Mr. Rubenstein, as a result of his 25 years of service with General American, is eligible to continue to participate in the General American Life Insurance Company Pension Plan and Trust, a qualified defined benefit plan, and the General American Augmented Plan, a non-qualified defined benefit plan as well as General American's post-retirement medical plan (collectively, the "GA Retirement Plans"). Retirement benefits under the GA Retirement Plans are based on a participant's final average compensation and credited years of service. Mr. Rubenstein's final average compensation has been predetermined and represents his estimated final average salary and bonus as if he were to remain an officer of General American from December 31, 1995 (the date on which his benefits under the qualified plan were frozen) through his retirement at age 65. Mr. Rubenstein will receive credit for years of service under the GA Retirement Plans while serving as Chief Executive Officer of the Company and has agreed to pay for the cost of the additional retirement benefits, which has been determined to be approximately 10% of Mr. Rubenstein's assumed annual General American salary and bonus in any year. The amount of any bonus paid to Mr. Rubenstein by the Company will be reduced by this cost. Such amount was $32,900 in 1996. Based on Mr. Rubenstein's predetermined final average compensation, the annual pension benefit payable to Mr. Rubenstein upon his retirement from the Company at age 65 would be $367,000. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation Committee of the Board of Directors currently are Messrs. Rubenstein and Slayton. See "Certain Relationships and Related Transactions" for a description of certain transactions involving Messrs. Rubenstein and Slayton. INDEMNIFICATION As permitted by The General and Business Corporation Law of Missouri (the "GBCL"), the Articles of Incorporation of the Company provide (i) that the Company is required to indemnify its directors and officers to the fullest extent permitted by Missouri law, (ii) the Company is permitted to indemnify employees or agents as set forth in the GBCL, (iii) to the fullest extent permitted by the GBCL, the Company is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding (subject to certain exceptions), (iv) the rights conferred in the GBCL are not exclusive, and (v) the Company is authorized to enter into indemnification agreements with its directors, officers, employees and agents without further approval of the shareholders. Directors or officers of the Company who are directors or officers of General American may also be entitled to indemnification under the provisions of General American's Articles of Incorporation, which provide indemnification to them since they serve, at General American's request, as directors or officers of the Company. Such individuals are also covered by General American's director's and officer's liability insurance policy. General American Life Mutual Holding Company maintains a policy of insurance under which the directors and officers of the Company are insured, subject to the limits of the policy, against certain losses, as defined in the policy, arising from claims made against such directors and officers by reason of any wrongful acts, as defined in the policy, in their respective capacities as directors or officers of the Company. 47 49 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS THE STRATEGIC MERGER The Company was formed in July 1995 as a holding company for all of the operations of the Company following the Strategic Merger. The parties effected the Strategic Merger in order to combine complementary businesses, each with specialties in the insurance industry, to build a platform from which to leverage additional growth. The Strategic Merger was effected in August 1995 when (i) General American Holding Company contributed to the Company all of the issued and outstanding common stock of GAIMCO (now known as Conning Asset Management Company), a registered investment adviser which provided investment advisory services to General American and its affiliates (including General American Capital Company's family of mutual funds), endowment funds, corporate non-qualified assets, and pension/profit sharing funds of other entities in exchange for 6,710,000 shares of Company Common Stock; and (ii) each of the shareholders of Conning, Inc., other than three non-employee directors and two institutional shareholders (the "Non-Contributing Shareholders"), contributed all of the common stock then owned by such shareholders to the Company and each holder of options to acquire Conning, Inc. common stock canceled all of such options in exchange for $4,505,000 in cash and 3,190,000 shares of the Company's Series A Convertible Preferred Stock, with Messrs. Slayton, Hansen and Schpero receiving cash payments of $898,708, $438,661, and $40,164, respectively, and 636,376, 310,616, and 28,441 shares of Series A Convertible Preferred Stock, respectively; and the Other Significant Officers, as a group, and officers of the Company who are not Executive Officers or Other Significant Officers (the "Other Officers"), as a group, receiving cash payments of $2,736,122 and $391,345, respectively, and 1,937,455 and 277,112 shares of Series A Convertible Preferred Stock, respectively. By agreement among the former shareholders of Conning, Inc., the shares of Conning, Inc. owned by the Non-Contributing Shareholders were acquired in exchange for cash payments in the aggregate of $7,495,000. See Note 1 of Notes to the Company's Consolidated Financial Statements. The Series A Convertible Preferred Stock pays a quarterly dividend equal to the 90 day United States Treasury Bill rate as in effect from time to time. Pursuant to the terms of the Series A Convertible Preferred Stock, upon the consummation of the sale of the Common Stock offered hereby, the Series A Convertible Preferred Stock will convert automatically on a one-for-one basis into shares of Common Stock. Pursuant to the Shareholders Agreement, in June 1997 General American exercised a right in connection with the amendment and restatement of such agreement (the "call right"), to purchase 1,594,995 shares of Series A Convertible Preferred Stock for the per share price of $11.25, with Messrs. Slayton, Hansen and Schpero receiving cash payments of $3,579,615, $1,747,215, and $159,975, respectively; and Other Significant Officers, as a group, and Other Officers, as a group, receiving cash payments of $10,898,156 and $1,558,733, respectively. See "Principal Shareholders." The Shareholders Agreement also restricts the transfer of shares of the Company by any shareholder (other than General American), except pursuant to a right of first refusal in favor of General American with respect to shares acquired in connection with the Strategic Merger or pursuant to a right of first refusal in favor of the Company in the case of shares acquired subsequent to the Strategic Merger (and with respect to all shares, in favor of the other shareholders if General American or the Company does not purchase such shares). The Shareholders Agreement further provides for the rights of shareholders to require General American, or in some cases the Company, to purchase their shares in certain situations including death, disability and termination of employment with the Company and, in certain other situations, provides General American, or in some cases the Company, with the right to purchase such shares. The Shareholders Agreement also provides that, until August, 1998, (i) the Company will maintain the general approach and methodology regarding cash compensation and private equity carried interest allocations, (ii) the Company will have a Board of Directors comprised of no more than seven members, at least two of whom will be members of management (including Mr. Slayton or his successor), (iii) the Company will have a Compensation Committee of the Board of which the President will be a member, (iv) Mr. Slayton will serve as President of the Company and Conning Asset Management Company and as President and CEO of Conning, Inc. and Conning & Company and Mr. Rubenstein will serve as Chairman and CEO of the Company and Conning Asset Management Company, and (v) Mr. Slayton will serve as a senior member of management of the Company with certain specified responsibilities. Upon consummation of this offering, the Shareholders Agreement will terminate, except for certain provisions requiring the Company to maintain certain compensation approaches as described in clause (i) of the preceding sentence. Each Employee who entered into an employment agreement in connection with the Strategic Merger received a signing bonus that is subject to forfeiture in the event that such Employee's employment is terminated under certain circumstances during the first three years after the Strategic Merger. As of the date hereof, of the $195,000, $95,000 48 50 and $35,000 of signing bonus paid to Messrs. Slayton, Hansen and Schpero, respectively, $65,000, $31,667 and $11,667 are subject to forfeiture; of the $465,000 and $80,000 of signing bonuses paid to the Other Significant Officers and Other Officers, respectively, $155,000 and $26,667 are subject to forfeiture, which forfeiture obligations expire on August 11, 1998. See "Management--Employment Agreements and Other Compensation Arrangements." In connection with the Strategic Merger certain employees of the Company entered into option cancellation agreements and received payments from the Company, which, based upon an understanding among the selling shareholders, are subject to forfeiture in the event that any such employee's employment is terminated under certain circumstances during the first three years after the Strategic Merger. As of the date hereof, of the $1,176,196, $804,491 and $55,237 of the payments paid in connection with the option cancellation agreements to Messrs. Slayton, Hansen and Schpero, respectively, $265,988, $129,829 and $11,887 are subject to forfeiture; of the $4,353,082 and $605,119 of payments to the Other Significant Officers and Other Officers, respectively, $809,803 and $201,707 are subject to forfeiture, which forfeiture obligations expire on August 11, 1998. In connection with the Strategic Merger, the parties agreed to indemnify each other for breaches of representations and warranties, certain tax matters and certain litigation matters. Most of these indemnification obligations expired by their own terms on February 11, 1997. The indemnification obligations of the former shareholders and optionholders of Conning, Inc. that survived beyond that date have been released, which benefited all of the former shareholders and optionholders of Conning, Inc., including Messrs. Slayton, Hansen and Schpero. General American's and the Company's obligations to indemnify the former shareholders and optionholders of Conning, Inc. remains in force with respect to certain potential tax liabilities of the Company and certain potential tax liabilities of the former shareholders and optionholders. Also in connection with the Strategic Merger, the Company granted certain employees of the Company options ("1995 Options") to purchase in the aggregate 1,000,000 shares of the Company's Class B Non-Voting Common Stock ("Non-Voting Common Stock") at a price of $5.33 per share, with Messrs. Rubenstein, Slayton, Hansen, and Schpero receiving options to purchase 120,000, 120,000, 120,000, and 10,000 shares, respectively; with the Other Significant Officers and Other Officers receiving options to purchase 460,000 and 170,000 shares, respectively, which includes Messrs. Koester and McLellan and Ms. Tanaka each receiving options to purchase 70,000 shares. These options vest annually in equal portions over the five years between August 11, 1995 and August 11, 2000, but upon the consummation of this offering all of these options will become fully vested. Also upon the consummation of this offering, the Company's Non-Voting Common Stock will convert automatically on a one-for-one basis into shares of Common Stock. Thus, the 1995 Options will become exercisable for shares of Common Stock at a price of $5.33 per share. All 1995 Options were issued as Incentive Stock Options. In connection with the Strategic Merger, General American loaned the Company $13,000,000 on an unsecured basis bearing interest at the rate of 7% per annum, payable as follows: (a) commencing January 1, 1996, semi-annual interest payments until September 1, 2002, (b) on September 1, 2003 and September 1, 2004, principal payments of $4,333,333, together with all interest accrued through such dates, and (c) on September 1, 2005, the final payment of principal in the amount of $4,333,334, together with all interest accrued through such date. As of December 31, 1996, the outstanding principal balance on this loan was $2,000,000 and this remaining principal was paid in February 1997. Also in connection with the Strategic Merger, General American made a $2,500,000 short term loan to the Company on an unsecured basis bearing interest at 6.75% per annum. This loan was due August 31, 1996 and was fully paid by June, 1996. RECENT EMPLOYEE INCENTIVE OFFERING Commencing in November 1996, in conjunction with an employee incentive program, the Company has sold shares of its Series B Convertible Preferred Stock to certain employees of the Company at a price of $5.33 per share. To date, 475,000 shares of Series B Convertible Preferred Stock have been sold in connection with such program, with Messrs. Rubenstein, Liddy and Schpero acquiring 40,000, 50,000 and 20,000 shares, respectively; with Other Significant Officers and Other Officers acquiring 190,000 and 175,000 shares, respectively (which includes Messrs. Koester and McLellan and Ms. Tanaka each acquiring 20,000 shares). The Series B Convertible Preferred Stock is convertible upon demand on a one-for-one basis into shares of Non-Voting Common Stock at a conversion price of $1.67 per share, subject to anti-dilution adjustments, and pays a quarterly dividend of 5% per annum. As noted above, upon the consummation of this offering, the Company's Non-Voting Common Stock will convert automatically on a one-for-one basis into shares of Common Stock. Thus, shares of Series B Convertible Preferred Stock effectively will become convertible into shares of Common Stock upon payment of the conversion price of $1.67 per share (i.e., for a total 49 51 purchase price of $7.00 per share). Pursuant to the Shareholders Agreement, which was amended in connection with the sale of the Series B Convertible Preferred Stock, subject to the consummation of this offering, the Company has the right to redeem the Series B Convertible Preferred Stock for the price of $5.33 per share plus accrued dividends. In connection with the Company's private offering of Series B Convertible Preferred Stock to certain employees and directors of the Company in 1996 and January 1997, General American holds unsecured recourse demand notes from certain shareholders totaling $2,265,250, including $213,200 due from Mr. Rubenstein and $106,600 due from Mr. Schpero, respectively, and $1,012,700 and $932,750 from the Other Significant Officers, as a group including $106,600 each from Mr. Koester, Mr. McLellan and Ms. Tanaka, and the Other Officers, as a group, respectively. Interest on such notes accrues at 6% per annum and is payable semi-annually beginning in July, 1997. Principal payments on such notes are due annually beginning January, 1998 in the amount of 25% of the gross bonus earned by the obligor in the immediately preceding year. General American has issued or will issue loans to certain shareholders to finance the conversion of Series B Convertible Preferred Stock on terms similar to those described above and in the aggregate amount of $642,950, including $66,800 for Mr. Rubenstein, $33,400 for Mr. Schpero, $258,850 for the Other Significant Officers (including $33,400 for each of Mr. Koester, Mr. McLellan and Ms. Tanaka) and $283,900 for the Other Officers. Also commencing in November 1996, the Company has granted certain of its employees options ("1996 Options") to purchase in the aggregate 237,500 shares of the Company's Non-Voting Common Stock for the price of $7.00 per share. See "Management--Executive Compensation." The Company granted options to Messrs. Rubenstein, Liddy and Schpero to purchase 20,000, 25,000 and 10,000 shares, respectively; options to purchase 95,000 shares to the Other Significant Officers, as a group (including 10,000 shares each to Mr. McLellan, Mr. Koester and Ms. Tanaka); and options to purchase 87,500 shares to the Other Officers, as a group. These options vest annually in equal portions over the five-year period commencing on the date of grant. The consummation of the sale of Common Stock offered hereby will not affect the vesting of the 1996 Options. As noted above, upon the consummation of this offering, the Company's Non-Voting Common Stock will convert automatically on a one-for-one basis into shares of Common Stock. Thus, the 1996 Options effectively will become exercisable for shares of Common Stock at a price of $7.00 per share. TRANSACTIONS WITH GENERAL AMERICAN General American currently is the principal shareholder of the Company. After completion of the offering, General American will beneficially own approximately 65% of the Company's outstanding Common Stock (approximately 63% if the Underwriters' over-allotment option is exercised in full). General American is a Missouri state life insurance company which began operations as a stock company in 1933 and was converted to a mutual company in a process that ended in 1946. General American is principally engaged in issuing individual and group life and health insurance policies and annuity contracts. The principal offices of General American are located at 700 Market Street, St. Louis, Missouri 63101. See "Risk Factors--Dependence on Principal Shareholder," "--Potential Conflicts of Interest," "--Termination Provisions of Investment Advisory Agreements and Other Consequences of a Change in Control; Limitations on Voting Rights" and "--Certain Other Anti-Takeover Provisions," "Management," and "Principal Shareholders." The Company, through its subsidiary Conning Asset Management Company, acts as the investment adviser for the general and separate accounts of General American and certain of its affiliates, including the General American Capital Company funds, COVA Corporation and its subsidiaries ("COVA"), Reinsurance Group of America, Incorporated and certain of its subsidiaries, Paragon Life Insurance Company, General Life Insurance Company, General Life Insurance Company of America, Security Equity Life Insurance Company and the General American Life Insurance Company Pension Plan Trust. Such agreements are generally terminable upon 30 to 90 days' notice without penalty. The Company is generally compensated on the basis of fees calculated at a percentage of the market value of the assets under management. The fees are billed and are payable quarterly in arrears. Investment management fees from these affiliated entities for the years ended December 31, 1995 and 1996 amounted to $12,573,489 and $14,300,367, respectively. Effective January 1, 1995, General American and Conning Asset Management Company entered into an investment advisory agreement pursuant to which the Company would manage all of the general account assets of General American. As of December 31, 1994, such assets totaled approximately $5.2 billion. While investment management contracts were not in place during 1994 for General American's general account and COVA, investment management fees earned from the other affiliated entities for the year ended December 31, 1994 totaled $2,618,635. See Note 11 of Notes to the Company's Consolidated Financial Statements. 50 52 After the ---day period during which General American has agreed not to offer for sale, sell, or otherwise dispose of, directly or indirectly, any shares of Common Stock without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation (see "Underwriting"), it is possible that General American will, from time to time depending on future conditions, further reduce or increase its beneficial ownership of the Common Stock. Additionally, the Company has granted General American certain rights with respect to the registration of shares of Common Stock that will be owned by General American upon completion of the offering. See "Shares Eligible for Future Sale." Pursuant to an Administrative Services Agreement, General American provides the Company with certain management and administrative services at the Company's request. Such services include legal, employee benefit, payroll, personnel, facilities and information services. As consideration for these services, the Company pays General American a monthly fee based on General American's cost, computed in accordance with General American's current cost accounting system. The Company paid to General American $871,221, $12,308,103 and $14,611,221 for administrative services rendered for the years ended December 31, 1994, 1995 and 1996, respectively, of which a substantial portion reflects reimbursement of salaries and employee-related costs. Until January 1, 1997, certain employees of the historical operations of GAIMCO who were employees of General American and costs associated with such employees were allocated and charged to the Company pursuant to such Agreement. The Administrative Services Agreement is terminable by either party on 90 days' written notice. General American, however, has agreed not to terminate the Agreement prior to July 19, 1998. See Note 11 of Notes to the Company's Consolidated Financial Statements. Effective July 31, 1996, Conning Asset Management Company entered into an agreement with General American for the lease of approximately 25,000 square feet of office space located at 700 Market Street, St. Louis, Missouri. Such lease has a five-year term, is terminable by the Company upon 30 days' notice and calls for annual lease payments of approximately $600,000. The Company anticipates leasing up to an additional 10,000 square feet at this location during 1997 on substantially the same terms and conditions. The Company also subleases from General American, pursuant to a written sublease, three of its eleven office sites for its various mortgage loan and real estate offices. The three offices are located in Arizona, California and Missouri. The sublease terminates with respect to a particular location immediately prior to termination of the applicable lease. The underlying leases have terms of varying lengths ranging from month-to-month to a fixed term ending in 2002. Either party may terminate the sublease with respect to one or more locations on 90 days' written notice. The Company's total annual base rent for 1997 under the sublease totals approximately $81,000. The terms of all of the foregoing leases and the sublease (collectively, the "Leases") were designed to approximate the cost to General American of owning or leasing such spaces. The Company made rental payments to General American of approximately $300,000, $624,000 and $613,000 in 1994, 1995 and 1996, respectively. The Company believes that the prices and other terms under the Leases are at least as favorable as those prices and terms being offered generally in the same marketplaces by unrelated parties for comparable spaces. See Note 11 of Notes to the Company's Consolidated Financial Statements. The Company and General American have entered into a Tax Allocation and Tax Sharing Agreement dated as of June 12, 1997 (the "Tax Agreement"). The Tax Allocation Agreement provides, among other things, that the tax liability of the General American federal consolidated tax return group (the "General American Tax Group") during the period that the Company is a member of such group (i.e., from June 12, 1997 to the closing of this offering) will be allocated among the members of the group in proportion to their separately calculated tax liabilities. The Tax Agreement also provides that any savings resulting from the tax benefits of a particular member will be paid to that member, rather than accruing to the benefit of the other members, and requires, among other things, that certain payments be made between the Company and General American in the event there is a change in the pre-offering tax liabilities of the Company. In addition, under the Tax Agreement, General American will indemnify the Company against any tax liabilities of the General American Tax Group that are not attributable to the Company, and the Company will indemnify General American against any tax liabilities of the Company. From August 11, 1995 (the date of the Strategic Merger) to June 12, 1997, the Company was not a member of the General American Tax Group but was a party to a Tax Sharing Agreement with General American providing for indemnification rights and tax sharing liabilities in a manner similar to the current Tax Agreement for the period during which Conning Asset Management Company was a member of such group. The tax liabilities of the members of the General American Tax Group prior to the Strategic Merger, which included Conning Asset Management Company, are allocated under a Tax Allocation Agreement dated as of October 30, 1992, in a manner similar to the Tax Agreement. Mr. Liddy is also an executive officer and director of General American and certain of its affiliates. His son has been employed by the Company since 1995. Mr. Rubenstein is also a director of certain of General American's affiliates. See "Management--Directors, Executive Officers and Certain Significant Officers." 51 53 The Company's mortgage origination and real estate brokerage activities have been historically operated pursuant to informal agreements through General American. The existing and proposed agreements between the Company, on the one hand, and General American and its affiliates, on the other hand, may be modified or renegotiated in the future and additional transactions or agreements may be entered into between the Company and General American and its affiliates. See "Risk Factors--Potential Conflicts of Interest." PARTICIPATION IN PRIVATE EQUITY FUNDS The Company, directly or indirectly through intermediary partnerships, is the general partner of the following private equity funds with a 1% general partner capital interest: Conning Insurance Capital Limited Partnership II and Conning Insurance Capital International Partners II (together, "Fund II"), Conning Insurance Capital Limited Partnership III and Conning Insurance Capital International Partners III (together, "Fund III"), Conning Connecticut Insurance Fund, L.P. ("Fund IV") and Conning Insurance Capital Limited Partnership V ("Fund V"). At August 31, 1997, the Company's commitment to fund future required capital contributions was approximately $2.2 million. The Company had established similar relationships with respect to Conning Insurance Capital Limited Partnership and Conning Insurance Capital International Partners (together, "Fund I"), which terminated pursuant to their terms on December 31, 1995. Collectively, Fund I, Fund II, Fund III, Fund IV and Fund V are referred to as the "Funds". Each Fund has a term of eight to ten years, subject to certain extensions for liquidation purposes. Fund I commenced December, 1986, Fund II commenced December, 1988, Fund III commenced December, 1993, Fund IV commenced December, 1995 and Fund V commenced August, 1997. The Company and its predecessors received investment management fees from the Funds, in the aggregate, of approximately $3.2 million, $3.2 million, $4.0 million and $1.9 million for 1994, 1995, 1996 and the first six months of 1997, respectively. The Company through its subsidiary has committed to Conning Connecticut Investors, L.L.C., a limited liability company of which the Company is the general partner and managing member, up to approximately $4,040,000 for purposes of capitalizing the general partner. The amount is payable only in the event of insolvency on the part of the Conning Connecticut Investors, L.L.C. See Note 15 of Notes to the Company's Consolidated Financial Statements. The Company is also entitled to a carried interest, or performance fee, in each Fund representing up to approximately 20% of specified gains of the Fund, as determined in accordance with the applicable partnership agreement. Certain officers and directors of the Company and its subsidiaries receive participation percentages annually over a five-year period, in a portion of the Company's carried interest, which participations are subject to a climbing vesting schedule varying by Fund, generally over a period of up to seven years from the date of receipt of the participation percentage. At the end of the five year period, the Company's percentage of the carried interest ranges from 25% to 40% of the original amount, depending on the Fund. At June 30, 1997, the percentage interests in Fund IV held by Messrs. Rubenstein, Slayton, Hansen and Schpero were 0.50%, 2.80%, 1.40% and 0.45%, respectively; the percentage interests held by Messrs. Koester and McLellan and Ms. Tanaka were 0.15% each; and ranged from 0.15% to 3.40% for each of the Other Significant Officers; and ranged from 0.10% to 2.10% for each of the Other Officers; the percentage interests in Fund III held by Messrs. Rubenstein, Slayton, Hansen and Schpero were 0.50%, 6.07%, 3.19% and 0.57%, respectively, the percentage interests held by Messrs. Koester and McLellan and Ms. Tanaka were 0.15% each, and ranged from 0.15% to 6.86% for each of the Other Significant Officers and ranged from 0.10% to 4.17% for each of the Other Officers; and the percentage interests in Funds I and II held by Messrs. Slayton, Hansen and Schpero were 8.54%, 5.86% and 0.84%, respectively, and the percentage interests held by each of the Other Significant Officers ranged from 1.48% to 6.75%; and the percentage interests held by each of the Other Officers ranged from 0.13% to 2.80%. Participation percentages are complete for Funds I and II; Fund III has approximately one year remaining for completion of the determination of participation percentages; Fund IV has approximately three years remaining for completion of the determination of participation percentages. Participation percentages have not yet been determined for Fund V. With the exception of Fund I, none of the Funds has generated a carried interest as of June 30, 1997, and the value, if any, of such participations cannot be readily determined. Distributions to date of the carried interest from Fund I were made during 1996 and 1997 to Messrs. Slayton, Hansen and Schpero in the amounts of $678,669, $466,025 and $67,092, respectively, and ranged from $117,252 to $536,496 for each of the Other Significant Officers and ranged from $3,975 to $222,659 for each of the Other Officers. General American and its affiliates other than the Company have committed or invested a total of $30.0 million in four of the Funds. A subsidiary of Transamerica Occidental Life Insurance Company ("Transamerica"), of which Mr. Fibiger was Chairman of the Board, has invested a total of $4.0 million in two of such funds. General American and its affiliates may participate in the distributions from the private equity funds on a pro rata basis with other limited partners in the private equity funds. General American and certain of its affiliates, which may include the Company, may invest in new private equity funds in the future as limited partners. 52 54 PRINCIPAL SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock as of September 19, 1997, giving effect to the Capital Stock Conversions and the vesting of certain options upon the closing of the offering and as adjusted to reflect the sale of shares offered hereby, for (i) each person known to the Company to own beneficially 5% or more of the outstanding shares of Common Stock, (ii) the Company's directors and named executive officers, and (iii) all the Company's directors and executive officers as a group. Except as otherwise noted in the footnotes to this table, the named beneficial owner has sole voting and investment power. As of September 19, 1997, there were 43 shareholders of record.
PERCENTAGE OF SHARES BENEFICIALLY NUMBER OF OWNED SHARES ------------------ BENEFICIALLY BEFORE AFTER NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING ------------------------ --------- -------- -------- General American Life Insurance Company............. 8,304,995 80.0% 64.5% Leonard M. Rubenstein............................... 164,000 1.6 1.3 Maurice W. Slayton.................................. 438,188 4.2 3.4 Mark E. Hansen...................................... 275,308 2.6 2.1 Fred M. Schpero..................................... 46,221 John A. Fibiger......................................... -- -- -- Richard A. Liddy.................................... 55,000 John C. Shaw............................................ -- -- -- All Directors and Executive Officers as a group (7 persons)....................................... 978,717 9.1 7.4 Other Significant Officers as a group (19 persons).......................................... 1,637,730 15.1 12.3 Other Officers as a group (22 persons)............. 501,058 4.7 3.8 - -------- Less than 1% Except for shares owned by General American, which represent 6,710,000 shares of Common Stock and 1,594,995 shares of Series A Convertible Preferred Stock, all shares owned prior to the offering represent shares of Series A Convertible Preferred Stock, shares of Series B Convertible Preferred Stock, shares of Non-Voting Common Stock and shares of Non-Voting Common Stock subject to outstanding stock options that are exercisable within 60 days, including the vesting of certain options upon the closing of the offering. All shares, other than shares of Common Stock, are currently non-voting. The Series A Convertible Preferred Stock and Non-Voting Common Stock will automatically convert into an equal number of shares of Common Stock upon completion of the offering and the holders of Series B Convertible Preferred Stock have agreed to convert such shares into an equal number of shares of Common Stock for additional consideration of $1.67 per share, upon completion of the offering. See "Description of Capital Stock." Assumes no exercise of the Underwriters' over-allotment option. Includes shares owned by General American Holding Company, a wholly-owned subsidiary of General American. The address of General American is 700 Market Street, St. Louis, Missouri 63101. General American is a wholly-owned subsidiary of GenAmerica Corporation, which is a wholly-owned subsidiary of General American Life Mutual Holding Company. Includes 52,000 shares which may be acquired pursuant to currently exercisable options and 72,000 shares which may be acquired pursuant to options that will become exercisable upon the closing of the offering. Includes 48,000 shares which may be acquired pursuant to currently exercisable options and 72,000 shares which may be acquired pursuant to options that will become exercisable upon the closing of the offering. Includes 6,000 shares which may be acquired pursuant to currently exercisable options and 6,000 shares which may be acquired pursuant to options that will become exercisable upon the closing of the offering. Includes 5,000 shares which may be acquired pursuant to currently exercisable options. Mr. Liddy, a director of the Company, is also Chairman and Chief Executive Officer of General American. Mr. Liddy disclaims beneficial ownership of the shares owned by General American. Includes 154,000 shares which may be acquired pursuant to currently exercisable options and 222,000 shares which may be acquired pursuant to options that will become exercisable upon the closing of the offering. Consists of the 19 persons listed under the caption "Management--Directors, Executive Officers and Certain Significant Officers--Certain Significant Officers." Includes 203,000 shares which may be acquired pursuant to currently exercisable options and 276,000 shares which may be acquired pursuant to options that will become exercisable upon the closing of the offering. Consists of 22 persons who are neither Executive Officers nor Other Significant Officers. Includes 85,500 shares which may be acquired pursuant to currently exercisable options and 102,000 shares which may be acquired pursuant to options that will become exercisable upon the closing of the offering.
53 55 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for the Common Stock of the Company. Future sales of substantial amounts of Common Stock in the public market, or the perception that such sales could occur, could adversely affect market prices prevailing from time to time and the ability of the Company to raise equity capital in the future. RESTRICTION ON SALES Upon completion of this offering and assuming no exercise of outstanding options, the Company will have outstanding 12,875,000 shares of Common Stock (13,250,000 shares if the Underwriters' over allotment option is exercised in full). Of these shares, the 2,500,000 shares sold in the offering will be immediately eligible for resale in the public market without restriction under the Securities Act, except for any shares purchased by an "Affiliate" (as that term is defined under the Securities Act) of the Company, which shares will be subject to the resale limitations of Rule 144 under the Securities Act. The remaining 10,375,000 shares outstanding following this offering (the "Previously Issued Shares") were issued by the Company in private transactions not involving a public offering and are thus treated as "restricted securities" within the meaning of Rule 144 under the Securities Act. Subject to the Lock-up Agreements described below, the Previously Issued Shares may be sold in the public market only if registered or pursuant to an exemption from registration such as those afforded by Rules 144, 144A, 701 and Regulation S under the Securities Act of 1933. The holders of the Previously Issued Shares of Common Stock have entered into agreements with the Company ("Lock-up Agreements") pursuant to which they have agreed that, during the ---day period after the date of this prospectus, they will not, except with the prior consent of Donaldson, Lufkin & Jenrette Securities Corporation or in certain limited circumstances, offer, sell, contract to sell or grant an option to purchase any of such Previously Issued Shares. In addition, the Company has agreed that during such period it will not, without the prior consent of Donaldson, Lufkin & Jenrette Securities Corporation or in certain limited circumstances, offer, sell, contract to sell or grant an option to purchase any shares of Common Stock. See "Underwriting." The Company believes that, following the lock-up period, up to 1,453,856 shares held by existing shareholders could be eligible for sale without restriction and up to 8,921,144 "affiliate" shares held by executive officers, directors, and other affiliates could be eligible for sale, subject to certain volume and other limitations of Rule 144 as described below; all such shares, however, may be subject to additional holding periods under Rule 144 based on, among other things, particular interpretative considerations, facts and circumstances relating to such shareholders. Outstanding options to purchase 1,000,000 shares of Common Stock will be exercisable upon completion of the offering. Upon the first anniversary of the date hereof, General American and the holders of shares issuable upon the Capital Stock Conversions have the right to require the Company in certain circumstances to register their shares of Common Stock for sale under the Securities Act. See "--Registration Rights" below and "Certain Relationships and Related Transactions." In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, an Affiliate of the Company or other person (or persons whose shares are aggregated) who has beneficially owned Previously Issued Shares for at least one year will be entitled to sell in any three-month period a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of the Company's Common Stock (approximately 132,500 shares immediately after the offering, if the Underwriters' over-allotment option is exercised in full) or (ii) the average weekly trading volume of the Company's Common Stock on the Nasdaq National Market during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about the Company. A person (or persons whose shares are aggregated) who is not deemed to have been an Affiliate of the Company at any time during the 90 days immediately preceding the sale and who has beneficially owned Restricted Shares for at least two years is entitled to sell such shares pursuant to Rule 144(k) without regard to the limitations described above. Previously Issued Shares may also be resold (1) to a person whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act purchasing for its own account or for the account of a qualified institutional buyer in a transaction meeting the requirements of Rule 144A and (2) in an off-shore transaction complying with Rules 903 or 904 of Regulation S under the Securities Act. 54 56 An employee of the Company who purchased shares or was awarded options to purchase shares pursuant to a written compensatory plan or contract meeting the requirements of Rule 701 under the Securities Act is entitled to rely on the resale provisions of Rule 701 under the Securities Act which permits Affiliates and non-Affiliates to sell their Rule 701 shares without having to comply with the holding period restrictions of Rule 144, in each case commencing 90 days after the date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares without complying with the public information, volume and notice provisions of Rule 144. Following the effectiveness of the registration statement covering the shares of Common Stock offered hereby, the Company will register under the Securities Act the shares of Common Stock reserved for issuance under the Company's employee stock plans covering -------- shares. The Company expects that these registrations will automatically become effective upon filing. Accordingly, shares registered under such registration statements and acquired pursuant to such Plans will be available for sale in the open market upon the expiration of the public sale restrictions described below (see "Underwriting"), subject to Rule 144 volume limitations applicable to Affiliates. REGISTRATION RIGHTS The Company has granted certain rights with respect to the registration of 6,710,000 of the 8,304,995 shares of Common Stock that will be owned by General American upon completion of the offering (the "Registrable Securities"). Subject to certain limitations, General American and permitted assignees have the right at any time after the first anniversary of the date hereof to require the Company to register the sale of such shares under the Securities Act (a "demand registration"). The number of demand registrations is limited to two. A demand registration must be requested by holders of Registrable Securities representing at least 10% of the outstanding Common Stock and must include at least 10% of such Registrable Securities. The Company is not required to effect more than one demand registration in any twelve-month period. The holders of Registrable Securities are also entitled to include such shares in a registered offering of securities by the Company for its own account or the account of any other security holder (a "piggy-back registration"), subject to certain conditions and restrictions. A piggy-back registration is counted as one of the demand registrations if the holder sold at least 80% of the Registrable Securities it requested be registered. In addition to the demand and piggy-back registration rights described above after the first anniversary of the date hereof, the holders of Registrable Securities representing at least 10% of the outstanding Common Stock may require the Company to file up to two registration statements relating to such Registrable Securities on Form S-3 under the Securities Act when such form is available to the Company. A demand registration on Form S-3 will count as a Form S-3 registration. A registration on Form S-3 must relate to the offering of securities, including the Registrable Securities, at an aggregate price to the public of at least $5,000,000. The Company is not required to effect more than one such registration on Form S-3 (including any demand registrations registered on Form S-3) in any twelve-month period. The registration expenses of holders of Registrable Securities (other than underwriting discounts and commissions) will be paid by the Company. The registration rights expire for any Holder owning Registrable Securities representing less than 1% of the outstanding Common Stock on the date such Holder is able to dispose of all of its shares in any 90-day period pursuant to Rule 144, and, in any event, on the date such Holder's Registrable Securities can be sold pursuant to Rule 144(k) under the Securities Act. The registration rights are not assignable by General American other than to General American Holding Company, a direct or indirect subsidiary of General American or General American Holding Company, a parent of General American or General American Holding Company, or a direct or indirect subsidiary of such parent entity. The Company has granted the holders of the 2,070,005 shares of Common Stock issued upon the Capital Stock Conversions the right to require the Company to file a registration statement on Form S-3 on or about the first anniversary of the date hereof covering the resale of such shares, provided that such Form S-3 is available to the Company; provided further, that (i) the Company would be under no obligation to maintain the effectiveness of such registration statement for more than twelve months and (ii) the holders of such stock enter into a registration rights agreement at that time containing such limitations and conditions as the Company deems appropriate. 55 57 DESCRIPTION OF CAPITAL STOCK AUTHORIZED CAPITAL STOCK Under the Company's Amended and Restated Articles of Incorporation (previously defined as the "Articles"), the Company's authorized capital stock consists of 50,000,000 shares of Common Stock, par value $.01 per share, 20,000,000 shares of Non-Voting Common Stock, par value $.01 per share and 20,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"). The Company will have outstanding, immediately prior to the issuance and sale of shares of Common Stock pursuant to the offering 10,375,000 shares of Common Stock, after giving effect to the Capital Stock Conversions. Upon the closing of this offering, assuming no exercise of the Underwriters' over-allotment option and no exercise of outstanding stock options, the Company will have outstanding 12,875,000 shares of Common Stock and no shares of Preferred Stock. Upon the closing of this offering, the Company intends to file an amendment to its Articles to eliminate the Non-Voting Common Stock. COMMON STOCK All of the outstanding shares of Common Stock are, and the shares offered hereby will be, fully paid and nonassessable. Each holder of Common Stock is entitled to one vote for each share held of record on all matters presented to a vote of shareholders, including the election of directors, except that, as provided in the Articles, no person or group other than General American, certain affiliates of General American, certain savings, profit sharing, stock bonus and employee stock ownership plans established by the Company or certain subsidiaries of the Company and other persons approved in advance by the Board of Directors of the Company, shall have the right to vote more than 20% of the combined voting power of the Company's Voting Stock (as defined in the Articles). See "Certain Charter and Bylaw Provisions--Limitations on Voting of Shares in Certain Circumstances" for a more detailed description of this 20% voting limitation. Accordingly, assuming such 20% voting restriction does not apply, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to the prior rights of the holders of any shares of Preferred Stock which subsequently may be issued and outstanding, the holders of Common Stock are entitled to receive dividends as and when declared by the Board of Directors out of funds legally available therefor, and, in the event of liquidation, dissolution, or winding up of the Company, to share ratably in all assets remaining after payment of liabilities. Holders of Common Stock do not have cumulative voting rights in the election of directors or preemptive rights to purchase or subscribe for any stock or other securities and there are no conversion rights or redemption or sinking fund provisions with respect to such stock. Additional shares of authorized Common Stock may be issued without shareholder approval. As of August 31, 1997, there were outstanding 110,000 shares of Non-Voting Common Stock. Such shares of Non-Voting Common Stock have no voting or dividend rights. Upon the closing of this offering, all issued and outstanding shares of Non-Voting Common Stock will be converted into an aggregate of 110,000 shares of Common Stock. PREFERRED STOCK As of August 31, 1997, there were outstanding 3,190,000 shares of Series A Convertible Preferred Stock and 365,000 shares of Series B Convertible Preferred Stock. Upon or prior to the closing of this offering, all issued and outstanding shares of Series A Convertible Preferred Stock will be converted into an aggregate of 3,190,000 shares of Common Stock, and all outstanding shares of Series B Convertible Preferred Stock will be converted into an aggregate of 365,000 shares of Common Stock for additional consideration to the Company of $1.67 per share. Upon the closing of this offering, the Company intends to file an amendment to its Articles to eliminate the series designations of the Series A and B Convertible Preferred Stock. Following the closing of this offering, the Board will have the authority to issue up to an aggregate of 20,000,000 shares of Preferred Stock from time to time in one or more series without shareholder approval. The Board of Directors has the authority to prescribe for each series of Preferred Stock it establishes the number of shares in that series, the dividend rate, and the voting rights, conversion privileges, redemption and liquidation rights, if any, and any other rights, preferences and limitations of the particular series. Depending upon the rights of such Preferred Stock, the issuance of Preferred Stock could have an adverse effect on the holders of Common Stock by delaying or preventing a change of control of the Company, making removal of the present management of the Company more 56 58 difficult, or resulting in restrictions upon the payment of dividends and other distributions to the holders of Common Stock. The Company has no plans to issue any Preferred Stock. CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK Upon the completion of this offering, there will be 35,887,500 shares of Common Stock and 20,000,000 shares of Preferred Stock available for future issuance without shareholder approval, taking into consideration the 1,237,500 shares of Common Stock reserved for issuance upon exercise of outstanding options. These additional shares may be issued for a variety of proper corporate purposes, including raising additional capital, corporate acquisitions, and implementing employee benefit plans. Except as contemplated by the Company's existing and other possible employee benefit or stock purchase plans, the Company does not currently have any plans to issue additional shares of Common Stock or preferred stock. See "Management--Employee Stock Plans." One of the effects of the existence of unissued and unreserved Common Stock and Preferred Stock may be to enable the Board of Directors to issue shares to persons friendly to current management, which could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest, or otherwise, and thereby protect the continuity of the Company's management and possibly deprive the shareholders of opportunities to sell their shares of Common Stock at prices higher than the prevailing market prices. Such additional shares also could be used to dilute the stock ownership of persons seeking to obtain control of the Company. See also "Certain Charter and Bylaw Provisions." TRANSFER AGENT The transfer agent and registrar for the Common Stock is ----------. 57 59 CERTAIN CHARTER AND BYLAW PROVISIONS The Company's Articles and Bylaws (i) contain certain limitations on the voting power of certain shareholders, (ii) provide for a classified Board of Directors, (iii) limit the right of shareholders to remove directors or change the size of the Board of Directors, to fill vacancies on the Board of Directors, to act by written consent and to call a special meeting of shareholders, and (iv) require a higher percentage of shareholders than would otherwise be required to amend, alter, change, or repeal the provisions of the Articles and Bylaws discussed in this section, as well as those described above under "Management--Indemnification." The Articles also provide that the Bylaws may be amended only by the majority vote of the Board of Directors; thus shareholders will not be able to amend the Bylaws without first amending the Articles. These provisions, which are summarized below, may have the effect of discouraging certain types of transactions that involve an actual or threatened change of control of the Company. Reference is made to the full text of the Articles and Bylaws, which are included as exhibits to the Registration Statement of which this Prospectus is a part. The following summary is qualified in its entirety by such reference. LIMITATIONS ON VOTING OF SHARES IN CERTAIN CIRCUMSTANCES In order to limit the likelihood under certain circumstances of a deemed assignment, under the Advisers Act or the Investment Company Act, of the investment advisory contracts that the Company's subsidiaries have with their clients (see "Business--Regulation"), the Articles include provisions limiting the voting power of shares of Common Stock in certain circumstances. The Investment Company Act and the Advisers Act define the term "assignment" to include any "direct or indirect transfer" of "a controlling block of the voting securities" of the issuer's outstanding voting securities. The Investment Company Act presumes that any person holding 25% of the voting stock of the Company "controls" the Company. The Articles provide that a person or "group" (which includes affiliates and associates of a person, as defined in the Articles) that owns (as defined in the Articles) more than 20% of the voting shares of the Company's issued and outstanding capital stock ("Voting Stock") shall have the right to vote not more than 20% of the outstanding shares of Voting Stock entitled to vote. The remaining shares of Voting Stock owned by such person or group ("Excludable Shares") shall have no voting rights and shall not be counted for quorum or shareholder approval purposes. These provisions do not apply to General American, affiliates of General American, direct or indirect subsidiaries of the Company and certain employee plans established or to be established by the Company. The Company's Board of Directors may approve the exemption of other persons or groups from the provisions described above. The foregoing limitation is intended to have the effect of decreasing the chance of any assignment occurring for purposes of the Advisers Act and the Investment Company Act, including in connection with future issuances or sales of Common Stock. However, no assurances can be given that such an "assignment" will not occur under these or other circumstances. The Company has the right to inquire of any owner of Voting Stock, or person who purports to exercise voting rights with respect to such stock, and the owner will have the obligation to provide such information to the Company as the Company may reasonably request, as to the number of shares owned, whether such shares are owned by any other person and the identity of such person, whether affiliates or associates of such person own any shares, whether such person is a member of a "group" owning such shares or whether such person, or any of such person's affiliates or associates, has any agreement, arrangement or understanding with any other person with respect to the Voting Stock. The limitation on voting may be viewed as having the effect of making more difficult or of discouraging, absent the support of General American, a proxy contest, a merger or other combination involving the Company, a tender offer, an open-market purchase program or other purchase of Common Stock that could give shareholders an opportunity to realize a premium over the then-prevailing market price for their shares. However, given the authority that General American will exercise over the affairs of the Company following the completion of the offering in any event, the Company does not consider the likely effect of this limitation to be significant. SIZE OF BOARD, ELECTION OF DIRECTORS, CLASSIFIED BOARD, REMOVAL OF DIRECTORS AND FILLING VACANCIES The Articles provide that the number of directors to constitute the board of directors initially shall be five and thereafter the number of directors shall be fixed from time to time as provided in the Bylaws. The Bylaws provide for a Board of Directors of five directors, but in no event less than three, and permit the Board of Directors to change the number of directors with a majority vote. The Articles further provide that the Bylaws may be amended only by majority vote of the Board of Directors. In order for a shareholder to nominate a candidate for director, the Bylaws require that timely notice be given to the Company in advance of the meeting. Ordinarily, such notice must be given not less than 60 days nor more than 90 58 60 days before the first anniversary of the preceding year's annual meeting, or not less than 60 days nor more than 90 days before May 12, 1998, in the case of the next annual meeting; provided, however, that if the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, then the shareholder must give such notice not earlier than 90 days nor later than 60 days prior to such meeting or 10 days after notice of the meeting is mailed or other public disclosure of the meeting is made. In certain cases, notice may be delivered later if the number of directors to be elected is increased. The shareholder filing the notice of nomination must describe various matters regarding the nominee, including, without limitation, such information as name, address, occupation, and shares held. The Articles do not permit cumulative voting in the election of directors, and the Bylaws provide that the majority of the votes cast in the election of directors shall elect those directors. Accordingly, the holders of a majority of the then outstanding shares of voting stock can elect all the directors then being elected at that meeting of shareholders. The Articles and Bylaws provide that the Board shall be divided into three classes, with the classes to be as nearly equal in number as possible, and that one class shall be elected each year and serve for a three-year term. Missouri law provides that, unless a corporation's articles of incorporation provide otherwise, the holders of a majority of the corporation's voting stock may remove any director from office. The Articles provide that, except as described below, a director may be removed by shareholders only "for cause" and with the approval of the holders of 85% of the Company's voting stock. Missouri law further provides that, unless a corporation's articles of incorporation or bylaws provide otherwise, all vacancies on a corporation's board of directors, including any vacancies resulting from an increase in the number of directors, may be filled by the vote of a majority of the remaining directors even if that number is less than a quorum. The Articles provide that, subject to the rights, if any, of the holders of any class of preferred stock then outstanding and except as described below, vacancies may be filled only by the vote of a majority of the remaining directors. The classification of directors, the inability to vote shares cumulatively, the advance notice requirements for nominations, and the provisions in the Articles that limit the ability of shareholders to increase the size of the Board or to remove directors and that permit the remaining directors to fill any vacancies on the Board will have the effect of making it more difficult for shareholders to change the composition of the Board. As a result, at least two annual meetings of shareholders may be required for the shareholders to change a majority of the directors, whether or not a change in the Board would be beneficial to the Company and its shareholders and whether or not a majority of the Company's shareholders believes that such change would be desirable. LIMITATIONS ON SHAREHOLDER ACTION BY WRITTEN CONSENT; LIMITATIONS ON CALLING SHAREHOLDER MEETINGS As required by Missouri law, the Bylaws provide that any action by written consent of shareholders in lieu of a meeting must be unanimous. Under the Bylaws, except as described below, shareholders are not permitted to call special meetings of shareholders or to require the Board to call a special meeting of shareholders and a special meeting of shareholders may be called only by a majority of the entire Board of Directors, the Chairman of the Board, or the President. In order for a shareholder to bring a proposal before a shareholder meeting, the Bylaws require that timely notice be given to the Company in advance of the meeting. Ordinarily, such notice must be given not less than 60 days nor more than 90 days before the first anniversary of the preceding year's annual meeting, or not less than 60 days nor more than 90 days before May 12, 1998 in the case of the next annual meeting; provided, however, that if the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, then the shareholder must give such notice not earlier than 90 days nor later than 60 days prior to such meeting or 10 days after notice of the meeting is mailed or other public disclosure of the meeting is made. Such notice must include a description of the proposal, the reasons therefor, and other specified matters. The Board may reject any such proposals that are not made in accordance with these procedures or that are not a proper subject for shareholder action in accordance with the provisions of applicable law. The provision of the Bylaws requiring unanimity for shareholder action by written consent gives all the shareholders of the Company entitled to vote on a proposed action the opportunity to participate in such action and will prevent the holders of a majority of the voting power of the Company from using the written consent procedure to take shareholder action. Moreover, a shareholder cannot force a shareholder consideration of a proposal over the opposition of the Board of Directors by calling a special meeting of shareholders or forcing consideration of such a proposal. 59 61 These provisions are designed in part to make it more difficult and time-consuming to obtain majority control of the Board of Directors of the Company or otherwise to bring a matter before the shareholders without the Board's consent, and thus to reduce the vulnerability of the Company to an unsolicited takeover proposal. These provisions are designed to enable the Company to develop its business in a manner which will foster its long-term growth, with the threat of a takeover not deemed by the Board to be in the best interests of the Company and its shareholders and the potential disruption entailed by such a threat reduced to the extent practicable. On the other hand, these provisions may have an adverse effect on the ability of shareholders to influence the governance of the Company and the possibility of shareholders receiving a premium above the prevailing market price for their securities from a potential acquiror who is unfriendly to management. CERTAIN MISSOURI STATUTORY PROVISIONS The GBCL has a control share acquisition statute. A "control share acquisition" is defined as the acquisition, directly or indirectly, of either ownership or the power to direct the exercise of voting power with respect to "control shares," which are defined as shares which, when added to all other shares of the issuing corporation owned by the acquiring person, would entitle such person to exercise certain degrees of voting power with respect to stock of the issuing corporation. Under the Missouri control share acquisition statute (which is only applicable to certain corporations that have 100 or more shareholders), shareholders who acquire enough shares to give them (1) one-fifth or more to less than one-third, (2) one-third or more to less than a majority, or (3) a majority or more of the outstanding stock of the Company will not be able to vote those excess shares unless certain disclosure requirements are satisfied and the retention of voting rights by the acquiror is approved by at least a majority of shares entitled to vote and a majority of all non-interested shares entitled to vote. A corporation's articles of incorporation or bylaws may provide that a corporation will not be subject to Missouri's control share acquisition statute. The Articles contain a provision exempting the Company from Missouri's control share acquisition statute. The GBCL prohibits a "business combination" (defined to include generally a merger or consolidation, a sale, exchange or other dispositions of 10% or more of the aggregate market value of all assets or stock of the corporation, or certain other transactions which have the effect of disproportionately increasing the share ownership) with an "interested stockholder" (defined generally as the beneficial owner or at least 20% of the corporation's voting stock) for five years following the stock acquisition date (i.e., the date the person became an interested stockholder), unless the board of directors approves the business combination or the purchase of stock by the interested stockholder before the stock acquisition date. Business combinations with an interested stockholder are permitted only if (i) the board of directors approved the business combination or acquisition of the stock prior to the stock acquisition date, (ii) the business combination is approved by a majority of the outstanding voting stock not beneficially owned by the interested stockholder no earlier than five years after the stock acquisition date, or (iii) the consideration to be received by stockholders meets certain requirements of the statute with respect to form and amount. The Articles contain a provision electing to subject the Company to the business combination statute of the GBCL; such provision has the effect, among other things, of rendering the statute inapplicable to transactions with "interested shareholders," such as General American, that acquired their status prior to the effective date of such provision. The Articles further provide that General American and its affiliates are expressly deemed not to constitute "interested shareholders." Missouri law contains certain requirements concerning disclosures which must be made in connection with "take-over bids." Take-over bids are defined as the acquisition of or offer to acquire any equity security of a domestic target company, if after acquisition thereof the offeror would, directly or indirectly, be a beneficial owner of more than five percent of any class of the issued and outstanding equity securities of such target company. A take-over bid does not include an offer to acquire such equity security solely in exchange for other securities, or the acquisition of such equity security pursuant to such offer, for the sole account of the offeror, in good faith and not to avoid Missouri's statutory regulation of take-over bids, and not involving any public offering within the meaning of the Securities Act. Unless the offeror, prior to making a take-over bid, files with the Commissioner of Securities and delivers to the target company certain materials, including copies of all offering information, certain information regarding the offeror, the source of funds financing the offer, the number of shares to be acquired and whether the offeror intends to sell the assets of the company, the offeror will be subject to civil monetary and criminal penalties. 60 62 UNDERWRITING Subject to certain terms and conditions contained in the Underwriting Agreement, the syndicate of Underwriters named below, for whom Donaldson, Lufkin & Jenrette Securities Corporation and A.G. Edwards & Sons, Inc. are acting as representatives (the "Representatives"), have severally agreed to purchase from the Company an aggregate of 2,500,000 shares of Common Stock. The number of shares of Common Stock that each Underwriter has agreed to purchase is set forth opposite its name below: UNDERWRITERS NUMBER OF SHARES
Donaldson, Lufkin & Jenrette Securities Corporation................................ A.G. Edwards & Sons, Inc........................................................... --------- Total.......................................................................... 2,500,000 =========
The Underwriting Agreement provides that the obligations of the several Underwriters to purchase shares of Common Stock are subject to the approval of certain legal matters by counsel and to certain other conditions. If any of the shares of Common Stock are purchased by the Underwriters pursuant to the Underwriting Agreement, all such shares of Common Stock (other than the shares of Common Stock covered by the over-allotment option described below) must be so purchased. Prior to the offering, there has been no established trading market for the Common Stock. The initial price to the public for the Common Stock offered hereby will be determined by negotiation between the Company and the Representatives. The factors to be considered in determining the initial price to the public include the history of and the prospects for the industry in which the Company competes, the ability of the Company's management, the past and present operations of the Company, the historical results of operations of the Company, the prospects for future earnings of the Company, the present state of the Company's development, the general condition of the securities markets at the time of the offering and the recent market prices of and the demand for publicly traded common stock of generally comparable companies. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The Company has been advised by the Representatives that the Underwriters propose to offer the Common Stock to the public initially at the price set forth on the cover page of this Prospectus and to certain dealers (who may include the Underwriters) at such price less a concession not to exceed $---------- per share. The Underwriters may allow, and such dealers may reallow, discounts not in excess of $ ---------- per share to any other Underwriter and certain other dealers. The Underwriters have reserved approximately 125,000 shares of the Common Stock for sale, at the initial public offering price, to directors, officers and employees of the Company, their business affiliates and related parties, in each case as such persons have expressed an interest in purchasing such shares of Common Stock in the offering. The number of shares of Common Stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares of Common Stock. Any reserved shares of the Common Stock not so purchased will be offered by the Underwriters to the general public on the same basis as the shares of the Common Stock offered pursuant to the offering. The Company has granted to the Underwriters an option to purchase up to 375,000 additional shares of Common Stock, at the initial public offering price less underwriting discounts and commissions, solely to cover over-allotments. Such option may be exercised at any time until 30 days after the effective date of the Registration Statement of which this Prospectus is part. To the extent that the Underwriters exercise such option each of the Underwriters will be committed, subject to certain conditions, to purchase a number of option shares proportionate to such Underwriter's initial commitment as indicated in the preceding table. All shareholders of the Company have agreed that they will not directly or indirectly offer, sell, contract to sell, or otherwise dispose of or transfer any shares of Common Stock of the Company owned by them without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, for a period of ---- days after the date of 61 63 this Prospectus except in certain non-public transactions in which the acquiror or acquirors of such shares agree(s) to such restrictions. In addition, the Company has agreed that for a period of ---- days after the date of this Prospectus it will not, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, offer, sell, contract to sell, grant any option to purchase or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for such Common Stock or in any other manner transfer all or a portion of the economic consequences associated with such Common Stock, except for (i) shares of Common Stock offered hereby, (ii) shares of Common Stock issued pursuant to the exercise of options outstanding on the date of this Prospectus, (iii) options granted after the date of this Prospectus pursuant to the Company's employee stock plans and other plans and (iv) shares on options issued in acquisitions in which the acquiror or acquirors of such shares agree(s) to such restrictions. See "Shares Eligible for Future Sale." In connection with the offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may overallot the offering, creating a syndicate short position. In addition, the Underwriters may bid for, and purchase, shares of Common Stock in the open market to cover syndicate shorts or to stabilize the price of the Common Stock. Finally, the underwriting syndicate may reclaim selling concessions allowed for distributing the Common Stock in the offering, if the syndicate repurchases previously distributed Common Stock in syndicate covering transactions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Common Stock above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. The Underwriters and dealers may engage in passive market making transactions in the Common Stock in accordance with Rule 103 of Regulation M promulgated by the Securities and Exchange Commission. In general, a passive market maker may not bid for, or purchase, the Common Stock at a price that exceeds the highest independent bid. In addition, the net daily purchases made by any passive market maker generally may not exceed 30% of its average daily trading volume in the Common Stock during a specified two month prior period, or 200 shares, whichever is greater. A passive market maker must identify passive market making bids as such on the Nasdaq electronic inter-dealer reporting system. Passive market making may stabilize or maintain the market price of the Common Stock above independent market levels. Underwriters and dealers are not required to engage in passive market making and may end passive market making activities at any time. The Representatives have informed the Company that the Underwriters do not intend to confirm sales of shares of Common Stock offered hereby to accounts over which they exercise discretionary authority. 62 64 LEGAL MATTERS The validity of the shares of Common Stock offered hereby has been passed upon for the Company by Bryan Cave LLP, St. Louis, Missouri. Certain legal matters will be passed upon for the Company by Matthew P. McCauley, Esq., Secretary of the Company, General Counsel of Conning Asset Management Company and Vice President and Associate General Counsel of General American Life Insurance Company, and for the Underwriters by Simpson Thacher & Bartlett (a partnership which includes professional corporations), New York, New York. The Honorable John C. Danforth, a partner of Bryan Cave LLP, is a director of General American Life Insurance Company, GenAmerica Corporation and General American Life Mutual Holding Company. Bryan Cave LLP from time to time serves as legal counsel to General American and certain of its affiliates. EXPERTS The consolidated financial statements and schedule of the Company as of December 31, 1995 and 1996, and for each of the years in the three-year period ended December 31, 1996, have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The Consolidated Financial Statements and related schedules of Conning Inc. and subsidiaries for the year ended December 31, 1994, appearing in this Prospectus and elsewhere in the Registration Statement have been included herein and elsewhere in the Registration Statement have been audited by Price Waterhouse LLP, independent certified public accountants, as stated in their report appearing herein. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission, Washington, D.C. (the "Commission"), a Registration Statement (the "Registration Statement") on Form S-1 under the Securities Act, with respect to the Common Stock offered hereby. This Prospectus, which constitutes part of the Registration Statement, omits certain of the information contained in the Registration Statement and the exhibits and schedules thereto on file with the Commission pursuant to the Act and the rules and regulations of the Commission thereunder. The Registration Statement, including exhibits and schedules thereto, may be inspected at the principal offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices at Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661, and at Seven World Trade Center, Suite 1300, New York, New York 10048, and copies may be obtained at the prescribed rates from the Public Reference Section of the Commission at its principal office in Washington, D.C. The Commission maintains an Internet Web site (http://www.sec.gov.) that contains such documents filed electronically by the Company with the Commission through its Electronic Data Gathering, Analysis and Retrieval System (EDGAR) filing system. Statements contained in this Prospectus as to the contents of any contract, agreement or other document referred to herein are not necessarily complete and in each instance reference is made to the copy of such contract, agreement or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. 63 65 INDEX TO FINANCIAL STATEMENTS
PAGE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CONNING CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)................... F-2 Consolidated Statements of Income for the six month periods ended June 30, 1996 and 1997 (unaudited)....................................................................................... F-3 Consolidated Statements of Common Shareholders' Equity for the six month period ended June 30, 1997 (unaudited)....................................................................................... F-4 Consolidated Statements of Cash Flows for the six month periods ended June 30, 1996 and 1997 (unaudited)....................................................................................... F-5 Notes to Unaudited Consolidated Financial Statements................................................ F-6 CONSOLIDATED FINANCIAL STATEMENTS OF CONNING CORPORATION AND SUBSIDIARIES Independent Auditors' Report........................................................................ F-7 Consolidated Balance Sheets as of December 31, 1995 and 1996........................................ F-8 Consolidated Statements of Income for the years ended December 31, 1994, 1995 and 1996.............. F-9 Consolidated Statements of Common Shareholder's Equity for the years ended December 31, 1994, 1995 and 1996..................................................................................... F-10 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996.......... F-11 Notes to Consolidated Financial Statements.......................................................... F-12 SCHEDULE I--FINANCIAL STATEMENTS OF CONNING CORPORATION (PARENT COMPANY ONLY) Condensed Balance Sheets as of December 31, 1995 and 1996........................................... F-24 Condensed Statements of Income for the years ended December 31, 1995 and 1996....................... F-25 Condensed Statements of Cash Flows for the years ended December 31, 1995 and 1996................... F-26 Notes to Condensed Financial Statements............................................................. F-27 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CONNING INC. & SUBSIDIARIES Consolidated Balance Sheet as of June 30, 1995 (unaudited).......................................... F-28 Consolidated Statement of Income for the six month period ended June 30, 1995 (unaudited)........... F-29 Consolidated Statement of Common Shareholders' Equity for the six month period ended June 30, 1995 (unaudited)....................................................................................... F-30 Consolidated Statement of Cash Flows for the six month period ended June 30, 1995 (unaudited)....... F-31 Notes to Unaudited Consolidated Financial Statements................................................ F-32 CONSOLIDATED FINANCIAL STATEMENTS OF CONNING INC. & SUBSIDIARIES Report of Independent Accountants................................................................... F-33 Consolidated Statement of Financial Condition as of December 31, 1994............................... F-34 Consolidated Statement of Operations for the year ended December 31, 1994........................... F-35 Consolidated Statement of Shareholders' Equity for the year ended December 31, 1994................. F-36 Consolidated Statement of Cash Flows for the year ended December 31, 1994........................... F-37 Notes to Consolidated Financial Statements.......................................................... F-36 - -------- The 1994 Parent Company only Financial Statements are not required as 25% of the net assets of the Company were not in restricted subsidiaries.
F-1 66 CONNING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, JUNE 30, 1996 1997 ------------ -------- ASSETS Current assets: Cash and cash equivalents.............................................. $ 9,816,568 $ 7,189,023 Short-term investments................................................. 7,901,637 8,479,521 Accounts receivable, net............................................... 5,297,660 7,085,364 Marketable equity securities........................................... 45,625 -- Income taxes receivable................................................ 11,447 2,109,611 Prepaid expenses and other current assets.............................. 162,622 291,835 ----------- ----------- Total current assets........................................... 23,235,559 25,155,354 Non-marketable investments at value........................................ 1,756,931 1,837,739 Equipment and leasehold improvements, at cost, less accumulated depreciation and amortization of $562,812 and $775,002................... 815,112 1,063,648 Deferred income taxes...................................................... 1,572,859 750,868 Goodwill................................................................... 18,825,870 18,319,346 Other assets............................................................... 3,813,608 2,831,943 ----------- ----------- Total assets................................................... $50,019,939 $49,958,898 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Compensation payable................................................... $ 8,422,199 $ 4,470,645 Deferred revenue....................................................... 1,533,290 1,516,570 Due to affiliates...................................................... 1,473,811 1,325,473 Accounts payable and other accrued expenses............................ 2,707,872 4,153,074 Preferred dividends payable............................................ 235,815 71,423 ----------- ----------- Total current liabilities...................................... 14,372,987 11,537,185 Accrued rent liability..................................................... 3,643,996 3,500,602 Long term debt payable to affiliate........................................ 2,000,000 -- Other payables............................................................. 853,521 778,224 ----------- ----------- Total liabilities.............................................. 20,870,504 15,816,011 ----------- ----------- Series A convertible preferred stock, $.01 par value: 3,190,000 shares authorized, issued and outstanding....................................... 22,330,004 30,976,988 Series B convertible preferred stock, $.01 par value: 600,000 shares authorized, 460,000 and 365,000 shares issued and outstanding............ 2,451,800 3,097,699 ----------- ----------- Total convertible preferred stock.............................. 24,781,804 34,074,687 ----------- ----------- Non-Voting Common Stock, $.01 par value: 20,000,000 shares authorized; 110,000 shares issued and outstanding.................................... -- 1,100 Common stock, $.01 par value: 20,000,000 and 50,000,000 shares authorized; 6,710,000 shares issued and outstanding.................................. 67,100 67,100 Additional paid in capital................................................. 2,944,647 -- Retained earnings.......................................................... 1,355,884 -- ----------- ----------- Total common shareholders' equity.............................. 4,367,631 68,200 ----------- ----------- Total liabilities and shareholders' equity..................... $50,019,939 $49,958,898 =========== ===========
See accompanying notes to unaudited consolidated financial statements. F-2 67 CONNING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1996 1997 Revenues: Asset management and related fees............................ $19,109,449 $24,078,612 Research services............................................ 6,514,849 6,465,286 Other income................................................. 602,338 377,725 ----------- ----------- Total revenues....................................... 26,226,636 30,921,623 ----------- ----------- Expenses: Employee compensation and benefits........................... 11,927,474 15,091,209 Occupancy and equipment costs................................ 1,178,517 1,367,716 Marketing and production costs............................... 2,545,680 3,035,920 Professional services........................................ 1,128,819 577,835 Amortization of goodwill and other........................... 1,390,691 1,318,190 Other operating costs........................................ 2,108,875 2,152,134 ----------- ----------- Total expenses....................................... 20,280,056 23,543,004 ----------- ----------- Operating income............................................. 5,946,580 7,378,619 Interest expense............................................. 411,907 161,804 ----------- ----------- Income before provision for income taxes..................... 5,534,673 7,216,815 Provision for income taxes................................... 2,430,961 3,118,918 ----------- ----------- Net income................................................... $ 3,103,712 $ 4,097,897 =========== =========== Preferred stock dividends.................................... 445,781 502,880 ----------- ----------- Net earnings available to common shareholder................. $ 2,657,931 $ 3,595,017 =========== =========== Pro forma weighted average common shares and equivalents outstanding................................................ -- 11,145,422 Pro forma earnings per common share and common share equivalents................................................ $ 0.37
See accompanying notes to unaudited consolidated financial statements. F-3 68 CONNING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY FOR SIX MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)
NON- VOTING ADDITIONAL TOTAL COMMON COMMON COMMON PAID IN RETAINED SHAREHOLDERS' STOCK STOCK CAPITAL EARNINGS EQUITY Balance, December 31, 1996........................ $ $67,100 $ 2,944,647 $ 1,355,884 $ 4,367,631 Conversion of 110,000 shares of Series B preferred stock........................................... 1,100 768,900 770,000 Tax benefit--employee compensation (Note 2)....... 1,134,785 1,134,785 Accretion on preferred stock...................... (4,848,332) (4,950,901) (9,799,233) Net income........................................ 4,097,897 4,097,897 Dividends on preferred stock...................... (502,880) (502,880) ------ ------- ----------- ----------- ----------- Balance, June 30, 1997............................ $1,100 $67,100 $ -- $ -- $ 68,200 ====== ======= =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements. F-4 69 CONNING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1996 1997 Operating activities: Net income................................................... $ 3,103,712 $ 4,097,897 Adjustment for items not affecting cash: Depreciation and amortization............................ 340,034 442,100 Amortization of goodwill and other....................... 1,390,691 1,318,190 Deferred income tax provision............................ (2,267,490) (835,276) Net unrealized appreciation on non-marketable securities............................................. 33,118 -- Net sales of marketable securities....................... 80,250 45,625 Accretion of discounts on short-term investments......... (43,055) (131,551) Changes in: Accounts receivables................................. 3,502,966 (1,787,704) Prepaid expenses and other assets.................... 1,654,865 1,528,054 Accounts payables and other accrued expenses......... (1,516,597) 1,285,514 Income taxes receivable.............................. 959,861 (963,379) Due to affiliates.................................... (474,100) (148,338) Deferred revenue..................................... 753,003 (16,720) Accrued rent liability............................... (132,403) (143,394) Compensation payable................................. (2,024,962) (3,951,554) ------------ ------------ Net cash provided by operating activities........ 5,359,893 739,464 ------------ ------------ Investing activities: Sale of marketable securities................................ 1,160,000 -- Purchases of non-marketable securities....................... (44,949) (80,808) Proceeds from non-marketable partnership investments......... 384,450 -- Purchases of equipment and other assets, net................. (1,191,077) (600,636) Purchases of short-term investments.......................... (12,182,613) (30,841,503) Maturities of short-term investments......................... 9,600,000 30,395,168 ------------ ------------ Net cash used in investing activities............ (2,274,189) (1,127,779) ------------ ------------ Financing activities: Repayments on long term debt................................. (3,000,000) (2,000,000) Repayments on short term debt................................ (500,000) -- Other payments............................................... -- -- Issuance of Series B preferred stock......................... -- 79,950 Conversion of Series B preferred stock....................... -- 183,700 Dividends on preferred stock................................. (445,781) (502,880) ------------ ------------ Net cash used in financing activities............ (3,945,781) (2,239,230) ------------ ------------ Net decrease in cash and cash equivalents........................ (860,077) (2,627,545) Cash and cash equivalents, beginning of year..................... 5,995,260 9,816,568 ------------ ------------ Cash and cash equivalents, end of period......................... $ 5,135,183 $ 7,189,023 ============ ============
See accompanying notes to unaudited consolidated financial statements. F-5 70 CONNING CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes for the year ended December 31, 1996. In the opinion of management, the financial information reflects all adjustments which are necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. NOTE 2--EQUITY In April, 1997, certain shareholders converted 110,000 shares of Series B Preferred Stock to Non-Voting Common Stock. The resulting transaction increased additional paid in capital by $768,900 and increased common equity by $1,100. In June, 1997, General American, pursuant to a call right, purchased 1,594,995 shares of the Company's Series A Preferred Stock from existing shareholders for $11.25 per share. In connection with such purchase, certain restrictions were eliminated on the Series A Preferred Stock which generated an additional tax benefit of $1,134,785 recorded directly to additional paid in capital. In June, 1997, the authorized number of shares of Series A Voting Common Stock increased from 20,000,000 to 50,000,000. The authorized number of shares of Class B Non-Voting Common Stock remains at 20,000,000. The carrying value of the Convertible Preferred Stock is at original issue price plus accretion relating to any increase in the redemption value of the stock during the period. During the six months ended June 30, 1996 and June 30, 1997, such accretion was $0 and $9,799,233, respectively. F-6 71 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Conning Corporation: We have audited the accompanying consolidated balance sheets of Conning Corporation and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of income, common shareholder's equity, and cash flows for the three-year period ended December 31, 1996. In connection with our audits of the consolidated financial statements, we have audited the accompanying financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Conning Corporation and subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth herein. /s/ KPMG Peat Marwick LLP St. Louis, Missouri March 21, 1997, except as to note 21 which is as of September 19, 1997 F-7 72 CONNING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- 1995 1996 ASSETS Current assets: Cash and cash equivalents.............................................. $ 5,995,260 $ 9,816,568 Short-term investments................................................. 3,598,594 7,901,637 Accounts receivable, net (note 11)..................................... 6,382,572 5,297,660 Marketable equity securities........................................... 1,241,250 45,625 Income taxes receivable................................................ 507,498 11,447 Prepaid expenses and other current assets.............................. 133,955 162,622 ----------- ----------- Total current assets........................................... 17,859,129 23,235,559 Non-marketable investments at value........................................ 1,775,613 1,756,931 Equipment and leasehold improvements, at cost, less accumulated depreciation and amortization of $170,600 and $562,812................... 964,132 815,112 Deferred income taxes...................................................... 1,606,469 1,572,859 Goodwill................................................................... 19,838,917 18,825,870 Other assets............................................................... 4,133,194 3,813,608 ----------- ----------- Total assets................................................... $46,177,454 $50,019,939 =========== =========== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Short term debt........................................................ $ 500,000 $ -- Compensation payable................................................... 3,729,971 8,422,199 Deferred revenue....................................................... 2,401,527 1,533,290 Due to affiliates...................................................... 836,233 1,473,811 Accounts payable and other accrued expenses............................ 3,541,019 2,707,872 Preferred dividends payable............................................ 223,300 235,815 ----------- ----------- Total current liabilities...................................... 11,232,050 14,372,987 Accrued rent liability..................................................... 3,914,196 3,643,996 Long term debt payable to affiliates....................................... 9,000,000 2,000,000 Other payables............................................................. 405,789 853,521 ----------- ----------- Total liabilities.............................................. 24,552,035 20,870,504 ----------- ----------- Series A convertible preferred stock, $.01 par value: 3,190,000 shares authorized, issued and outstanding....................................... 17,002,704 22,330,004 Series B convertible preferred stock, $.01 par value: 600,000 shares authorized, 460,000 issued and outstanding............................... -- 2,451,800 ----------- ----------- Total convertible preferred stock.............................. 17,002,704 24,781,804 ----------- ----------- Common stock, $.01 par value: 20,000,000 shares authorized; 6,710,000 shares issued and outstanding............................................ 67,100 67,100 Additional paid in capital................................................. 2,944,647 2,944,647 Retained earnings.......................................................... 1,376,668 1,355,884 Unrealized appreciation on investments, net of deferred income taxes....... 234,300 -- ----------- ----------- Total common shareholder's equity.............................. 4,622,715 4,367,631 ----------- ----------- Total liabilities and shareholder's equity..................... $46,177,454 $50,019,939 =========== ===========
See accompanying notes to consolidated financial statements. F-8 73 CONNING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1994 1995 1996 Revenues: Asset management and related fees (note 11).................. $3,484,115 $24,049,683 $40,456,343 Research services............................................ -- 4,089,571 12,148,164 Other income................................................. 57,277 663,767 1,061,855 ---------- ----------- ----------- Total revenues....................................... 3,541,392 28,803,021 53,666,362 ---------- ----------- ----------- Expenses: Employee compensation and benefits........................... -- 12,027,224 26,001,771 Occupancy and equipment costs................................ -- 1,498,641 2,584,544 Marketing and production costs............................... -- 2,393,281 5,281,667 Professional services........................................ 323,248 3,555,052 1,537,220 Amortization of goodwill and other........................... -- 1,288,911 2,720,969 Other operating expenses..................................... 1,106,147 1,748,349 3,747,838 ---------- ----------- ----------- Total expenses....................................... 1,429,395 22,511,458 41,874,009 ---------- ----------- ----------- Operating income............................................. 2,111,997 6,291,563 11,792,353 Interest expense............................................. -- 520,523 729,088 ---------- ----------- ----------- Income before provision for income taxes..................... 2,111,997 5,771,040 11,063,265 Provision for income taxes................................... 827,165 2,358,889 4,851,034 ---------- ----------- ----------- Net income................................................... $1,284,832 $ 3,412,151 $ 6,212,231 ========== =========== =========== Preferred stock dividends.................................... -- 350,900 905,715 ---------- ----------- ----------- Net earnings available to common shareholder................. $1,284,832 $ 3,061,251 $ 5,306,516 ========== =========== =========== Pro forma weighted average common shares and equivalents outstanding.................................... 10,610,552 Pro forma earnings per common share and common share equivalents................................................ $ 0.59
See accompanying notes to consolidated financial statements. F-9 74 CONNING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
UNREALIZED APPRECIA- TION (DEPRECIA- ADDITIONAL TION) ON TOTAL COMMON COMMON PAID IN RETAINED INVESTMENTS, SHAREHOLDER'S STOCK CAPITAL EARNINGS NET EQUITY Balance, December 31, 1993........................ $ -- $ 55,000 $ 737,332 $ -- $ 792,332 Net income........................................ 1,284,832 1,284,832 Dividend on common stock.......................... (750,000) (750,000) ------- ---------- ----------- --------- ----------- Balance, December 31, 1994........................ -- 55,000 1,272,164 -- 1,327,164 Issuance of 6,710,000 shares of common stock for contribution of GAIMCO.......................... 67,100 2,889,647 (2,956,747) -- Change in unrealized appreciation (depreciation) of investment, net of deferred income taxes..... 234,300 234,300 Net income........................................ 3,412,151 3,412,151 Dividends on preferred stock...................... (350,900) (350,900) ------- ---------- ----------- --------- ----------- Balance, December 31, 1995........................ 67,100 2,944,647 1,376,668 234,300 4,622,715 Change in unrealized appreciation (depreciation) of investment, net of deferred income taxes..... (234,300) (234,300) Accretion on Series A preferred stock............. (5,327,300) (5,327,300) Net income........................................ 6,212,231 6,212,231 Dividends on preferred stock...................... (905,715) (905,715) ------- ---------- ----------- --------- ----------- Balance, December 31, 1996........................ $67,100 $2,944,647 $ 1,355,884 $ -- $ 4,367,631 ======= ========== =========== ========= ===========
See accompanying notes to consolidated financial statements. F-10 75 CONNING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1994 1995 1996 Operating activities: Net income................................................... $1,284,832 $ 3,412,151 $ 6,212,231 Adjustment for items not affecting cash: Depreciation and amortization............................ -- 170,600 817,422 Amortization of goodwill and other....................... -- 1,288,911 2,720,969 Allowance for doubtful accounts.......................... -- 50,000 (97,750) Deferred income tax provision............................ -- (1,053,875) (1,457,941) Net unrealized appreciation on non-marketable securities............................................. -- (191,426) (125,654) Net sales of securities held for market making........... -- 34,537 35,625 Gain on sale of marketable securities.................... -- -- (400,000) Accretion of discounts on short-term investments......... -- (70,161) (235,711) Changes in: Accounts receivable.................................. (214,040) 3,000,376 1,182,662 Prepaid expenses and other assets.................... 24,117 2,194,688 1,569,898 Accounts payable and other accrued expenses.......... -- 1,065,845 (833,147) Income taxes receivable.............................. (326,669) 734,930 496,051 Due to affiliates.................................... 60,135 (3,180,835) 637,578 Deferred revenue..................................... -- 2,093,952 (868,237) Accrued rent liability............................... -- (104,867) (270,200) Compensation payable................................. -- (2,839,348) 4,692,228 ---------- ------------ ------------ Net cash provided by operating activities....... 828,375 6,605,478 14,076,024 ---------- ------------ ------------ Investing activities: Sale of marketable securities................................ -- -- 1,160,000 Purchases of non-marketable securities....................... -- (242,415) (273,233) Proceeds from non-marketable partnership investments......... -- -- 417,568 Purchases of equipment and other assets, net................. -- (44,439) (1,238,050) Purchases of short-term investments.......................... -- (7,769,655) (46,567,333) Maturities of short-term investments......................... -- 6,900,000 42,500,000 Contribution of GAIMCO cash.................................. -- 5,077,492 -- Acquisition of Conning, net of cash acquired................. -- (12,207,581) -- ---------- ------------ ------------ Net cash used in investing activities........... -- (8,286,598) (4,001,048) ---------- ------------ ------------ Financing activities: Borrowings on long term debt................................. -- 13,000,000 -- Repayments on long term debt................................. -- (4,000,000) (7,000,000) Repayments on short term debt................................ -- (2,000,000) (500,000) Other payments............................................... -- (163,220) (312,268) Issuance of Series B preferred stock......................... -- -- 2,451,800 Dividends on common stock.................................... (750,000) -- -- Dividends on preferred stock................................. -- (127,600) (893,200) ---------- ------------ ------------ Net cash provided by (used in) financing activities.................................... (750,000) 6,709,180 (6,253,668) ---------- ------------ ------------ Net increase in cash and cash equivalents........................ 78,375 5,028,060 3,821,308 Cash and cash equivalents, beginning of year..................... 888,825 967,200 5,995,260 ---------- ------------ ------------ Cash and cash equivalents, end of year........................... $ 967,200 $ 5,995,260 $ 9,816,568 ========== ============ ============ Supplemental disclosure of cash flow information: Cash paid for: Interest..................................................... -- $ 391,921 $ 446,531 Income taxes................................................. $1,153,834 $ 1,761,076 $ 4,546,603 Supplemental disclosure of non-cash information: Preferred stock issued in Conning acquisition................ -- $ 17,002,704 -- Common stock issued in GAIMCO contribution................... -- $ 3,011,747 -- Accretion on Series A preferred stock........................ -- -- $ 5,327,300
See accompanying notes to consolidated financial statements. F-11 76 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--ORGANIZATION Conning Corporation (the "Company"), formed in 1995 as a Missouri corporation, is a holding company organized to hold the operating subsidiaries in the Conning group, Conning Asset Management Company ("CAM", formerly known as General American Investment Management Company, "GAIMCO") and Conning & Company ("C&C"). The Company provides asset management and research services focused upon the insurance industry. Both CAM and C&C are registered investment advisers with the Securities and Exchange Commission (the "SEC") under the Investment Advisers Act of 1940. All the outstanding voting common stock of the Company is held by a wholly-owned holding company subsidiary of General American Life Insurance Company (together "General American"). If all of the outstanding convertible preferred stock (see Note 9) was converted on December 31, 1996, General American would own approximately 65% of the resulting outstanding common stock. On August 11, 1995, the shareholders of the holding company of C&C contributed all of their common stock to Conning Corporation in a Section 351 merger transaction (the "Strategic Merger") in exchange for cash and convertible preferred stock of the Company. General American contributed all of the outstanding common stock of GAIMCO as part of the Strategic Merger in exchange for common shares of the Company. The GAIMCO contribution was recorded at historical book value. The Conning portion of the Strategic Merger was accounted for using the purchase method. The purchase price consisting of cash of $12.0 million and $17.0 million of Series A Convertible Preferred Stock was allocated to assets acquired based on their estimated fair values. The excess of purchase price over the fair value of net assets acquired resulted in $20.3 million of goodwill which is being amortized on a straight line basis over 20 years. The accompanying consolidated financial statements include the accounts of Conning Corporation, Conning Inc. (the holding company parent of C&C), Conning & Company and Conning Asset Management Company. The historical financial statement includes the operations and financial position of GAIMCO through July 31, 1995, and consolidated operations thereafter, and consolidated financial position as of December 31, 1995 and 1996. F-12 77 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--PRO FORMA RESULTS (UNAUDITED) The table below contains unaudited pro forma summary financial information for the year ended December 31, 1995, and for comparative purposes, summary financial information condensed from the audited financial statements for the year ended December 31, 1996. The pro forma 1995 information was derived from the historical financial statements for Conning Corporation, GAIMCO and Conning Inc. and gives effect to (i) the Strategic Merger, (ii) the issuance of $13.0 million of debt by the Company and (iii) certain transactions effected by Conning Inc. in anticipation of the Strategic Merger. The pro forma information has been prepared assuming these transactions and arrangements were effected on January 1, 1995.
DECEMBER 31, DECEMBER 31, 1995 1996 ------------ ------------ PRO FORMA (UNAUDITED) ACTUAL Revenues: Asset management and related fees....................... $30,674,994 $40,456,343 Research services....................................... 9,480,364 12,148,164 Other income............................................ 995,605 1,061,855 ----------- ----------- Total revenues.................................. 41,150,963 53,666,362 ----------- ----------- Expenses: Employee compensation and benefits...................... 18,336,044 26,001,771 Amortization of goodwill and other...................... 2,911,384 2,720,969 Other operating expenses................................ 12,514,187 13,151,269 ----------- ----------- Operating income........................................ 7,389,348 11,792,353 Interest expense........................................ 1,364,547 729,088 ----------- ----------- Income before provision for income taxes................ 6,024,801 11,063,265 Provision for income taxes.............................. 2,738,954 4,851,034 ----------- ----------- Net income.............................................. $ 3,285,847 $ 6,212,231 =========== =========== Preferred stock dividends............................... 905,715 905,715 ----------- ----------- Net earnings available to common shareholder............ $ 2,380,132 $ 5,306,516 =========== =========== Pro forma earnings per common share and common share equivalents........................................... $ 0.31 $ 0.59
Pro forma earnings per share is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents considered outstanding during the period after giving effect to all dilutive common stock and common stock equivalent shares issued within twelve months of the public offering of the Company's common stock. F-13 78 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The table below contains unaudited pro forma summary financial information for the year ended December 31, 1994 and was derived from the historical financial statements for Conning Corporation, GAIMCO and Conning Inc. and gives effect to (i) the Strategic Merger, (ii) the issuance of $13.0 million of debt by the Company and (iii) certain transactions effected by Conning Inc. in anticipation of the Strategic Merger. The pro forma information has been prepared assuming these transactions and arrangements were effected on January 1, 1994.
DECEMBER 31, 1994 ------------ PRO FORMA (UNAUDITED) Revenues.......................................... $22,016,698 ----------- Expenses: Operating expenses............................ 16,689,461 Amortization of goodwill and other............ 2,911,384 ----------- Operating income.............................. 2,415,853 Interest expense.............................. 1,395,528 ----------- Income before provision for income taxes...... 1,020,325 Provision for income taxes.................... 919,014 ----------- Net income.................................... $ 101,311 =========== Preferred stock dividends..................... 905,715 ----------- Net loss attributable to common shareholders................................ $ (804,404) ===========
The pro forma information presented in the previous two tables is not necessarily indicative of the results that would have been obtained had the transactions and arrangements taken effect on the assumed date, nor is the information intended to be a projection for any future period. NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements of the Company have been prepared in conformity with generally accepted accounting principles. For accounting purposes the Strategic Merger was effective at the close of business July 31, 1995. The contribution of GAIMCO to the Company as a result of the Strategic Merger is treated as a combination of entities under common control, using historical cost basis accounting. Principles of Consolidation--The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany balances and transactions. Revenue Recognition--Asset management fees are determined based on contractual provisions and are earned at varying percentages of the assets under management. Such fees are accrued into income in the period in which the service is provided. Research fees, primarily in the form of commissions derived from securities transactions effected by the Company and, to a lesser extent, subscription fees for research publications, are recorded in income when services are provided or earned. Mortgage loan fee income, included in Asset Management and Related Fees, is earned through the origination of mortgage loans for General American, its affiliates and outside parties. The fees earned are based on agreements with the borrowers and is recognized at the closing of the mortgage commitment. Deferred mortgage loan origination fees represent moneys received for loan commitments that will be earned upon loan funding and are included in deferred revenue on the consolidated balance sheet. F-14 79 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Cash and Cash Equivalents--Cash and cash equivalents represent cash and highly liquid investments with original maturities of three months or less. The Company had funds on deposit with General American amounting to $5,386,747 and $6,449,642 at December 31, 1995 and 1996, which were readily convertible to cash and earns interest at the short-term money market rates. For purposes of the financial statements, such funds are considered cash equivalents. Short-Term Investments--Short-term investments are comprised of U.S. Government Securities and investment grade commercial paper having a maturity of one year or less and are carried at amortized cost, which approximates fair value. Investments--Marketable equity securities classified as trading securities are presented at fair value with corresponding unrealized gains or losses included in current period income. Marketable equity securities classified as available-for-sale are presented at fair value with corresponding unrealized gains or losses included as a separate component of shareholder's equity, net of deferred income taxes. Non-marketable investments held by the broker dealer subsidiary are recorded at fair value with corresponding unrealized gains/losses included in current period income. Equipment and Leasehold Improvements--Equipment is stated at cost, less accumulated depreciation provided on an accelerated method over periods not exceeding eight years. Leasehold improvements are stated at cost less, accumulated amortization provided on a straight-line basis over the term of the lease. Income Taxes--Income tax expense is based on income reported in the financial statements. Deferred federal and state income taxes are provided based on an asset and liability approach which requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The Company files consolidated federal income tax returns with its subsidiaries. Goodwill--Goodwill arising from the Strategic Merger is being amortized on a straight-line basis over a period of 20 years. Accumulated amortization was $422,105 and $1,435,156 as of December 31, 1995 and 1996, respectively. Goodwill is periodically reviewed to determine recoverability based on the discounted operating cash flows of the underlying business. At December 31, 1995 and 1996, no impairment was indicated. Other Assets--Included in other assets are costs associated with the purchase of a software license agreement (the "License Agreement") effective as of January 27, 1996. The total cost of the license is being amortized over the life of the License Agreement. As of December 31, 1996, $1,388,333 remains to be amortized over the four remaining years of the License Agreement. Total amortization of $311,667 is included in the consolidated statements of income for the year ended December 31, 1996. Also included in other assets is the unamortized cost of compensation relating to the Strategic Merger that is being amortized over a three year period ending August 11, 1998. Amortization of $866,806 and $1,707,918 is included in the consolidated statements of income for the years ended December 31, 1995 and 1996, respectively. The unamortized amount of $4,133,194 and $2,425,276 is included in other assets as of December 31, 1995 and 1996, respectively. Compensation Payable--Compensation payable represents amounts payable to employees as a result of the Company's incentive compensation programs during the normal course of operations. Amounts are accrued in the period earned. Accrued Rent Liability--The Company has recorded as a liability the present value of the difference between a market rate lease and the contract rate in the lease for the Company's office space in Hartford, Connecticut as part of the fair value adjustments relating to the Strategic Merger. This difference is being amortized as a reduction of rent expense over the remaining lease period. Preferred Stock--The carrying value of the convertible preferred stock is at original issue price plus accretion relating to any increase in the redemption value of the stock during the period. During 1995 and 1996, such accretion was $0 and $5,327,300, respectively. F-15 80 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Other Income--Other income is comprised of investment income and other miscellaneous revenues. Non-cash employee compensation--The Company uses the intrinsic value method to account for stock option plans as prescribed by the Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under this method, compensation expense is recognized for awards of options to purchase shares of stock to employees under compensatory plans only if the fair market value of the stock at the option grant date (or other measurement date, if later) is greater than the amount the employee must pay to acquire the stock. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 123 permits companies to adopt a new fair value based method to account for stock option plans or to continue using the intrinsic value method. The Company intends to continue using the intrinsic value method and provides the pro forma disclosures in Note 12, as required by FAS 123. Use of estimates--Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities in the preparation of the financial statements. Actual results could differ from these estimates. Reclassifications--Certain amounts have been reclassified in prior years to conform to 1996 presentation. NOTE 4--ACCOUNTS RECEIVABLE Accounts receivable include primarily amounts due for management fees, selling concessions due from underwriters and amounts due from other business activities of the Company. At December 31, 1995 and 1996, an allowance for doubtful accounts of $262,750 and $165,000 was applied as a reduction of accounts receivable, respectively. The change in the allowance in the current period was the result of management's assessment of the collectibility of the underlying receivables. NOTE 5--INVESTMENTS At December 31, 1995 and 1996, the estimated fair value of marketable and non-marketable investments were as follows:
1995 1996 Marketable equity securities--trading (cost $83,600 and $46,250)............................ $ 81,250 $ 45,625 Marketable equity securities--Available-for-sale (cost $760,000)................................. 1,160,000 -- ---------- ---------- Total marketable securities................... $1,241,250 $ 45,625 ========== ========== Non-marketable equity securities (cost $5,000).... $ 9,250 $ 10,945 Non-marketable partnership investments (cost $1,554,524 and $1,448,968)...................... 1,766,363 1,745,986 ---------- ---------- Total non-marketable investments.............. $1,775,613 $1,756,931 ========== ==========
The Company is a 1% general partner in various private equity funds. The value of the non-marketable partnership investments is updated periodically based upon estimates of fair value. Additionally, the Company had no derivative investments as of December 31, 1995 and 1996. F-16 81 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6--EQUIPMENT AND LEASEHOLD IMPROVEMENTS At December 31, 1995 and 1996, equipment and leasehold improvements comprised the following:
1995 1996 Office equipment.................................. $ 436,519 $ 641,421 Computer equipment................................ 442,685 468,950 Leasehold improvements............................ 255,528 267,553 ---------- ---------- 1,134,732 1,377,924 Less accumulated depreciation and amortization.... 170,600 562,812 ---------- ---------- $ 964,132 $ 815,112 ========== ==========
Depreciation expense of $0, $170,600 and $447,070 on the above is included in the consolidated statements of income for the years ended December 31, 1994, 1995 and 1996, respectively. The Company owned no equipment or leasehold improvements during 1994. The Company occupies premises and rents certain office equipment under leases that are accounted for as operating leases and that have expiration dates through 2005. At December 31, 1996, the minimum net rental commitments of the Company for the periods indicated under the terms of these operating leases in excess of one year were approximately $6,342,000 as follows: $927,000 in 1997; $811,000 in 1998; $658,000 per year from 1999 to 2005. NOTE 7--INCOME TAXES Prior to the Strategic Merger, GAIMCO was included in the consolidated Federal income tax returns of General American and its provisions for income taxes have been computed as if GAIMCO had filed a separate return. The provision for Federal and state income tax for the years ended December 31, 1994, 1995 and 1996, is as follows:
1994 1995 1996 Current income tax provision............ $827,165 $1,755,497 $4,651,708 Deferred income tax provision........... -- 603,392 199,326 -------- ---------- ---------- Total income tax provision.............. $827,165 $2,358,889 $4,851,034 ======== ========== ==========
The differences between the expected United States Federal income tax provision at the statutory rate of 35% for 1994, 1995 and 1996 and the Company's actual Federal income tax rate are as follows:
1994 1995 1996 Income before income taxes.............. $2,111,997 $5,771,040 $11,063,265 Federal income taxes at statutory rate.................................. 739,198 2,019,864 3,872,143 Increases in income taxes resulting from: State tax, net of Federal........... 85,221 219,974 619,251 Amortization of goodwill............ -- 147,737 354,568 Other, net.......................... 2,746 (28,686) 5,072 ---------- ---------- ----------- Federal income tax provision............ $ 827,165 $2,358,889 $ 4,851,034 ========== ========== ===========
F-17 82 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The components of deferred income taxes for the years ended December 31, 1995 and 1996 are as follows:
1995 1996 Accrued rent liability.................. $ 43,441 $ 82,612 Employee costs.......................... 54,759 (706,227) Partnership investments................. 97,821 168,972 Accrued expense reserves................ 421,657 252,396 Other, net.............................. (14,286) 401,573 -------- --------- Total deferred income tax provision..... $603,392 $ 199,326 ======== =========
The Company's net deferred income tax assets represent the estimated future tax effects attributable to future taxable or deductible temporary difference between amounts recognized in the financial statements and income tax returns. At December 31, 1995 and 1996, the net deferred income tax asset is as follows:
1995 1996 Accrued rent liability.................. $1,621,496 $1,538,884 Employee costs.......................... 160,420 203,228 Other, net.............................. 641,531 389,135 ---------- ---------- Gross deferred income tax assets........ 2,423,447 2,131,247 Valuation allowance..................... -- -- ---------- ---------- Deferred income tax assets, net of valuation allowance................... 2,423,447 2,131,247 ---------- ---------- Depreciation............................ (152,162) (192,324) Unrealized appreciation on investments........................... (314,830) -- Employee costs.......................... (285,315) (132,421) Partnership investments................. (64,671) (233,643) ---------- ---------- Gross deferred income tax liabilities... (816,978) (558,388) ---------- ---------- Net deferred income tax assets.......... $1,606,469 $1,572,859 ========== ==========
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Management believes the deferred tax assets will be fully realized in the future based upon consideration of the reversal of existing temporary differences, anticipated future earnings, and all other available evidence. Accordingly, no valuation allowance is established. NOTE 8--DEBT Long term: On August 11, 1995, the Company borrowed $13,000,000 from General American to fund certain payments made in connection with the Strategic Merger. Interest is payable on January 1 and September 1 at an annual rate of 7.0%. Principal payments are due in three equal annual installments of $4,333,333 commencing September 1, 2003. The Company prepaid $4,000,000 and $7,000,000 of principal plus accrued interest of $323,750 and $412,805 in 1995 and 1996, respectively. Management estimates the carring value of long term debt approximates fair value. On February 26, 1997, the Company paid the remaining $2,000,000 outstanding on its long term debt along with accrued interest expense of $27,222. Short term: On August 11, 1995, the Company borrowed $2,500,000 from General American to fund certain payments made in connection with the Strategic Merger. Interest is payable on January 1 and August 1 at an annual rate of 6.75%. F-18 83 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Principal is due on August 11, 1996. The Company prepaid $2,000,000 and $500,000 of principal plus accrued interest of $58,688 and $14,250 during 1995 and 1996, respectively, which is included in the consolidated statements of income. Lines of credit: At December 31, 1995 the Company had a line of credit with a commercial bank for $1,200,000. During 1996, the Company terminated the line of credit. There were no outstanding borrowings during 1995. At December 31, 1995 and 1996, the Company had a Revolving Subordinated Loan Agreement (the "Agreement") with a commercial bank for $2,000,000. The interest rate is agreed upon by the lender and the Company at the time of an advance. The Agreement expires on December 31, 1997. During 1996, the Company borrowed $2,000,000 for less than one week. There were no borrowings during 1995. NOTE 9--PREFERRED STOCK The preferred stock of the Company consists of (i) Series A Convertible Preferred Stock, par value $.01 per share and (ii) Series B Convertible Preferred Stock, par value $.01 per share. At December 31, 1995, 3,190,000 shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock") were authorized, issued and outstanding. The Series A Preferred Stock pays dividends quarterly based on the 90 day United States Treasury Bill rate in effect on the previous payment date. Such dividends are cumulative. The Company declared dividends on the Series A Preferred Stock of $0.11 and $0.28 for the years ended December 31, 1995 and 1996, respectively. Declared but unpaid dividends are shown as a liability on the consolidated balance sheet. The Series A Preferred Stock carries no voting rights. Each share of Series A Preferred Stock is convertible into one share of Non-Voting Common Stock at the holder's election, or Voting Common Stock upon an initial public offering. On November 8, 1996, the Company commenced a private offering to certain employees and directors. This offering was for a new class of preferred stock designated Series B Convertible Preferred Stock (the "Series B Preferred Stock"). A total of 460,000 shares were sold at $5.33 per share adding $2,451,800 to preferred stock. In order to exercise the conversion, payment to the Company of an additional $1.67 per share is required. At December 31, 1996, 600,000 shares of Series B Preferred Stock were authorized and 460,000 shares were issued and outstanding. The Series B Preferred Stock pays dividends quarterly at a rate of 5% per annum and such dividends are cumulative. Unpaid dividends are included in Preferred Dividends Payble on the consolidated balance sheet. The Series B Preferred Stock carries no voting rights. Each share of Series B Preferred Stock is convertible into one share of Non-Voting Common Stock at the holder's election and upon payment of the additional $1.67 per share to the Company. During January 1997, the Company issued an additional 15,000 shares of Series B Preferred Stock at $5.33 per share. NOTE 10--SHAREHOLDER'S EQUITY The board of directors of the Company is authorized to issue up to 20,000,000 shares of Class A Voting Common Stock and Class B Non-Voting Common Stock, each with a par value of $.01 per share. NOTE 11--OTHER RELATED PARTY ACTIVITIES CAM acts as an investment adviser for the general and separate accounts of General American and its insurance subsidiaries as well as the General American Capital Company family of funds. Investment management fees earned from these affiliated entities for the years ended December 31, 1994, 1995 and 1996 amounted $2,618,635, $12,573,489 and $14,300,267 respectively. The total investment management fees receivable from these affiliated entities at December 31, 1995 and 1996 amounted to $825,924 and $1,042,294, respectively. Certain officers and directors of the Company are also officers of General American and officers and/or directors of other General American affiliates. F-19 84 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company is directly or indirectly, through intermediary partnerships, the managing general partner of certain private equity funds with an equity ownership interest of 1% in each fund. In total, the Company managed zero, seven and five funds during 1994, 1995 and 1996, respectively. Fees for managing these funds were $0, $1,295,330 and $4,006,038 for the years ended December 31, 1994, 1995 and 1996, respectively. The Company received underwriting fees and concessions in connection with the offering of shares of two companies which were partially owned by certain private equity funds managed by the Company. Such fees and concession are included in research services and related fees and amounted to $0, $0 and $2,177,269 for the years ended December 31, 1994, 1995 and 1996. In connection with the November 8, 1996 private offering of Series B Preferred Stock, General American holds demand recourse notes from certain employees totaling $2,185,300. The notes bear interest of 6% which is payable semi-annually beginning July 1997. General American provides administrative services on request of the Company including disbursements, tax, facility management and other administrative support to the Company pursuant to an administrative services agreement. The following table list the expenses recorded by the Company for significant services provided by General American for the years ended December 31, 1995 and 1996:
1995 1996 Employee costs................ $ 6,341,164 $ 7,103,724 Computer services............. 50,591 118,008 Rent.......................... 624,414 612,822 All other..................... 5,291,934 6,776,667 ----------- ----------- $12,308,103 $14,611,221 =========== ===========
Costs for the year ended December 31, 1994 were not broken out in the components listed above, but rather were charged as one administrative fee and amounted to $871,221. NOTE 12--STOCK OPTIONS On August 11, 1995, the stockholders approved the Company's 1995 Flexible Stock Plan which provides for the grant of options to purchase up to 2,100,000 shares of the Company's Class B Non-Voting Common Stock to officers and other key employees of the Company and its affiliates. Terms and conditions (including price, exercise date and number of shares) are determined by the Board of Directors, which administers the plan. In the event of a initial public offering the options become 100% vested. All options were granted at fair value. On November 22, 1996, the stockholders approved the Company's 1996 Flexible Stock Plan which provides for the grant of options to purchase up to 2,100,000 shares of the Company's Non-Voting Common Stock to officers and other key employees of the Company and its affiliates. Terms and conditions (including price, exercise date and number of shares) are determined by the Board of Directors, which administers the plan.
WEIGHTED AVERAGE NUMBER OF SHARES EXERCISE PRICE ---------------------- -------------------- DEC. 31, DEC. 31, DEC. 31, DEC. 31, 1995 1996 1995 1996 Outstanding, beginning of year.......... -- 1,000,000 $ -- $5.33 Granted................................. 1,000,000 230,000 5.33 7.00 Exercised............................... -- -- -- -- Canceled................................ -- -- -- -- --------- --------- ----- ----- Outstanding, end of year................ 1,000,000 1,230,000 5.33 $5.64 ========= ========= ===== ===== Exercisable, end of year................ -- 200,000 -- $5.33 ========= ========= ===== =====
F-20 85 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees, ("APB 25"), in accounting for both the 1996 and 1995 Flexible Stock Plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. The weighted-average grant-date fair value of stock options granted during the year and the weighted-average significant assumptions used to determine those fair values, using a modified Black-Scholes option pricing model, and the pro forma effect on earnings of the fair value accounting for stock options under FAS 123 are as follows:
1995 1996 Grant-date fair value per share............................. $ 0.91 $ 1.13 Significant assumptions: Risk-free interest rate at grant date................... 6.05% 5.70% Expected dividend payout................................ $ 0 $ 0 Expected stock price volatility......................... n/a n/a Expected life to exercise (years)....................... 2.5 2.5 Net Income.............................. As reported....... $3,412,151 $6,212,231 Pro forma......... $3,336,484 $6,026,307 Pro forma earnings per common share..... As reported....... $ 0.59 Pro forma......... $ 0.57
NOTE 13--EMPLOYEE BENEFITS The Company has two retirement savings plans, a 401(k) Savings Plan (the "401(k) Plan") and the General American Life Insurance Company Progress Sharing Plan and Trust (the "Progress Sharing Plan"). The 401(k) Plan is available to substantially all Conning employees who were employed by Conning prior to the Strategic Merger. The Progress Sharing Plan is available to all employees employed by GAIMCO prior to the Strategic Merger and all employees employed subsequent to the Strategic Merger. The Company contributed $0, $286,170 and $547,127 on behalf of eligible employees for the years ended December 31, 1994, 1995 and 1996, respectively. Direct charges to the Company from General American for the Progress Sharing Plan were approximately $22,000, $359,000 and $310,000 for the years ended December 31, 1994, 1995 and 1996 which is included in the charges for administrative services from General American. One of the investment vehicles offered in the 401(k) Plan is managed by Conning. Pension Plan--Substantially all personnel who were employees of GAIMCO prior to the Strategic Merger were eligible for a defined benefit plan sponsored by General American through December 31, 1996. All costs are born and retained by General American. The plan is over funded as of December 31, 1995 and 1996. Therefore, no charges were made by General American to GAIMCO. NOTE 14--LITIGATION One legal claim has arisen during the normal course of the Company's non-securities and non-investment advisory serves businesses. Although the matter is subject to uncertainty, as it remains in the preliminary stages and discovery has not been completed, the Company believes that Conning & Company has meritorious defenses to all claims and that the probable outcome should not have a material adverse effect upon the Company. NOTE 15--COMMITMENTS AND CONTINGENCIES The Company through its subsidiary is, directly or through intermediary partnerships, a 1% general partner in certain private equity funds that the Company also manages. Capital contributions by the partners are called as needed for investments by the funds. At December 31, 1996, the Company's future commitment to fund such required capital contributions was approximately $273,000. F-21 86 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company through its subsidiary has committed to Conning Connecticut Investors, L.L.C. (the "L.L.C."), a limited liability company of which the Company is the general partner and managing member, up to approximately $4,040,000 for purposes of capitalizing the general partner. The amount is payable only in the event of insolvency on the part of the L.L.C. NOTE 16--NET CAPITAL REQUIREMENTS C&C is a registered broker-dealer and a member of the National Association of Securities Dealers, Inc. and therefore is subject to a requirement of the SEC's Uniform Net Capital Rule, requiring the maintenance of certain minimal capital levels. At December 31, 1996, C&C had net capital, as defined by the Uniform Net Capital Rule, of $2,428,221 which was $1,824,367 in excess of the required net capital. CAM is also subject to minimum net capital requirements which are determined by state regulations in each of the states in which CAM is licensed to do business. As of December 31, 1996 and 1995, CAM was in compliance with all minimum state requirements. NOTE 17--CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentration of credit risk consist principally of trade account receivables and short term investments. Short term investments consist of investment grade commercial paper and approximate fair value because of the short maturity of these items. With the exception of trade receivables from General American and its affiliates, credit risk with respect to trade accounts receivable is limited due to the large number of customers and their dispersion across geographical areas. Investment management fees receivable from General American and their affiliated entities at December 31, 1995 and 1996 amounted to $825,924 and $1,042,294 respectively. NOTE 18--PRO FORMA EARNINGS PER SHARE Pro forma earnings per share for the year ended December 31, 1996 is computed by dividing net income by the weighted average number of shares of common stock and dilutive common stock equivalents. For the purpose of this calculation, outstanding shares of Series A and Series B Convertible Preferred Stock and stock options are considered common stock equivalent shares for all periods presented. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common and common equivalent shares issued during the twelve month period prior to the date of the initial filing of the Company's Registration Statement have been included in the calculation, using the treasury stock method, as if they were outstanding for all periods presented. The assumed initial public offering price for the purposes of this calculation only was $15.00 per share. Historical earnings per share have not been presented as they would not be meaningful. NOTE 19--INDUSTRY SEGMENT The Company is primarily engaged in a single line of business as a provider of investment management services, which comprises several types of services, such as discretionary asset management, investment accounting and reporting services, mortgage origination and servicing, private equity investments and institutional investment research. These activities constitute a single business segment. NOTE 20--NEW ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share". SFAS No. 128 specifies new standards designed to improve the earnings per share ("EPS") information provided in financial statements by simplifying the existing computational guidelines, reviewing the disclosure requirements and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include: (a) eliminating the presentation of primary EPS and replacing it with basic EPS, with the principal difference being that common stock equivalents are not considered in computing basic EPS, (b) eliminating the modified F-22 87 CONNING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) treasury stock method and the three percent materiality provision and (c) revising the contingent share provisions and the supplemental EPS data requirements. SFAS No. 128 also makes a number of changes to existing disclosure requirements. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company has not yet determined the impact of the implementation of SFAS No. 128. NOTE 21--SUBSEQUENT EVENTS In June, 1997, General American, pursuant to a call right, purchased 1,594,995 shares of the Company's Series A Preferred Stock from existing shareholders for $11.25 per share. In September, 1997, the Company filed a preliminary registration statement with the SEC to register 2,500,000 shares of Common Stock (excluding the over-allotment option) to be sold by the Company in an initial public offering. F-23 88 SCHEDULE I CONNING CORPORATION (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS
DECEMBER 31, --------------------------- 1995 1996 ASSETS Cash and cash equivalents.................................................. $ -- $ 424,263 Investments in subsidiaries................................................ 31,079,378 31,230,081 Due from affiliates........................................................ 30,150 -- Capitalized software, less accumulated depreciation of $0 and $311,667..... -- 1,388,333 Prepaid expenses and other assets.......................................... 94,400 4,418 ----------- ----------- Total assets................................................... $31,203,928 $33,047,095 =========== =========== LIABILITIES AND SHAREHOLDER'S EQUITY Book overdraft............................................................. $ 349,959 $ -- Accrued expenses........................................................... 228,550 241,648 Due to affiliates.......................................................... -- 848,282 Long term debt............................................................. 9,000,000 2,000,000 Other payable.............................................................. -- 640,000 Deferred liabilities....................................................... -- 167,730 ----------- ----------- Total liabilities.............................................. 9,578,509 3,897,660 ----------- ----------- Series A convertible preferred stock, $.01 par value: 3,190,000 shares authorized, issued and outstanding....................................... 17,002,704 22,330,004 Series B convertible preferred stock, $.01 par value: 600,000 shares authorized, 460,000 issued and outstanding............................... -- 2,451,800 ----------- ----------- Total convertible preferred stock.............................. 17,002,704 24,781,804 ----------- ----------- Common stock, $.01 par value: 20,000,000 shares authorized; 6,710,000 shares issued and outstanding............................................ 67,100 67,100 Additional paid in capital................................................. 2,944,647 2,944,647 Retained earnings.......................................................... 1,376,668 1,355,884 Unrealized appreciation on investments, net of deferred income taxes....... 234,300 -- ----------- ----------- Total common shareholder's equity.............................. 4,622,715 4,367,631 ----------- ----------- Total liabilities and shareholder's equity..................... $31,203,928 $33,047,095 =========== ===========
See accompanying notes to condensed financial statements. F-24 89 CONNING CORPORATION (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
1995 1996 Revenues: Dividend from subsidiary..................................... $4,546,667 $5,925,000 Management advisory fees..................................... -- 300,000 Other income................................................. 5,291 5,644 ---------- ---------- Total revenues....................................... 4,551,958 6,230,644 ---------- ---------- Expenses: Other expenses............................................... 18,317 67,899 Interest expense............................................. 329,000 413,389 ---------- ---------- Total expenses....................................... 347,317 481,288 ---------- ---------- Income before benefit from income taxes...................... 4,204,641 5,749,356 Benefit from income taxes.................................... 130,399 77,871 ---------- ---------- Income before equity in undistributed earnings of subsidiaries, net of taxes................................. 4,335,040 5,827,227 Equity in undistributed earnings (loss) of subsidiaries, net of taxes................................................... (922,889) 385,004 ---------- ---------- Net income................................................... 3,412,151 6,212,231 Preferred stock dividends.................................... 350,900 905,715 ---------- ---------- Net earnings available to common shareholders................ $3,061,251 $5,306,516 ========== ==========
See accompanying notes to condensed financial statements. F-25 90 CONNING CORPORATION (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
1995 1996 Operating activities: Net income.................................... $ 3,412,151 $ 6,212,231 Adjustment for items not affecting cash: Amortization of capitalized software...... -- 311,667 Changes in: Investment in subsidiaries............ (4,854,296) (6,310,003) Due to/from affiliates................ (30,150) 878,432 Prepaid expenses and other assets..... (94,400) 89,982 Accrued expenses...................... 228,550 13,098 Deferred liabilities.................. -- 167,730 ------------ ----------- Net cash provided by (used in) operating activities........... (1,338,145) 1,363,137 ------------ ----------- Investing activities: Purchase of software.......................... -- (940,000) Dividends received from subsidiaries.......... 4,546,667 5,925,000 ------------ ----------- Net cash provided by investing activities..................... 4,546,667 4,985,000 ------------ ----------- Financing activities: Borrowings on long term debt.................. 13,000,000 -- Repayments on long term debt.................. (4,000,000) (7,000,000) Repayments on other payables.................. -- (120,000) Acquisition of Conning, net of cash acquired.................................... (12,207,581) -- Issuance of Series B preferred stock.......... -- 2,451,800 Dividends on preferred stock.................. (350,900) (905,715) ------------ ----------- Net cash provided by (used in) financing activities........... (3,558,481) (5,573,915) ------------ ----------- Net change in cash and cash equivalents........... (349,959) 774,222 Book overdraft, beginning of year................. -- (349,959) ------------ ----------- Cash and cash equivalents (book overdraft), end of year............................................ $ (349,959) $ 424,263 ============ =========== Supplemental disclosure of cash flow information: Cash paid for: Interest.................................. $ 323,750 $ 412,806 Income taxes.............................. -- -- Supplemental disclosure of non-cash information: Contribution of GAIMCO.................... $ 1,327,164 -- Accretion on Series A Preferred Stock..... -- $ 5,327,300
See accompanying notes to condensed financial statements. F-26 91 CONNING CORPORATION (PARENT COMPANY ONLY) NOTES TO CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1996 NOTE 1--ORGANIZATION The condensed financial statements of Conning Corporation (the "Company") should be read in conjunction with the consolidated financial statements of Conning Corporation and Subsidiaries and the notes thereto. Investment in subsidiary is accounted for under the equity method. NOTE 2--RELATED PARTY TRANSACTIONS During 1996, the Company provided the use of its software to its subsidiaries through administrative services agreements. Charges were $312,000 during 1996 which approximated the amortization of the software during the period. The amount of cash dividends paid to the Company by consolidated subsidiaries of the Company amounted to approximately $4,547,000 and $5,925,000 for the years ended December 31, 1995 and 1996, respectively. There are no restrictions on the payment of dividends, except for those stipulated by certain regulatory authorities applicable to Conning & Company. Conning & Company's ability to pay dividends is limited to capital in excess of a defined minimum requirement as set forth in Securities and Exchange Commission Rule 15c3-1. NOTE 3--CAPITAL TRANSACTIONS The board of directors of the Company is authorized to issue up to 20,000,000 shares of Common Stock with a par value of $0.01 per share. There are 6,710,000 shares issued and outstanding at December 31, 1995 and 1996. The preferred stock of the Company consists of (i) Series A Convertible Preferred Stock, par value $0.01 per share and (ii) Series B Convertible Preferred Stock, par value $0.01 per share. At December 31, 1995, 3,190,000 shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock") were authorized, issued and outstanding. The Series A Preferred Stock pays dividends quarterly based on the 90 day United States Treasury Bill rate in effect on the previous payment date. Such dividends are cumulative. The Company declared dividends on the Series A Preferred Stock of $0.11 and $0.28 for the years ended December 31, 1995 and 1996, respectively. On November 8, 1996, the Company commenced a private offering to certain employees and directors. This offering was for a new class of non-voting preferred stock designated Series B Convertible Preferred Stock (the "Series B Preferred Stock"). A total of 460,000 shares were sold at $5.33 per share adding $2,451,800 to preferred stock. At December 31, 1996, 600,000 shares of Series B Preferred Stock were authorized and 460,000 shares were issued and outstanding. The Series B Preferred Stock pays dividends quarterly at a rate of 5% per annum and such dividends are cumulative. The Series B Preferred Stock carries no voting rights and each share is convertible into one share of Non-Voting Common Stock at the holder's election and upon payment of an additional $1.67 per share to the Company. During January 1997, the Company issued an additional 15,000 shares of Series B Preferred Stock at $5.33 per share. The carrying value of the convertible preferred stock is at original issue price plus accretion relating to any increase in the redemption value of the stock during the period. During 1995 and 1996, such accretion was $0 and $5,327,300, respectively. F-27 92 CONNING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 1995 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents..................... $ 3,408,483 Short-term investments........................ 4,487,422 Accounts receivable, net...................... 3,270,269 Marketable equity securities.................. 1,043,290 Prepaid expenses and other current assets..... 422,752 ----------- Total current assets.................. 12,632,216 Non-marketable investments at value............... 1,341,771 Equipment and leasehold improvements, at cost, less accumulated depreciation and amortization of $2,330,478................................... 1,120,484 Deferred income taxes............................. 908,740 ----------- Total assets.......................... $16,003,211 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Compensation payable.......................... 1,436,526 Deferred revenue.............................. 288,959 Accounts payable and other accrued expenses... 2,948,303 Income taxes payable.......................... 39,153 ----------- Total current liabilities............. 4,712,941 Accrued rent liability............................ 2,214,525 ----------- Total liabilities..................... 6,927,466 ----------- 8% Cumulative senior preferred stock, $0.01 par value: 1,000,000 shares authorized; 160,000 issued and outstanding at stated value of $22.82 per share............................. 3,650,000 ----------- Total preferred stock................. 3,650,000 ----------- Non-voting common stock, $0.01 par value: 100,000 shares authorized; 24,350 shares issued and outstanding..................................... 244 Common stock, $.01 par value: 1,000,000 shares authorized; 83,204 shares issued and outstanding..................................... 832 Additional paid in capital........................ 1,428,796 Retained earnings................................. 4,954,707 Unrealized appreciation on investments, net of deferred income taxes........................... 158,020 Treasury stock, at cost (22,633 common shares).... (1,116,854) ----------- Total common shareholder's equity..... 5,425,745 ----------- Total liabilities and shareholder's equity.............................. $16,003,211 ===========
See accompanying notes to unaudited consolidated financial statements. F-28 93 CONNING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 (UNAUDITED) Revenues: Asset management and related fees............. $ 5,661,690 Research services............................. 4,563,802 Other income.................................. 275,122 ----------- Total revenues........................ 10,500,614 ----------- Expenses: Employee compensation and benefits............ 5,322,480 Occupancy and equipment costs................. 715,532 Marketing and production costs................ 1,176,887 Professional services......................... 548,325 Other operating expenses...................... 645,931 ----------- Total expenses........................ 8,409,155 ----------- Income before provision for income taxes...... 2,091,459 Provision for income taxes.................... 808,838 ----------- Net income.................................... $ 1,282,621 =========== Preferred stock dividends..................... 160,000 ----------- Net earnings available to common shareholders................................ $ 1,122,621 ===========
See accompanying notes to unaudited consolidated financial statements. F-29 94 CONNING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 (UNAUDITED)
UNREALIZED APPRECIATION TOTAL ADDITIONAL ON COMMON COMMON PAID IN RETAINED INVESTMENTS, TREASURY SHAREHOLDERS' STOCK CAPITAL EARNINGS NET STOCK EQUITY Balance, December 31, 1994..................... $1,065 $1,357,382 $3,832,086 $ 46,728 $(1,051,327) $4,185,934 Exercise of 1,100 stock options................ 11 71,414 71,425 Purchase of 1,735 shares of treasury stock..... (65,527) (65,527) Change in unrealized appreciation of investment, net of deferred income taxes........................ 111,292 111,292 Dividend on Preferred Stock.................... (160,000) (160,000) Net income..................................... 1,282,621 1,282,621 ------ ---------- ---------- -------- ----------- ---------- Balance, June 30, 1995......................... $1,076 $1,428,796 $4,954,707 $158,020 $(1,116,854) $5,425,745 ====== ========== ========== ======== =========== ==========
See accompanying notes to unaudited consolidated financial statements. F-30 95 CONNING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 (UNAUDITED) Operating activities: Net income.................................... $1,282,621 Adjustment for items not affecting cash: Depreciation.............................. 191,134 Net unrealized appreciation on non-marketable securities............... (2,672) Accretion of discounts on short-term investments............................. (130,886) Net purchases of securities held for market making........................... (247,040) Net unrealized appreciation on marketable securities.............................. (78,708) Changes in: Accounts receivable................... (18,602) Prepaid expenses and other assets..... (633,648) Accounts payable and other accrued expenses............................ 1,088,156 Deferred revenue...................... 23,304 Accrued rent liability................ (49,010) Compensation payable.................. (488,297) ---------- Net cash provided by operating activities..................... 936,352 ---------- Investing activities: Purchases of non-marketable securities........ (28,283) Purchases of short-term investments........... (4,368,256) Maturities of short-term investments.......... 4,600,000 Purchases of equipment, net................... (285,310) ---------- Net cash used in investing activities..................... (81,849) ---------- Financing activities: Dividend on 8% Cumulative Senior Preferred Stock....................................... (160,000) Purchase of treasury stock.................... (65,527) Exercise of stock options..................... 71,425 ---------- Net cash used in financing activities..................... (154,102) ---------- Net increase in cash and cash equivalents......... 700,401 Cash and cash equivalents, beginning of period.... 2,708,082 ---------- Cash and cash equivalents, end of period.......... $3,408,483 ==========
See accompanying notes to unaudited consolidated financial statements. F-31 96 CONNING INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 1--ORGANIZATION Conning Inc. and Subsidiaries (the "Corporation", formerly known as Conning Corporation), a Delaware corporation, is a holding company whose wholly-owned subsidiary, Conning & Company ("Conning"), is a registered investment adviser with the Securities and Exchange Commission under the Investment Advisers Act and is primarily an asset management and research services company concentrating on the insurance industry. Conning is also a registered broker dealer and a member of the National Association of Securities Dealers, Inc. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited consolidated financial statements of the Corporation have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. These interim unaudited financial statements should be read in connection with the December 31, 1994 audited consolidated financial statements. NOTE 3--RELATED PARTY TRANSACTIONS The Corporation provided investment management services to the holder of the non-voting common stock. Investment management fees of approximately $346,000 were earned for the six months ended June 30, 1995. NOTE 4--COMMITMENTS AND CONTINGENCIES Two legal claims have arisen during the normal course of the Corporation's non-securities and non-investment advisory services businesses. While the Corporation believe it has meritorious defenses against the suits, the ultimate resolution of the matters and the related impact on these financial statements is based upon estimates of the likely outcome. Management of the Corporation, after consultation with legal counsel, believes its aggregate accrual relating to litigation is appropriate as of June 30, 1995. Subsequent to June 30, 1995, one of the two claims was resolved with no material impact to the financial statements. Conning is a 1% general partner in certain private equity funds that the subsidiary also manages. At June 30, 1995, Conning's future commitment to fund such required capital contributions was approximately $390,000. F-32 97 REPORT OF INDEPENDENT ACCOUNTANTS February 21, 1995, except for Note 12, as to which the date is September 19, 1997 To the Board of Directors and Shareholders of Conning Inc. In our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of operations, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Conning Inc. & Subsidiaries (formerly known as Conning Corporation) at December 31, 1994, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 2 to the financial statements, the Company changed its method for accounting for equity investments in 1994. /s/ Price Waterhouse LLP F-33 98 CONNING INC. & SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL CONDITION DECEMBER 31, 1994 ASSETS Cash and cash equivalents......................... $ 2,708,082 Short-term investments............................ 4,588,279 Underwriting fees and commissions receivable...... 657,130 Accounts receivable............................... 2,205,076 Affiliate receivables............................. 389,464 Investments....................................... 1,917,066 Equipment and leasehold improvements, at cost, less accumulated depreciation and amortization of $2,180,005................................... 985,616 Prepaid expenses and deferred charges............. 308,668 Other assets...................................... 469,021 ----------- Total assets.................................. $14,228,402 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Amounts and notes payable to former shareholders.................................... $ 569,009 Compensation payable.............................. 1,924,823 Deferred revenue.................................. 265,656 Accrued rent expense.............................. 2,263,537 Accounts payable and other accrued expenses....... 1,369,443 ----------- Total liabilities............................. 6,392,468 ----------- 8% Cumulative senior preferred stock, $.01 par value: 1,000,000 share authorized; 160,000 issued and outstanding at stated value of $22.82 per share................................ 3,650,000 ----------- Non voting common stock, $.01 par value: 100,000 shares authorized; 24,350 shares issued and outstanding..................................... 244 Common stock, $.01 par value: 1,000,000 shares authorized; 82,104 and 68,329 shares issued and outstanding..................................... 821 Capital in excess of par value.................... 1,357,382 Retained earnings................................. 3,832,086 Unrealized appreciation on investments, net of deferred income taxes........................... 46,728 Treasury stock, at cost (20,898 shares)........... (1,051,327) ----------- Total common shareholders' equity............. 4,185,934 ----------- Total shareholders' equity.................... 7,835,934 ----------- Total liabilities and shareholders' equity.... $14,228,402 ===========
F-34 99 CONNING INC. & SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 Revenue Asset management and related fees............. $ 9,839,771 Research services............................. 8,164,765 Other......................................... 472,211 ----------- Total revenue............................. 18,476,747 ----------- Expenses Employee compensation and benefits............ 10,195,854 Occupancy and equipment costs................. 1,450,080 Marketing and production costs................ 2,029,390 Professional fees............................. 784,507 Other operating expenses...................... 1,265,603 ----------- Total expenses............................ 15,725,434 ----------- Income before provision for income taxes...... 2,751,313 Provision for income taxes.................... 1,243,822 ----------- Net income.................................... $ 1,507,491 ===========
See accompanying notes to consolidated financial statements. F-35 100 CONNING INC. & SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1994
COMMON SHAREHOLDERS' EQUITY -------------------------------------------------------------------- CAPITAL IN UNREALIZED PREFERRED COMMON EXCESS OF RETAINED STOCK TREASURY STOCK STOCK PAR VALUE EARNINGS APPRECIATION STOCK Balance, December 31, 1993................... $3,650,000 $ 927 $ 486,706 $2,644,595 $ (579,871) Issuance of 13,775 shares of common stock........ 138 870,676 Purchase of treasury stock, 7,830 shares.... (471,456) Unrealized appreciation of investments, net of deferred income taxes.................. $46,728 Dividend on 8% Cumulative Senior Preferred Stock.................. (320,000) Net Income............... 1,507,491 ---------- ------ ---------- ---------- ------- ----------- Balance, December 31, 1994................... $3,650,000 $1,065 $1,357,382 $3,832,086 $46,728 $(1,051,327) ========== ====== ========== ========== ======= ===========
See accompanying notes to consolidated financial statements. F-36 101 CONNING INC. & SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1994 Operating activities: Net income.................................... $ 1,507,491 Adjustment for items not affecting cash Depreciation and amortization............. 441,930 Deferred income tax provision............. 49,272 Net unrealized appreciation on non-marketable securities................. (39,639) Net purchases of securities held for market making............................. (23,000) Accretion of discounts on short-term investments............................... (82,709) Changes in: Receivables........................... 572,924 Prepaid expenses, deferred charges and other assets......................... (3,780) Payables.............................. (613,395) Deferred revenue...................... (98,256) Accrued rent expense.................. (9,521) Compensation payable.................. 1,664,625 ----------- Net cash provided by operating activities...................... 3,365,942 ----------- Investing activities: Purchases of non-marketable securities.... (76,650) Distribution from non-marketable partnership investments................... 127,431 Purchases of equipment, net............... (29,094) Purchases of short-term investments....... (6,005,570) Maturities of short-term investments...... 1,500,000 ----------- Net cash (used for) provided by investing activities............ (4,483,883) ----------- Financing activities: Dividend on 8% Cumulative Senior Preferred Stock..................................... (320,000) Issuance of common stock, net of issuance cost...................................... 870,814 Issuance of employee loans................ (324,081) Repayments of employee loans.............. 143,036 Payments to former shareholders........... (66,900) Purchase of treasury stock................ (26,845) ----------- Net cash provided by (used for) financing activities................. 276,024 ----------- Non-cash financing activities: Notes and amounts payable to former shareholders.............................. 444,611 Purchase of treasury stock................ (444,611) ----------- Net non-cash financing activities................. -- ----------- Net change in cash and cash equivalents........... (841,917) Cash and cash equivalents, beginning of year...... 3,549,999 ----------- Cash and cash equivalents, end of year............ $ 2,708,082 =========== Cash paid for: Interest...................................... $ -- Income taxes.................................. $ 1,719,889
See accompanying notes to consolidated financial statements. F-37 102 CONNING INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--ORGANIZATION Conning Inc. (the "Corporation", formerly known as Conning Corporation), a Delaware corporation, is a holding company whose wholly-owned subsidiary, Conning & Company ("Conning"), is a registered investment adviser with the Securities and Exchange Commission under the Investment Advisers Act and is primarily an asset management and research company concentrating on the insurance industry. Conning is also a registered broker dealer and a member of the National Association of Securities Dealers, Inc. NOTE 2--SUMMARY OF ACCOUNTING POLICIES The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. The significant accounting policies followed by the Corporation and its subsidiaries are summarized below. Accounting Changes--Effective January 1, 1994, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115) which requires that investments be classified in one of three categories: held-to-maturity, available-for-sale or trading. The Corporation classified equity investments held for market making activities as trading securities and all other marketable equity securities as available-for-sale. At January 1, 1994, there was no effect on the financial position of the Corporation upon implementation of FAS 115 as investments held for market making activities were previously carried at fair value with corresponding gains or losses recorded through income. No other marketable equity securities were held at January 1, 1994. Principles of Consolidation--The consolidated financial statements include the accounts of the Corporation and its subsidiaries after elimination of intercompany balances and transactions. Revenue Recognition--Asset management fees, institutional research fees and financial advisory fees are recorded in income when services are provided. Consulting fees are recorded as income at the completion of the contract or at the time of receipt in the case of non-refundable fees earned. Fee income for industry research publications is recorded as income ratably over the subscription period, which is generally one year. Related expenses are recorded as incurred. Cash and Cash Equivalents--Cash and cash equivalents represent cash and highly liquid investments with original maturities of three months or less. Short-Term Investments--Short-term investments are comprised of U.S. Government Securities and are carried at amortized cost, which approximates fair value. Investments--Marketable equity securities classified as trading securities are presented at fair value with corresponding unrealized gains or losses included in current period income. Marketable equity securities classified as available-for-sale are presented at fair value with corresponding unrealized gains or losses included as a separate component of shareholders' equity, net of deferred income taxes. Non-marketable securities are valued at fair value as determined in good faith by the management of the Corporation. The changes in the resulting difference between cost and market (or fair value) are included in the consolidated statement of operations. Equipment and Leasehold Improvements--Equipment is stated at cost, less accumulated depreciation provided on an accelerated method over periods not exceeding eight years. Leasehold improvements are stated at cost, less accumulated amortization provided on a straight line basis over the term of the lease. Income Taxes--Income tax expense is based on income reported in the financial statements. Deferred federal and state income taxes are provided based on an asset and liability approach which requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The Corporation files consolidated F-38 103 CONNING INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) federal and combined state income tax returns with its subsidiaries. Net deferred income taxes are included in other assets. The Corporation records a valuation allowance against the deferred income tax asset for that portion of the asset that may not be realized. Deferred Charges--Deferred charges represent costs incurred to establish certain private equity funds. These costs are being amortized on a straight line method over an estimated useful life of eight years. Amortization of $81,386 was charged against revenue during 1994. Rent Expense--The Corporation received financial incentives as well as a stepped rental rate structure regarding its lease at the Corporation's main premises. The Corporation is recording all incentives and rental rates in its results of operations as if they occurred evenly throughout the term of the lease. In connection with such incentives, the Corporation issued a $350,000 letter of credit to the landlord in the event of default under the lease. The letter of credit was outstanding at December 31, 1994. Other revenue--Realized and unrealized gains on investments, interest income and other miscellaneous revenues are also included. NOTE 3--UNDERWRITINGS, COMMISSIONS AND ACCOUNTS RECEIVABLE Accounts receivable include amounts due for management fees, consulting engagements and other business activities of the Corporation. Underwriting fees and commissions receivable are amounts due from customers for securities transactions and selling concessions due from underwriters. At December 31, 1994, an allowance for doubtful accounts of $212,750 was applied as a reduction of accounts receivable. NOTE 4--INVESTMENTS At December 31, 1994 the estimated fair value of marketable and non-marketable investments were as follows: Marketable Equity Securities--Trading (cost $37,150)........................ $ 36,250 Marketable Equity Securities-- Available-for-sale (cost $490,000)...... 570,000 Non-marketable equity securities (cost $16,625).............................. 18,310 Non-marketable partnership investments (cost $1,272,200)..................... 1,292,506 ---------- Total................................... $1,917,066 ==========
The Corporation owns one security classified as available-for-sale with an original cost of $400,000 and a carrying value at the date of adopting FAS 115 of $490,000. The Corporation is directly, or indirectly through intermediary partnerships, the managing general partner for six private equity funds with an equity ownership interest of 1% in each fund. Fees for managing the six funds were $3,191,855 for the year ended December 31, 1994. The Corporation owns a 42.5% share in the joint venture. During 1994, the Corporation recorded $270,000 in revenue relating to this joint venture. NOTE 5--EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements comprised the following: Office equipment.............. $1,191,233 Data processing equipment..... 1,604,349 Leasehold improvements........ 370,039 ---------- 3,165,621 Less accumulated depreciation and amortization............ 2,180,005 ---------- $ 985,616 ==========
F-39 104 CONNING INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Depreciation expense for the year ended December 31, 1994 was $360,544. The Corporation occupies premises and rents certain office equipment under leases that are accounted for as operating leases and that have expiration dates through 2005. Rentals under these leases aggregated $1,069,139 for the year ended December 31, 1994, after reduction for rent received from subleases of $150,041. At December 31, 1994, the minimum net rental commitments of the Corporation for the periods indicated under the terms of the operating leases in excess of one year were approximately $7,737,000 as follows: $834,000 in 1995; $819,000 in 1996; $769,000 in 1997; $740,000 in 1998; $732,000 per year from 1999 to 2004 and $183,000 in 2005. At December 31, 1994, the minimum due under a sublease agreement in excess of one year is approximately $100,000 as follows: $63,000 in 1995, and $37,000 in 1996. The commitments include future repayments of approximately $2,264,000 in rent expense accrued and rent incentives recorded at December 31, 1994. NOTE 6--INCOME TAXES The provision for federal and state income taxes for the year ended December 31, 1994 are as follows: Current income tax provision............ $1,194,550 Deferred income tax provision........... 49,272 ---------- Total income tax provision.............. $1,243,822 ==========
The components of deferred income taxes for the year ended December 31, 1994 are as follows: Accrued rent............................ $ 3,237 Realization of loss carryforwards....... 111,520 Change in valuation allowance........... 64,074 Accrued expense reserves................ (127,500) Other, net.............................. (2,059) ---------- Total deferred income tax provisions.... $ 49,272 ==========
Under the provisions of FAS 109, the Corporation's net deferred income tax assets represent the estimated future tax effects attributable to future taxable or deductible temporary difference between amounts recognized in the financial statements and income tax returns. At December 31, 1994 the net deferred income tax assets are as follows: Accrued rent............................ $ 769,603 State income tax, net................... 176,447 Other, net.............................. 231,479 ---------- Gross deferred income tax assets........ 1,177,529 ---------- Depreciation............................ (145,897) Unrealized appreciation on investments........................... (57,800) Investments in affiliates............... (6,973) ---------- Gross deferred income tax liabilities... (210,670) ---------- Net deferred income tax assets before valuation allowance................... 966,859 Valuation allowance..................... (778,172) ---------- Net deferred income tax assets.......... $ 188,687 ==========
F-40 105 CONNING INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Corporation's effective federal income tax rate was 36.8% for the year ended December 31, 1994. The differences between the hypothetical United States federal income tax provision at the statutory rate of 34% and the Corporation's actual federal income tax rate are as follows: Income before income taxes.............. $2,751,313 State income tax provision.............. (364,510) ---------- Income before federal income taxes...... $2,386,803 ========== Federal income taxes at statutory rates................................. 811,513 Changes in valuation allowance.......... 23,215 Other, net.............................. 44,584 ---------- Federal income tax provision............ $ 879,312 ==========
NOTE 7--SHORT-TERM BORROWINGS At December 31, 1994 the Corporation had a line of credit with a commercial bank for $1,650,000. The interest rate is based on LIBOR plus 150 basis points. The line of credit reduces to $1,200,000 on April 1, 1995, $650,000 on April 1, 1996 and expires on April 1, 1997. There were no outstanding borrowings at December 31, 1994. NOTE 8--SHAREHOLDERS' EQUITY The board of directors of the Corporation is authorized to issue up to 1,000,000 shares of common stock, 100,000 shares of non-voting common stock and 1,000,000 shares of preferred stock. All shares have a par value of $.01 per share. The board of directors is authorized to set the terms, limitations, preferences and series of preferred stock. On February 25, 1993, PennCorp Financial ("PennCorp") purchased all of the then outstanding Corporation's Non-Voting Series A Preferred Stock, which were subject to mandatory redemption, from the previous shareholders. On the same date, the Corporation entered into an agreement with PennCorp to exchange the shares of Non-Voting Series A Preferred Stock for 160,000 shares of 8% Cumulative Senior Preferred Stock ("Senior Preferred Stock") valued at $22.8125 per share ($3,650,000 aggregate), all of the 24,350 shares of non-voting common stock valued at $36.50 per share ($888,775 aggregate) and cash of $261,225. The Senior Preferred Stock was issued at a discount from a face value of $4,000,000. The holders of the Senior Preferred Stock have voting rights only with respect to certain matters, including an election of two members of the board of directors representing less than a majority of the board, and are entitled to receive cumulative dividends at the annual rate of $2.00 per share payable semi-annually. The Senior Preferred Stock, plus any accrued and unpaid dividends, may be redeemed by the Corporation on or after March 31, 1994 with the approval of the Corporation's Board of Directors. No redemptions occurred during 1994. The Preferred Stock is redeemable at $24.0625 per share ($3,850,000 aggregate) if redeemed between March 31, 1994 through March 30, 1997; and at $25.00 per share ($4,000,000 aggregate) if redeemed on or after March 31, 1997. In connection with the exchanges as described above, the Corporation has issued warrants to subsidiaries of PennCorp to purchase 31% of the Corporation's fully diluted common shares, at a price determined by the common stock book value per share, if the Senior Preferred Stock is not fully redeemed by February 25, 1999. The voting shares of common stock are entitled to vote on all matters requiring shareholder action. All voting common shares issued by the Corporation are subject to a Shareholder's Agreement. Under this agreement, no transfer of shares is permitted except with the consent of the Corporation's Board of Directors. Upon termination of employment, or other event as described in the agreement, all voting common stock shares of the Corporation held must be sold back to the Corporation at a price determined in accordance with the agreement. The Corporation did not declare any dividends on common stock shares outstanding during 1994 and it is anticipated that there will be no dividends declared in the near future. The Corporation is also restricted as to the amount of dividends that can be declared since Conning is a registered broker-dealer who is required to maintain a F-41 106 CONNING INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) minimum net capital balance of approximately $225,572 at December 31, 1994 pursuant to the Securities and Exchange Commission's Uniform Net Capital Rule (Rule 15c3-1). On September 13, 1994, the Corporation held a private offering to certain employees which closed on September 28, 1994. A total of 7,575 shares were sold at $65.85 per share adding $498,814 to shareholders' equity. As of December 31, 1994, the Corporation was owed $211,041 from certain employees for their purchases of common stock. During 1994, the Corporation purchased 7,830 shares of common stock for treasury at a total cost of $471,456. NOTE 9--OTHER RELATED PARTY ACTIVITIES The Corporation is the holder of notes receivable for the principal sum of $200,000 bearing interest at the rate of 8.0% per annum from Tennant Risk Services, Inc. ("Tennant"), a Connecticut corporation of which the Corporation owns a nominal interest. Members of the board of directors of the Corporation who are also members of senior management serve as Board members of Tennant. The notes are due in installments of $125,000 and $75,000 on September 1, 1995 and August 1, 1997 respectively. Interest is due semi-annually and interest income of $16,000 is included in the statement of operations for the year ended December 31, 1994. The Corporation provided investment management services to PennCorp. Investment management fees of $638,142 were earned for the year ended December 31, 1994. NOTE 10--STOCK OPTIONS AND EMPLOYEE BENEFITS The Corporation has a Stock Option Plan (the "Plan") that allows the Board of Directors to grant incentive and/or non-qualified stock options to key employees and directors of the Corporation and its affiliates. The options are exercisable in equal installments over a period of two years from the date of grant and no later than ten years from the date of grant. A total of 83,876 shares of the Corporation's common stock have been reserved for issuance pursuant to the Plan. Transactions under the stock option plan are summarized as follows:
AVERAGE NUMBER OF EXERCISE SHARES PRICE Outstanding, beginning of year.......... 35,866 $24.32 Granted................................. 9,225 62.52 Exercised............................... -- -- Canceled................................ (10,556) 19.76 ------- ------ Outstanding, end of year................ 34,535 $35.92 ======= ====== Exercisable, end of year................ 24,136 $28.81 ======= ======
401(k) Savings Plan--Conning has a 401(k) savings plan ("the 401(k) Plan") for which substantially all employees are eligible. In addition to employee contributions, Conning contributed $351,286 on behalf of the eligible employees for the year ended December 31, 1994. The 401(k) Plan offers six investment vehicles in addition to a self-directed option. One of the investment vehicles is managed by Conning. NOTE 11--NET CAPITAL REQUIREMENTS The Corporation's principal subsidiary, Conning, is subject to a requirement of the SEC's Uniform Net Capital Rule, requiring the maintenance of certain minimal capital levels. At December 31, 1994, Conning had net capital, as defined by the Uniform Net Capital Rule, of $5,324,070 which was $5,098,498 in excess of the required net capital. F-42 107 CONNING INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12--SUBSEQUENT EVENTS On August 11, 1995, all of the outstanding common stock of the Corporation was acquired by Conning Corporation, formerly known as Conning Asset Management Company--name change effective July 31, 1996. Conning Corporation is owned by General American Holding Company, a wholly owned subsidiary of General American Life Insurance Company. In September 1997, Conning Corporation filed a preliminary registration statement with the Securities and Exchange Commission to register 2,500,000 shares of Common Stock (excluding the over-allotment option) to be sold by Conning Corporation in an initial public offering. F-43 108 GLOSSARY "ASSET" typically refers to anything having a commercial or exchange value that is owned by a business, institution or individual. In this context `asset' refers to the financial holdings of the Company's clients, primarily insurance companies. "ASSET BACKED SECURITIES" are bonds or notes typically backed by loan paper or accounts receivable originated by banks, credit card companies or other providers of credit. "ASSET LIABILITY MATCHING" refers to the quantitative analytic techniques applied to the estimation of the time frame in which a client's liabilities will become payable and the program designed to appropriately match the duration of the investment portfolio to that time frame. "ASSET MANAGEMENT" refers to the services offered by the Company which include the allocation of the clients funds to basic security classes and the active buying, trading and selling that accompanies the investment function. "CORPORATE BONDS" are debt instruments issued by a private corporation as distinct from a government agency or a municipality. "DISCRETIONARY ASSET MANAGEMENT" refers to the active management of an investment portfolio including the asset allocation and purchasing, trading and selling activities. "EQUITIES" are securities representing the ownership interest in a corporation. "GOVERNMENTS" are securities issued by the U.S. government, such as Treasury Bills, bonds, notes and savings bonds, as well as debt issues of federal agencies which are not directly backed by the U.S. government. "INDEXED EQUITIES" are pools of funds which are invested in a portfolio which seeks to match that of a broad-based securities index. This may include the Standard & Poor's 500 index, indexes of mid- and small-capitalization stocks, foreign stock indexes and bond indexes. "INVESTMENT ADVISORY SERVICES" are services which support the analysis and needs of clients and result in advice pertaining to the general structure of the client's portfolio, but do not include advice relative to specific investments. "MASTER SERVICER" is an entity which provides administrative services to securitized pools of mortgage-backed securities. "MORTGAGE LOANS" are debt instruments by which the borrower, either corporate or individual, grants the lender a lien on property as security for the repayment of the loan. "MUNICIPAL BONDS" are debt obligations of a state or local government entity. "PRIVATE EQUITY FUNDS" refer to the funds for which the Company has raised capital from institutional investors for the purpose of investing in privately held companies. "PRIVATE PLACEMENTS" refer to stocks, bonds or other investments which are sold directly to an institutional investor, and which are typically restricted as to resale. "REAL ESTATE" refers to a piece of land and all the physical property relating to it, and may include the air and subsurface rights. "RECURRING FEE BASED REVENUE" refers to the on going fees the Company collects, in the ordinary course of its business, from its clients on business including discretionary asset management, investment advisory, investment accounting & reporting, real estate, research, and private equity management. "SCHEDULE B" refers to the detail schedule of mortgages included in the standard insurance department regulatory statutory annual statement. "SCHEDULE D" refers to the detail schedule of investments included in the standard insurance department regulatory statutory annual statement. "SHORT-TERM OBLIGATIONS" typically refer to investments which have a maturity of one year or less. "SPECIAL SERVICER" means an entity which provides asset management and resolution services for non-performing or under-performing loans within a pool of performing loans or mortgages. G-1 109 ================================================================================ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. ---------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary.............................................................. 3 Cautionary Statement Regarding Forward-Looking Statements....................... 8 Risk Factors.................................................................... 8 Use of Proceeds................................................................. 15 Dividend Policy................................................................. 15 Capitalization.................................................................. 16 Dilution........................................................................ 17 Business........................................................................ 18 Selected Consolidated Financial Data............................................ 30 Management's Discussion and Analysis of Financial Condition and Results of Operation..................................................................... 32 Regulation...................................................................... 36 Management...................................................................... 39 Certain Relationships and Related Transactions.................................. 48 Principal Shareholders.......................................................... 53 Shares Eligible for Future Sale................................................. 54 Description of Capital Stock.................................................... 56 Certain Charter and Bylaw Provisions............................................ 58 Underwriting.................................................................... 61 Legal Matters................................................................... 63 Experts......................................................................... 63 Additional Information.......................................................... 63 Index to Financial Statements................................................... F-1 Glossary........................................................................ G-1
------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ================================================================================ ================================================================================ 2,500,000 SHARES CONNING LOGO CONNING CORPORATION COMMON STOCK ---------- PROSPECTUS ---------- DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION A.G. EDWARDS & SONS, INC. ---------- --, 1997 ================================================================================ 110 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth all expenses, other than underwriting discounts and commissions, all of which are payable by the Company, in connection with the issuance and distribution of the securities being registered. All amounts are estimates except the registration fee. SEC Registration Fee.............................. $13,069 NASD Filing Fee................................... 4,813 Nasdaq National Market Listing Fee................ ------- Printing and Engraving Expenses................... Blue Sky Fees and Expenses........................ Registrar and Transfer Agent Fees................. Legal Fees and Expenses........................... Accounting Fees and Expenses...................... D&O Insurance..................................... Miscellaneous..................................... ------- Total..................................... $ ======= - -------- To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 351.355(1) of the Revised Statutes of Missouri provides that a corporation may indemnify a director, officer, employee or agent of the corporation in any action, suit or proceeding other than an action by or in the right of the corporation, against expenses (including attorney's fees), judgments, fines and settlement amounts actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action, had no reasonable cause to believe his conduct was unlawful. Section 351.355(2) provides that the corporation may indemnify any such person in any action or suit by or in the right of the corporation against expenses (including attorneys' fees) and settlement amounts actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that he may not be indemnified in respect of any matter in which he has been adjudged liable for negligence or misconduct in the performance of his duty to the corporation, unless authorized by the court. Section 351.355(3) provides that a corporation shall indemnify any such person against expenses (including attorney's fees) actually and reasonably incurred by him in connection with the action, suit or proceeding if he has been successful in defense of such action, suit or proceeding and if such action, suit or proceeding is one for which the corporation may indemnify him under Section 351.355(1) or (2). Section 351.355(7) provides that a corporation shall have the power to give any further indemnity to any such person, in addition to the indemnity otherwise authorized under Section 351.355, provided such further indemnity is either (i) authorized, directed or provided for in the articles of incorporation of the corporation or any duly adopted amendment thereof or (ii) is authorized, directed or provided for in any by-law or agreement of the corporation which has been adopted by a vote of the shareholders of the corporation, provided that no such indemnity shall indemnify any person from or on account of such person's conduct which was finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct. The Amended and Restated Articles of Incorporation of the Company filed as Exhibit 3.1 to this Registration Statement contain provisions indemnifying its directors and officers to the extent authorized specifically by Sections 351.355(1), (2), (3) and (7). II-1 111 Directors or officers of the Company who are directors or officers of General American may also be entitled to indemnification under the provisions of General American's Articles of Incorporation, which provide indemnification to them since they serve, at General American's request, as directors or officers of the Company. Such individuals are also covered by General American's director's and officer's liability insurance policy. The form of Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for the mutual indemnification of the Company and any Underwriters, their respective controlling persons, directors and certain of their officers, against certain liabilities, including liabilities under the Securities Act of 1933, as amended. General American Life Mutual Holding Company maintains a policy of insurance under which the directors and officers of the Company are insured, subject to the limits of the policy, against certain losses, as defined in the policy, arising from claims made against such directors and officers by reason of any wrongful acts, as defined in the policy, in their respective capacities as directors or officers of the Company. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In August 1995, the Company issued certain securities in connection with its formation (the "Strategic Merger"), as follows: (i) General American Holding Company contributed all of the issued and outstanding common stock of GAIMCO (now known as Conning Asset Management Company) to the Company in exchange for 6,710,000 shares of Company Common Stock; and (ii) each of the 21 shareholders and option holders of Conning, Inc., other than three non-employee directors and two institutional shareholders (the "Non-Contributing Shareholders"), contributed all of the common stock of Conning, Inc. then owned by such shareholders to the Company and canceled all of their options to purchase Conning, Inc. Common Stock in exchange for $4,505,002 in cash and 3,190,000 shares of the Company's Series A Convertible Preferred Stock. The shares of Conning, Inc. owned by the Non-Contributing Shareholders were acquired in exchange for cash payments. In connection with this transaction, the Company relied on the exemption from registration contained in Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. In connection with the Strategic Merger, the Company awarded employee stock options exercisable for 1,000,000 shares of Class B Non-Voting Common Stock to 25 employees of the Company; none of the options have been exercised. In connection with this transaction, the Company relied on exemptions from registration contained in Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder and Rule 701 of the Securities Act. In November 1996 through June 1997, the Company issued 475,000 shares of Series B Convertible Preferred Stock and awarded employee stock options exercisable for 237,500 shares of Class B Non-Voting Common Stock to 28 employees of the Company pursuant to a 1996 employee stock purchase and option grant program and amended and restated certain provisions of a shareholder's agreement; none of the options have been exercised. In April 1997, the Company issued 110,000 shares of Class B Non-Voting Common Stock to three executive officers or directors of the Company upon conversion of an equal number of shares of Series B Convertible Preferred Stock. In connection with these transactions, the Company relied on exemptions from registration contained in Section 4(2) and Regulation D promulgated thereunder and Rule 701 of the Securities Act. Concurrent with the closing of this offering, the 3,190,000 issued and outstanding shares of Series A Convertible Preferred Stock will be converted into an equal number of shares of Common Stock of the Company and outstanding stock options to purchase Class B Non-Voting Common Stock will become options to purchase Common Stock. In connection with this transaction, the Company intends to rely on the exemption from registration contained in Section 3(a)(9) of the Securities Act. Concurrent with or prior to the closing of this offering, the 365,000 issued and outstanding shares of Series B Convertible Preferred Stock will be converted into an equal number of shares of Common Stock of the Company at $1.67 per share. In connection with this transaction, the Company intends to rely on the exemption from registration contained in Section 4(2) of the Securities Act and Regulation D promulgated thereunder and Rule 701 of the Securities Act. II-2 112 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The exhibits and financial statement schedules filed as part of this Registration Statement are as follows: (a) Exhibits. See Index to Exhibits. (b) Financial Statement Schedules. See Index to Financial Statements for Schedule I. Other Financial Statement Schedules have been omitted for the reason that they are not required, are not applicable or that the equivalent information has been included in the consolidated financial statements, and notes thereto, or elsewhere herein. ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions of Item 14, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance on Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 113 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on this 19th day of September, 1997. CONNING CORPORATION By: /s/ LEONARD M. RUBENSTEIN ---------------------------------- Leonard M. Rubenstein Chairman and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Leonard M. Rubenstein, Fred M. Schpero and Maurice W. Slayton, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, and in any and all capacities to sign any and all amendments (including post-effective amendments) to this registration statement and all amendments and supplements to any prospectus relating thereto and an other documents and instruments incidental thereto, and any registration statement filed pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file the same with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary or advisable to be done in and about the premises, as full to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that each said attorneys-in-fact and agents and/or any of them, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE /s/ JOHN A. FIBIGER Director September 19, 1997 - ------------------------------- John A. Fibiger /s/ RICHARD A. LIDDY Director September 19, 1997 - ------------------------------- Richard A. Liddy /s/ LEONARD M. RUBENSTEIN Chairman and Chief Executive September 19, 1997 - ------------------------------- Officer (Principal Executive Leonard M. Rubenstein Officer) /s/ FRED M. SCHPERO Senior Vice President and September 19, 1997 - ------------------------------- Chief Financial Officer Fred M. Schpero (Principal Financial and Accounting Officer) /s/ JOHN C. SHAW Director September 19, 1997 - ------------------------------- John C. Shaw /s/ MAURICE W. SLAYTON President and Director September 19, 1997 - ------------------------------- Maurice W. Slayton
II-4 114 CONNING CORPORATION EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION 1.1 Form of Underwriting Agreement among Conning Corporation (the "Company") and Donaldson, Lufkin & Jenrette Securities Corporation and A.G. Edwards & Sons, Inc., as Representatives of the Several Underwriters 2.1 Contribution Agreement dated July 24, 1995 by and among the Company (formerly Conning Asset Management Company), General American Life Insurance Company ("General American"), General American Holding Company, Conning Asset Management Company (formerly General American Investment Management Company) ("CAM"), Conning & Company, Conning, Inc. (formerly Conning Corporation) and the Shareholders and Option Holders of the Company 3.1 Restated Articles of Incorporation of the Company 3.2 Form of Amendment to Restated Articles of Incorporation of the Company (to be filed subsequent to completion of this offering) 3.3 Bylaws of the Company 4.1 See Exhibits 3.1 and 3.2 4.2 See Exhibit 3.3 5.1 Opinion of Legal Counsel 10.1 Investment Advisory Agreement dated as of May 1, 1995 between General American and CAM relating to General American's general account 10.2 Investment Advisory Agreement dated as of July 2, 1990 between General American and CAM relating to General American's separate accounts 10.3 Investment Advisory Agreement dated as of July 23, 1997 between General American Capital Company and CAM 10.4 Lease Agreement dated July 31, 1996 between General American and CAM 10.5 Sublease dated July 19, 1995 between General American and CAM 10.6 Administrative Services Agreement effective as of July 19, 1995 between CAM and General American 10.7 Tax Sharing Agreement effective as of August 11, 1995 between the Company, CAM and General American 10.8 Amended and Restated Shareholders' Agreement effective as of November 22, 1996 among the Company, General American, General American Holding Company, and the Shareholders and Option Holders of the Company 10.9 Registration Rights Agreement dated as of September --, 1997 among the Company and certain of its Shareholders 10.10 Tax Allocation and Tax Sharing Agreement effective as of June 12, 1997 between the Company, Conning, Inc., Conning & Company, CAM and General American 10.11 Form of Employment Agreement dated August 11, 1995 between the Company (formerly Conning Asset Management Company), Conning & Company and Employee, including Messrs. Hansen and Schpero 10.12 Employment Agreement dated August 11, 1995 between the Company and Leonard M. Rubenstein 10.13 Employment Agreement dated August 11, 1995 between the Company (formerly Conning Asset Management Company), Conning & Company and Maurice W. Slayton II-5 115 EXHIBIT INDEX (CONTINUED) EXHIBIT NUMBER DESCRIPTION 10.14 Software License Agreement effective as of January 27, 1996 among CAM, General American and SS&C Technologies, Inc. (formerly Securities, Software & Consulting Inc.) 10.15 1995 Flexible Stock Plan 10.16 1996 Flexible Stock Plan 10.17 1997 Flexible Stock Plan 10.18 Form of Incentive Stock Option Award and Terms and Conditions under 1995 Flexible Stock Plan 10.19 Form of Incentive Stock Option Award and Terms and Conditions under 1996 Flexible Stock Plan 10.20 Form of Non-Qualified Stock Option Award and Terms and Conditions under 1997 Flexible Stock Plan 10.21 Office Lease dated August 22, 1989 among Hartford CityPlace L.L.C., the Company and Conning & Company, as amended as of June 30, 1997 10.22 Venture Capital Carried Interest Allocation Plan 10.23 Limited Partnership Agreement of Conning Investment Partners Limited Partnership III 10.24 Membership Agreement of Conning Connecticut Investors, LLC 10.25 Registration Rights Agreement dated as of June 12, 1997 among the Company, General American and General American Holding Company 21.1 Subsidiaries of the Company 23.1 Consent of KPMG Peat Marwick LLP 23.2 Consent of Price Waterhouse LLP 23.3 Consent of Legal Counsel (included in Exhibit 5.1) 24.1 Power of Attorney (included on Signature Page) 27.1 Financial Data Schedule 27.2 Financial Data Schedule - -------- To be filed by amendment Schedules omitted pursuant to Regulation S-K, Item 601(b)(2) of the Commission. The registrant hereby undertakes to furnish such schedules to the Commission supplementally upon request. Incorporated by reference from Exhibit No. 10.15 to the Registration Statement on Form S-1 (No. 333-3094) filed by SS&C Technologies, Inc. Confidential treatment will be requested with respect to certain portions of this exhibit. Omitted portions will be filed separately with the Commission.
II-6 116 APPENDIX Pages 20 and 24 contain bar graphs. The information contained in the graphs are presented in a tabular format that may be processed by the EDGAR system. EX-2.1 2 CONTRIBUTION AGREEMENT 1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CONTRIBUTION AGREEMENT by and among CONNING ASSET MANAGEMENT COMPANY, GENERAL AMERICAN LIFE INSURANCE COMPANY, GENERAL AMERICAN HOLDING COMPANY, GENERAL AMERICAN INVESTMENT MANAGEMENT COMPANY, CONNING & COMPANY, CONNING CORPORATION and THE SHAREHOLDERS AND OPTION HOLDERS OF CONNING CORPORATION Dated July 24, 1995 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2 TABLE OF CONTENTS -----------------
Page ---- RECITALS ARTICLE I CONTRIBUTIONS TO CAM; CLOSING............................................. 1 1.1 Contributions of the Parties...................................... 1 1.2 Option Holder Exchange............................................ 2 1.3 General American Loans............................................ 3 1.4 The Closing....................................................... 3 1.5 Deliveries of GAHC at the Closing................................. 3 1.6 Deliveries of the Shareholders at the Closing..................... 3 1.7 Deliveries of the Option Holders at Closing....................... 4 1.8 Deliveries of CAM at the Closing.................................. 4 1.9 Legended Certificates............................................. 5 1.10 Escrow............................................................ 6 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE EQUITY HOLDERS, CONNING CORP. AND CONNING........................ 6 2.1 Enforceable Agreement; Existence and Qualification................ 7 2.2 Capitalization and Related Matters................................ 8 2.3 Subsidiaries...................................................... 9 2.4 Property.......................................................... 9 2.5 Financial Statements.............................................. 9 2.6 Books and Records................................................. 10 2.7 No Undisclosed Liabilities........................................ 10 2.8 Taxes............................................................. 10 2.9 Accounts Receivable............................................... 13 2.10 Regulatory Matters; Permits and Licenses.......................... 14 2.11 Real Property..................................................... 14 2.12 Assets............................................................ 15 2.13 Absence of Certain Changes........................................ 15 2.14 No Breach of Law or Governing Document............................ 16 2.15 Litigation........................................................ 17 2.16 Environmental Matters............................................. 17 2.17 Contracts......................................................... 18 2.18 Intellectual Property............................................. 18 2.19 Insurance......................................................... 19 2.20 Officers, Directors, Employees, and Consultants................... 20 2.21 Bank Accounts of Conning Corp. ................................... 20 2.22 Transactions with Related Persons................................. 20 2.23 Labor Matters..................................................... 20 2.24 Employee Benefit Matters.......................................... 21 2.25 Discrimination and Occupational Safety and Health................. 23 2.26 Alien Employment Eligibility...................................... 23 2.27 Governmental Approvals and Filings................................ 23 2.28 Brokers, Finders.................................................. 23 i 3 2.29 Outside Financial Interests....................................... 24 2.30 Guarantees........................................................ 24 2,31 Foreign Operations and Export Control............................. 24 2.32 Disclosure........................................................ 25 2.33 Qualified Investors............................................... 25 2.34 Purchase for Investment........................................... 25 ARTICLE III REPRESENTATIONS AND WARRANTIES OF GENERAL AMERICAN, GAHC, GAIMCO AND CAM.................................. 26 3.1 Enforceable Agreement; Existence and Qualification................ 26 3.2 Capitalization and Related Matters................................ 27 3.3 The CAM Preferred Stock and CAM Options........................... 28 3.4 Subsidiaries...................................................... 28 3.5 Property.......................................................... 28 3.6 Financial Statements.............................................. 29 3.7 Books and Records................................................. 29 3.8 No Undisclosed Liabilities........................................ 29 3.9 Taxes............................................................. 29 3.10 Accounts Receivable............................................... 32 3.11 Regulatory Matters; Permits and Licenses.......................... 32 3.12 Real Property..................................................... 33 3.13 Assets............................................................ 33 3.14 Absence of Certain Changes........................................ 34 3.15 No Breach of Law or Governing Document............................ 35 3.16 Litigation........................................................ 35 3.17 Environmental Matters............................................. 35 3.18 Contracts......................................................... 36 3.19 Intellectual Property............................................. 36 3.20 Insurance......................................................... 37 3.21 Officers, Directors, Employees, and Consultants................... 38 3.22 Bank Accounts of GAIMCO and CAM................................... 38 3.23 Transactions with Related Persons................................. 38 3.24 Labor Matters..................................................... 38 3.25 Employee Benefit Matters.......................................... 39 3.26 Discrimination and Occupational Safety and Health................. 41 3.27 Alien Employment Eligibility...................................... 41 3.28 Governmental Approvals and Filings................................ 41 3.29 Brokers, Finders.................................................. 41 3.30 Outside Financial Interests....................................... 42 3.31 Guarantees........................................................ 42 3.32 Foreign Operations and Export Control............................. 42 3.33 Disclosure........................................................ 43 ARTICLE IV ADDITIONAL COVENANTS OF THE PARTIES....................................... 43 4.1 Conduct of Business............................................... 43 4.2 Access to Records................................................. 44 4.3 Preservation of Business.......................................... 44 4.4 Insurance and Maintenance of Property............................. 45 4.5 Books, Records and Financial Statements........................... 45 ii 4 4.6 Other Governmental Filings........................................ 45 4.7 Notification of Certain Matters................................... 45 4.8 No Solicitation................................................... 45 4.9 Offering Memorandum............................................... 46 4.10 Approval of Parachute Payments.................................... 47 4.11 Notice to Customers............................................... 47 4.12 Filing of Certificate of Designation.............................. 47 ARTICLE V CONDITIONS TO THE OBLIGATIONS GENERAL AMERICAN, GAHC, GAIMCO AND CAM.................................. 47 5.1 Representations and Warranties.................................... 47 5.2 Performance of Agreement.......................................... 47 5.3 Certificate....................................................... 47 5.4 Approvals......................................................... 48 5.5 No Adverse Proceeding............................................. 48 5.6 Opinions of Counsel............................................... 48 5.7 Employment Agreements............................................. 48 5.8 Adverse Change.................................................... 48 5.9 Shareholders' Agreement........................................... 48 5.10 Investor Questionnaires........................................... 48 5.11 Approval of Parachute Payments.................................... 48 5.12 Redemption of Preferred Stock..................................... 48 ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE EQUITY HOLDERS, CONNING CORP. AND CONNING............................... 49 6.1 Representations and Warranties.................................... 49 6.2 Performance of Agreement.......................................... 49 6.3 Certificate....................................................... 49 6.4 Approvals......................................................... 49 6.5 No Adverse Proceeding............................................. 49 6.6 Adverse Change.................................................... 49 6.7 Opinions of Counsel............................................... 50 6.8 Investor Questionnaire............................................ 50 6.9 Employment Agreements............................................. 50 6.10 Shareholders' Agreement........................................... 50 6.11 Option Agreements................................................. 50 ARTICLE VII INDEMNIFICATION........................................................... 50 7.1 Survival of Representations and Warranties........................ 50 7.2 Indemnification of General American, GAHC, GAIMCO and CAM......... 51 7.3 Indemnification of Equity Holders................................. 52 7.4 Limitations on Indemnity.......................................... 53 7.5 Notice of Claim................................................... 54 7.6 Right to Contest Claims of Third Persons.......................... 55 7.7 Return or Cancellation of Legended Shares; Escrow Withdrawals..... 56 7.8 Exclusive Remedy.................................................. 57 iii 5 ARTICLE VIII MISCELLANEOUS PROVISIONS.................................................. 57 8.1 Notice............................................................ 57 8.2 Appointment of Representative..................................... 59 8.3 Termination of Shareholder Agreement.............................. 60 8.4 Entire Agreement.................................................. 60 8.5 Assignment; Binding Agreement..................................... 60 8.6 Counterparts...................................................... 61 8.7 Headings; Interpretation.......................................... 61 8.8 Expenses.......................................................... 61 8.9 Termination of the Agreement...................................... 61 8.10 Governing Law..................................................... 61 8.11 Confidentiality................................................... 62 8.12 Further Assurances................................................ 62 TABLE OF DEFINITIONS TABLE OF EXHIBITS
iv 6 CONTRIBUTION AGREEMENT ---------------------- THIS CONTRIBUTION AGREEMENT (the "Agreement") is made and entered into as of July 24, 1995, by and among Conning Asset Management Company, a Missouri corporation ("CAM"), General American Life Insurance Company, a Missouri mutual life insurance company ("General American"), General American Holding Company, a Missouri corporation ("GAHC"), General American Investment Management Company, a Missouri corporation ("GAIMCO"), Conning & Company, a Connecticut corporation ("Conning"), Conning Corporation, a Delaware corporation ("Conning Corp."), and the shareholders (the "Shareholders") and option holders (the "Option Holders") of Conning Corp. RECITALS -------- A. General American is the owner of all of the issued and outstanding capital stock of GAHC, which in turn is the owner of all the issued and outstanding capital stock of GAIMCO. A. GAHC has incorporated CAM for purposes of the transactions contemplated hereby. B. The Shareholders are the owners of all of the issued and outstanding capital stock of Conning Corp., which in turn is the owner of all of the issued and outstanding capital stock of Conning. C. GAHC and the Shareholders desire to make contributions to CAM in exchange for equity interests therein and/or cash on the terms and conditions set forth herein. D. Following the closing of the transactions effected pursuant to this Agreement, the Option Holders desire to cancel their options to purchase voting common stock, par value $.01 per share (the "Conning Common Stock"), of Conning Corp. (the "Conning Options") for equity interests in CAM and cash. NOW, THEREFORE, in consideration of the recitals and the mutual covenants, representations, warranties, conditions and agreements hereinafter expressed, the parties agree as follows: ARTICLE I CONTRIBUTIONS TO CAM; CLOSING ----------------------------- 1.1 Contributions of the Parties. At the Closing (as ---------------------------- hereinafter defined), subject to the terms and conditions set forth herein, GAHC and the Shareholders shall make the following contributions to and receive the following consideration from CAM: (a) GAHC shall contribute all of the issued and outstanding common stock, no par value per share (the "GAIMCO 7 Common Stock"), of GAIMCO in exchange for 6,710,000 shares of the voting common stock of CAM, par value $.01 per share (the "CAM Common Stock"), which will constitute all of the issued and outstanding CAM Common Stock. (b) Each Shareholder (excluding the Specified Shareholders (as hereinafter defined) shall contribute all of the Conning Common Stock and all of the non-voting common stock of Conning Corp., par value $.01 per share (the "Conning Non-Voting Common Stock"), owned by such Shareholder in exchange for the portion set forth on such Shareholder's signature page hereof under the headings "Cash Received for Stock" and "CAM Preferred Stock Received for Stock" of the following aggregate consideration: (i) $3,039,829 in cash and (ii) 2,152,509 shares of the Series A Convertible Preferred Stock, par value $.01 per share (the "CAM Preferred Stock"), of CAM. The terms of the CAM Preferred Stock are set forth in the Certificate of Designation attached hereto as Exhibit A (the "Certificate of Designation"). --------- (c) Joseph Sargent, George Kelly, David Clark, Pennsylvania Life Insurance Company, a Pennsylvania corporation, and Occidental Life Insurance Company of North Carolina, a North Carolina corporation (the "Specified Shareholders"), shall each contribute all of the Conning Common Stock and all of the Conning Non-Voting Common Stock owned by such Specified Shareholder in exchange for $222.3918 in cash and no shares of CAM Preferred Stock per share of Conning Common Stock or Conning Non-Voting Common Stock contributed by each such Specified Shareholder. 1.2 Option Holder Exchange. ---------------------- (a) At the Closing, immediately following the contributions of GAHC and the Shareholders described above and after CAM has acquired control of Conning Corp., each Option Holder (excluding the Specified Shareholders) shall cancel all of the Conning Options held by such Option Holder in exchange for the portion set forth on such Option Holder's signature page hereof under the headings "Cash Received for Options" and "CAM Preferred Stock Received for Options" of the following aggregate consideration: (i) $1,465,173 in cash and (ii) 1,037,491 shares of CAM Preferred Stock. (b) At the Closing, immediately following the contributions of GAHC and the Shareholders described above and after CAM has acquired control of Conning Corp., each Specified Shareholder shall cancel all of the Conning Options held by such Specified Shareholder in exchange for $222.3918 in cash per share of Conning Common Stock covered by a canceled Conning Option held by each such Specified Shareholder, less the exercise price for such share under such Conning Option. 2 8 1.3 General American Loans. At the Closing, in order to fund ---------------------- the payment of cash to the Shareholders and the Option Holders as described above in Sections 1.1 and 1.2 and to fund certain capital needs of Conning Corp., General American will lend CAM up to $13,000,000 and will lend Conning Corp. $2,500,000. Such loans shall be evidenced by promissory notes in the forms attached hereto as Exhibit B (the "CAM Note" and the "Conning --------- Corp. Note," respectively). At the Closing, General American shall deliver to CAM $13,000,000 and to Conning Corp. $2,500,000 by wire transfer of immediately available funds, and, in consideration thereof, CAM and Conning Corp. shall deliver to General American the CAM Note and the Conning Corp. Note, duly executed by CAM and Conning Corp., respectively. 1.4 The Closing. The consummation of the transactions ----------- contemplated hereby (the "Closing") shall take place at the offices of Bryan Cave LLP, One Metropolitan Square, 211 North Broadway, Suite 3600, St. Louis, Missouri at 10:00 a.m. on August 15, 1995 (the "Closing Date"). 1.5 Deliveries of GAHC at the Closing. Subject to the --------------------------------- conditions to GAHC's obligations set forth in Article V hereof, at the Closing, GAHC shall deliver: (a) to CAM, certificates evidencing all of the issued and outstanding GAIMCO Common Stock, free and clear of all security interests, claims and restrictions, duly endorsed to CAM; and (b) to CAM and each of the Shareholders and Option Holders (collectively, the "Equity Holders"), excluding the Specified Shareholders, the Shareholders's Agreement in the form attached hereto as Exhibit C (the "Shareholders' Agreement"), duly executed by GAHC. - --------- 1.6 Deliveries of the Shareholders at the Closing. Subject to --------------------------------------------- the conditions to the Equity Holders' obligations set forth in Article VI hereof, at the Closing, each Shareholder shall deliver: (a) to CAM, certificates evidencing the shares of Conning Common Stock owned by such Shareholder, free and clear of all security interests, claims and restrictions, duly endorsed to CAM; (b) to CAM, GAHC and each of the other Equity Holders (excluding the Specified Shareholders), the Shareholders' Agreement, duly executed by such Shareholder (excluding the Specified Shareholders); and 3 9 (c) to CAM and the Escrow Agent (as hereinafter defined), the Escrow Agreement (as hereinafter defined), duly executed by each Specified Shareholder (excluding Pennsylvania Life Insurance Company, a Pennsylvania corporation, and Occidental Life Insurance Company of North Carolina, a North Carolina corporation (collectively, "Penn. Corp.")). 1.7 Deliveries of the Option Holders at Closing. Subject to ------------------------------------------- the conditions to the Equity Holders' obligations set forth in Article VI hereof, at the Closing, each Option Holder shall deliver: (a) to Conning Corp., an Option Cancellation Agreement in the form of Exhibit D (the "Option Cancellation Agreements"), duly executed --------- by such Option Holder; and (b) to CAM, GAHC and each of the other Equity Holders (excluding the Specified Shareholders), the Shareholders' Agreement, duly executed by such Option Holder (excluding the Specified Shareholders that hold Conning Options). 1.8 Deliveries of CAM at the Closing. Subject to the -------------------------------- conditions to CAM's obligations set forth in Article V hereof, at the Closing, CAM shall deliver: (a) to GAHC, a certificate evidencing 6,710,000 shares of CAM Common Stock, free and clear of all security interests, claims and restrictions; (b) to each Shareholder by CAM check or wire transfer, the amount of cash set forth opposite such Shareholder's name under the heading "Closing Cash" on each such respective Equity Holder's signature page hereof; (c) upon CAM's acquisition of control of Conning Corp., to each Option Holder by CAM check, the amount of cash set forth opposite such Option Holder's name under the heading "Closing Cash" on each such respective Equity Holder's signature page hereof; (d) to each Shareholder (excluding the Specified Shareholders), a certificate evidencing the number of shares of CAM Preferred Stock set forth opposite such Shareholder's name under the heading "Total Shares" on each such respective Equity Holder's signature page hereof, free and clear of all security interests, claims and restrictions other than those contemplated hereby; (e) upon CAM's acquisition of control of Conning Corp., to each Option Holder (excluding the Specified Shareholders), a certificate evidencing the number of shares of 4 10 CAM Preferred Stock set forth opposite such Option Holder's name under the heading "Total Shares" on each such respective Equity Holder's signature page hereof, free and clear of all security interests, claims and restrictions other than those contemplated hereby; (f) to each Option Holder, an Option Cancellation Agreement, duly executed by Conning Corp.; (g) to GAHC and each of the Equity Holders (excluding the Specified Shareholders), the Shareholders' Agreement, duly executed by CAM; (h) to each of the optionees listed on Exhibit E (the --------- "CAM Optionees"), an Option Agreement in the form of Exhibit F (the "Option --------- Agreements") granting each such CAM Optionee the option to purchase, at a per share exercise price of $5.33 (subject to adjustment as provided in such Option Agreements), the number of shares of the non-voting common stock, par value $.01 per share (the "CAM Non-Voting Common Stock"), set forth on each such respective Option Holder's signature page hereof under the heading "Option Shares," duly executed by CAM; (i) to each of the key employees listed on Exhibit G --------- (the "Key Employees"), an Employment Agreement in the form of Exhibit H (the "Employment Agreements"), duly executed by CAM; --------- (j) to GAHC, the CAM Note, duly executed by CAM; and (k) to each of the Specified Shareholders (excluding Penn. Corp.) and the Escrow Agent, the Escrow Agreement duly executed by CAM. 1.9 Legended Certificates. Certificates evidencing in the --------------------- aggregate 375,294 of the aggregate shares of CAM Preferred Stock issuable to the Option Holders and certificates evidencing in the aggregate 702,813 of the aggregate shares of CAM Preferred Stock issuable to the Shareholders and Option Holders will be legended with the legend set forth on Exhibit I (the --------- "Legend"). The number of shares of CAM Preferred Stock issuable to each Option Holder and Shareholder to which the Legend shall apply is set forth on each such Equity Holder's signature page hereof under the headings "Prorata Share of Section 7.2(a) Indemnity" and "Prorata Share of Section 7.2(b) Indemnity." Upon tender of such legended certificates to CAM at the following times, such certificates shall be exchanged for certificates not bearing the Legend: (a) in the case of the Option Holders, with respect to shares received in exchange for Conning Options, 375,294 legended shares in the aggregate will be delegended on or after the third 5 11 anniversary of the Closing or, if earlier, the date on which the 1995 Conning tax year is closed, and (b) in the case of the Option Holders and the Shareholders, 702,813 legended shares in the aggregate issued to the Option Holders and all legended shares issued to Shareholders will be delegended on the later to occur of (i) the end of the eighteenth month after the Closing, or (ii) the final, non-appealable resolution by agreement or by a court of competent jurisdiction of the Pending Litigation (as hereinafter defined). The certificates evidencing the CAM Preferred Stock shall also bear such legends as are prescribed by Section 2.34, the Shareholders' Agreement, and as are otherwise customary under the circumstances or required by law. 1.10 Escrow. In connection with the Closing, the Specified ------ Shareholders (excluding Penn. Corp.), CAM and Boatmen's Trust Company, as escrow agent (the "Escrow Agent"), shall enter into an Escrow Agreement in the form of Exhibit J (the "Escrow Agreement") pursuant to which each of the --------- Specified Shareholders (excluding Penn. Corp.) shall deposit 16.739% of the cash consideration to be received by such Specified Shareholder hereunder ($348,131 in the aggregate) (the "Escrow Funds") to be held by the Escrow Agent pursuant to the terms of the Escrow Agreement. Subject to the terms of the Escrow Agreement and this Agreement, the Escrow Funds shall be available to satisfy any claims a CAM Indemnified Person (as hereinafter defined) may have for indemnification from such Specified Shareholders pursuant to Article VII of this Agreement. Upon termination of the Escrow Agreement, the Escrow Agent shall distribute any remaining balance of the Escrow Funds as provided in the Escrow Agreement. As an alternative to the Escrow Agreement, any of the Specified Shareholders (excluding Penn. Corp.) may at the Closing deliver an irrevocable letter of credit to secure his obligations hereunder, provided that the terms and form of such letter of credit and any related documentation is satisfactory to GAHC. ARTICLE II REPRESENTATIONS AND WARRANTIES ------------------------------ OF THE EQUITY HOLDERS, CONNING CORP. AND CONNING ------------------------------------------------ The Equity Holders, Conning Corp. and Conning hereby severally and not jointly make the following representations and warranties to General American, GAHC, GAIMCO and CAM, each of which is true and correct on the date hereof and will be true and correct on the Closing Date and each of which shall survive the Closing as specified in Section 7.1 hereof. Unless otherwise specifically provided herein, each reference to Conning Corp. or Conning in this Agreement shall be deemed a reference to such entity and to each of Conning Corp., Conning & Company and Conning International, Inc., such that each representation, warranty or covenant with respect to Conning Corp. or Conning, 6 12 whether contained in this Article II or elsewhere in this Agreement, shall also be a representation, warranty, or covenant with respect to each of Conning Corp., Conning & Company and Conning International, Inc. Notwithstanding the foregoing, Penn. Corp. shall only make the representations and warranties set forth in Section 2.1(a) and the last sentence of Section 2.2(a) and only as to itself and shall have no liability for any other representation or warranty in this Article II. 2.1 Enforceable Agreement; Existence and Qualification. -------------------------------------------------- (a) The Equity Holders have the power, authority and capacity to execute and deliver this Agreement, to perform their obligations hereunder, and to consummate the transactions contemplated hereby. This Agreement constitutes the valid and binding obligation of the Equity Holders, enforceable against each of them in accordance with its terms. (b) Conning Corp. (excluding Conning and Conning International, Inc.) and Conning (excluding Conning Corp. and Conning International, Inc.) each have full power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by Conning Corp. (excluding Conning and Conning International, Inc.) and Conning (excluding Conning Corp. and Conning International, Inc.) have been duly authorized by all requisite corporate action. This Agreement constitutes the valid and binding obligation of Conning Corp. (excluding Conning and Conning International, Inc.) and Conning (excluding Conning Corp. and Conning International, Inc.), enforceable in accordance with its terms. (c) Conning Corp. (excluding Conning and Conning International, Inc.) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and each of Conning and Conning International, Inc. is a corporation duly organized, validly existing and in good standing under the laws of its state, country or other jurisdiction of incorporation, as listed on Schedule 2.3. Conning ------------ Corp. has all requisite corporate power and authority to own, lease, and use its assets and properties and to conduct the business in which it is engaged. Conning Corp. is duly licensed or qualified to do business as a foreign corporation and is in good standing in the state(s), countries or other jurisdictions listed on Schedule 2.1(c) (or Schedule 2.3 with respect --------------- ------------ to the entities listed on such Schedule) and is not required to be registered, licensed or qualified to do business in any other jurisdiction in which the failure to so qualify would result in losses to Conning Corp. in excess of $25,000. Conning Corp. has delivered to General American true, complete and correct copies 7 13 of the constituent documents, as currently in effect, of Conning Corp. (d) Except as set forth on Schedule 2.1(d), Conning Corp. is not a party to, subject to or bound by any note, bond, mortgage, indenture, deed of trust, agreement, lien, contract or other instrument or obligation or any statute, law, rule, regulation, judgment, order, writ, injunction, or decree of any court, administrative or regulatory body, governmental agency, arbitrator, mediator or similar body, franchise or license, which is material to its business and which would (i) conflict with or be breached or violated or the obligations thereunder accelerated or increased (whether or not with notice or lapse of time or both) by the execution, delivery or performance by Conning Corp. of this Agreement or (ii) prevent the carrying out of the transactions contemplated hereby. Except as set forth on Schedule 2.1(d) and except for compliance with the --------------- provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R Act"), none of Conning Corp. or the Equity Holders is required to obtain any waiver or consent of any third person or governmental authority for the execution of this Agreement or the consummation of the transactions contemplated hereby. The execution of this Agreement and the consummation of the transactions contemplated hereby will not result in the creation of any material lien, claim, encumbrance, security interest, charge, pledge, or other material restriction or material adverse claim of whatever nature against Conning Corp. or any of its properties or assets. 2.2 Capitalization and Related Matters. ---------------------------------- (a) Capital Stock. The entire authorized capital ------------- stock of Conning Corp. (excluding Conning and Conning International, Inc.) consists solely of (i) 1,000,000 shares of Conning Common Stock, of which 60,571 shares are issued and outstanding, (ii) 100,000 shares of Conning Non-Voting Common Stock, of which 24,350 shares are issued and outstanding, and (iii) 1,000,000 shares of Conning Preferred Stock, of which no shares are issued and outstanding (after giving effect to the redemption of all Conning Preferred Stock held by the Specified Shareholders). No other capital stock of Conning Corp. (excluding Conning and Conning International, Inc.) is authorized or issued. Schedule 2.2(a) sets forth the names, --------------- addresses and holdings of the record holders of all of the capital stock of Conning Corp. (excluding Conning and Conning International, Inc.). Except as set forth on Schedule 2.2(a), all of the issued and outstanding shares of --------------- the capital stock of Conning Corp. are duly authorized, validly issued, fully paid, non-assessable and free of preemptive rights, without restriction on the transfer thereof other than pursuant to applicable federal and state securities laws, and all of such shares have been so issued in 8 14 full compliance with all applicable federal and state securities laws. Except as set forth on Schedule 2.2(a), the Shareholders own the Conning --------------- Common Stock free and clear of any lien, claim, encumbrance, security interest, charge, pledge, or other material restriction or material adverse claim of whatever nature (collectively, "Liens"). (b) Options and Other Securities. Schedule 2.2(b) sets ---------------------------- --------------- forth the names and addresses of all holders of Conning Options. Prior to Closing, Conning Corp. will have delivered to General American true, complete and correct copies of all agreements and plans relating to the Conning Options. Except as set forth on Schedule 2.2(b), there are no --------------- outstanding subscriptions, rights, options, warrants, conversion privileges or agreements of any kind entitling any person or entity to acquire from Conning Corp. any shares of the capital stock of Conning Corp. or any other type of security of Conning Corp. All of the Conning Options have been issued in full compliance with all applicable federal and state securities laws. 2.3 Subsidiaries. Except as listed on Schedule 2.3, Conning ------------ ------------ Corp. does not own or have the right to acquire 10% or more of the voting securities or other equity interest in, or directly or indirectly control, any other corporation, partnership, joint venture or other entity (excluding all securities and equity interests held by any of Conning Insurance Capital Limited Partnership, Conning Insurance Capital International Partners, Conning Insurance Capital Limited Partnership II, Conning Insurance Capital International Partners II, Conning Insurance Capital Limited Partnership III and Conning Insurance Capital International Partners III (collectively, the "Conning Funds")). Conning Corp. owns all right, title and interest in and to all capital stock or other equity interests described on Schedule 2.3 and ------------ all rights with respect thereto. The capitalization and the state, country or other jurisdiction of incorporation of each entity listed on Schedule 2.3 is accurately described and identified on Schedule 2.3. ------------ ------------ 2.4 Property. Except as set forth on Schedule 2.4, Conning -------- ------------ Corp. is the sole owner of all right, title, and interest in and to all material assets reflected on the Conning Balance Sheet (defined below) and owns or has the valid right to lease all property, real and personal, tangible and intangible, used by it in, or necessary for it to transact, the business in which it is engaged, and there exists no material restriction on the use or transfer of such assets or property. The assets owned or leased by Conning Corp. constitute all of the property and property rights used or necessary for the conduct of the business of Conning Corp. in the manner and to the extent presently conducted by Conning Corp. No such assets or property are in the 9 15 possession of others and Conning Corp. holds no property on consignment. 2.5 Financial Statements. -------------------- (a) Set forth on Schedule 2.5 are (i) the audited ------------ consolidated balance sheets of Conning Corp. as of December 31, 1992, 1993, and 1994, and the related statements of earnings, shareholders' equity and changes in financial position or cash flow for the fiscal years then ended, and all notes and schedules thereto, and (ii) the unaudited consolidated balance sheet of Conning Corp. as of June 30, 1995 (the "Conning Balance Sheet") and the related statements of earnings and changes in financial position for the period then ended, together with any notes or schedules thereto ((i) and (ii) together, the "Conning Financial Statements"). (b) The Conning Financial Statements (i) are true, complete, and correct, (ii) present fairly the financial position, results of operations, and cash flows of Conning Corp. at the dates and for the periods indicated, and (iii) have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis (except that unaudited financial statements do not contain footnotes and are subject to year-end audit adjustments, which will not be material in the aggregate). 2.6 Books and Records. The books of account, corporate record ----------------- books, minute books, bank accounts, and other records of Conning Corp. are true, correct, and complete in all material respects, have been maintained in accordance with good business practices, and the matters contained therein are accurately reflected in the Conning Financial Statements to the extent appropriate. 2.7 No Undisclosed Liabilities. Conning Corp. does not have -------------------------- any liabilities or obligations whatsoever, known or unknown, accrued, absolute, contingent, or other, except (a) as set forth on the Conning Balance Sheet or Schedule 2.7, or (b) those incurred in the ordinary course ------------ of the business of Conning Corp., consistent with past practice, since the date of the Conning Balance Sheet, none of which will, or could, have an adverse effect upon the business or condition (financial or otherwise) or operations of Conning Corp. 2.8 Taxes. ----- (a) Conning Corp. and each of its Tax Affiliates (as hereinafter defined) has timely filed or caused to be filed with the appropriate Government (as hereinafter defined) entity all Tax Returns (as hereinafter defined) ("Conning Tax Returns"), 10 16 and, except as specified in a letter to General American's counsel dated the date hereof (the "Article II Tax Disclosure Letter"), no Conning Tax Returns for any open tax years have been amended. All Conning Tax Returns are true, correct, and complete. There are no grounds for assertion of any understatement penalty under Section 6661 of the Code (prior to repeal) or Section 6662 of the Internal Revenue Code of 1986, as amended (the "Code"). (b) Except as set forth in the Article II Tax Disclosure Letter, all Taxes (as hereinafter defined) due and payable by Conning Corp. or any of its Tax Affiliates with respect to all periods ending on or prior to the date hereof have been timely and fully paid, and there are no grounds for the assertion or assessment of any additional Taxes against Conning Corp. or any of its Tax Affiliates or their respective assets with respect to such periods. There are no audits of any Returns of Conning Corp. or any of its Tax Affiliates pending or threatened. There is no waiver of any statute of limitations in effect with respect to any Conning Tax Returns. (c) All unpaid Taxes for all periods up to and including the Closing Date are properly accrued on the books of Conning Corp. and its Tax Affiliates. All unpaid Taxes for all periods up to the date of the Conning Balance Sheet are properly accrued on the Conning Financial Statements. The Article II Tax Disclosure Letter lists all Conning Tax Returns for periods up to and including the Closing Date (whether the period ends on such date) which have not been filed on or before the Closing Date. (d) There are no Liens for Taxes upon any assets of Conning Corp. or its Tax Affiliates, except Liens for Taxes not yet due and payable. (e) Except as set forth on the Article II Tax Disclosure Letter, true, correct and complete copies of all Conning income Tax Returns, tax examination reports and statements of deficiencies assessed against, or agreed to with respect to Conning Corp. or any of its Tax Affiliates with respect to the last four (4) years with the Internal Revenue Service or any taxing authority have been delivered to General American. (f) Except as set forth on the Article II Tax Disclosure Letter, neither Conning Corp. nor any of its Tax Affiliates is or ever has been a member of an "affiliated group" within the meaning of Section 1504 of the Code, except for the affiliated group of which Conning Corp. is the common parent. (g) Conning Corp. and each of its Tax Affiliates has complied with all Law (as hereinafter defined) relating to 11 17 the withholding of Taxes and the payment thereof (including, without limitation, withholding of Taxes under Section 1441 and 1442 of the Code, or any similar provision under foreign Law), and has timely and properly withheld from employee wages and paid over to the proper Government all amounts required to be withheld and paid over under applicable Law. (h) Neither Conning Corp. nor any of its Tax Affiliates is a party to any safe harbor lease within the meaning of section 168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982. None of Conning Corp.'s or its Tax Affiliates' property or assets has been financed with or directly or indirectly secures any industrial revenue bonds or debt the interest on which is tax-exempt under Section 103(a) of the Code. Neither Conning Corp. nor any of its Tax Affiliates is a borrower or guarantor of any outstanding industrial revenue bonds, and none of such parties is a tenant, principal user or related person to any principal user (within the meaning of section 144(a) of the Code) of any property which has been financed or improved with the proceeds of any industrial revenue bonds. (i) Conning Corp. is not and has not been a real property holding company within the meaning of Section 897(c) of the Code, and Conning Corp. shall so certify upon General American's request. (j) Conning Corp. is not required to include in income any adjustment under Section 481(a) of the Code by reason of a change in accounting method initiated by Conning Corp. and the Internal Revenue Service has not proposed any such adjustment or change in accounting method. Conning Corp. has no pending private letter ruling request with the Internal Revenue Service. (k) None of the property owned by Conning Corp. or any of its Tax Affiliates is tax-exempt use property within the meaning of section 168(h) of the Code. (l) No consent has been filed relating to Conning Corp. pursuant to section 341(f) of the Code. (m) Except as set forth on the Article II Tax Disclosure Letter, neither Conning Corp. nor any of its Tax Affiliates is a partner in any joint venture, partnership or other arrangement or contract that could be treated as a partnership for federal income tax purposes. (n) Neither Conning Corp. nor any of its Tax Affiliates is a party to or bound by any affiliated group consolidated return tax allocation agreement, tax sharing agreement or tax indemnification agreement. 12 18 (o) Except as set forth on the Article II Tax Disclosure Letter, Conning Corp. is not liable for Taxes to any foreign taxing authority and does not have and has not had a permanent establishment in any foreign country, as defined in any applicable tax treaty or convention between the United States and such foreign country. (p) All material elections with respect to Taxes affecting Conning Corp. or any of its Tax Affiliates as of the date hereof are set forth in the Article II Tax Disclosure Letter. No new elections with respect to Taxes, or any changes in current elections with respect to Taxes of Conning Corp. or any of its Tax Affiliates or affecting any of such parties shall be made after the date of this Agreement without the prior written consent of General American. (q) Except for this Agreement and the transactions contemplated hereby, Conning Corp. and each of its Tax Affiliates are not a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of section 280G of the Code. (r) Conning Corp. and each of its Tax Affiliates have not participated in an international boycott within the meaning of section 999 of the Code. (s) As used in this Agreement, "Taxes" means all taxes, charges, fees, levies, or other like assessments, including without limitation income, gross receipts, ad valorem, value added, premium, excise, real property, personal property, windfall profit, sales, use, transfer, license, withholding, employment, payroll, and franchise taxes imposed by: the United States or any other nation, state, or bilateral or multilateral governmental authority, any local governmental unit or subdivision thereof, or any branch, agency, or judicial body thereof ("Government"); and shall include any interest, fines, penalties, assessments, or additions to tax resulting from, attributable to, or incurred in connection with any such Taxes or any contest or dispute thereof. As used in this Agreement, "Return" means, with respect to Conning Corp., the federal income tax return of Conning Corp., Conning and Conning Corp.'s Tax Affiliates, and, with respect to GAIMCO, the federal income tax return of GAIMCO prepared as if it were an unaffiliated corporation, and, in each case, any state and local income tax return, excise tax return, franchise tax return, information return, or report, and any and all other filings required by any taxing authority, including all amendments thereto with respect to any Tax. As used in this Agreement, "Tax Affiliate" shall mean, with respect to a company, any member of an affiliated 13 19 group as defined in section 1504 of the Code or any member of a combined or unitary group of which such company is or was a member (other than such company). 2.9 Accounts Receivable. Set forth on Schedule 2.9 is a list ------------------- ------------ of all the accounts receivable of Conning Corp. as of June 30, 1995. Such accounts receivable and any accounts receivable arising between such date and the Closing Date (the "Conning Accounts Receivable") arose or will have arisen in the ordinary and usual course of the business of Conning Corp. Except as set forth on Schedule 2.9, the Conning Accounts Receivable are not ------------ and will not be on the Closing Date subject to any counterclaim, set-off, defense, security interest, claim, or other encumbrance. Except to the extent of any reserve therefor on the Conning Balance Sheet or paid in full prior to Closing, the Conning Accounts Receivable are and will be current and collectible and will be paid in full, net of reserves, on or before 90 days after the Closing Date. 2.10 Regulatory Matters; Permits and Licenses. ---------------------------------------- (a) Conning is registered with the Securities and Exchange Commission as a broker-dealer under the Securities Exchange Act of 1934 and as an investment adviser under the Investment Advisers Act of 1940. Conning is licensed as a broker-dealer in securities under the laws relating to the conduct of a securities business in the jurisdictions set forth on Schedule 2.10. Conning is a member in good standing of the National - ------------- Association of Securities Dealers, Inc. ("NASD"), the Securities Investor Protection Corporation ("SIPC") and an associate member of the American Stock Exchange, Inc. ("ASE"). No litigation, proceeding or investigation is pending or, to the knowledge of Conning, threatened, which might result in the termination or the suspension of the registration or licensing of Conning or any of its approved persons, principals or registered representatives, or in any other disciplinary action against it or any of them under any applicable statute, rule or regulation or in the termination or suspension or other disciplinary action affecting Conning's rights as a member of the NASD, SIPC or ASE. (b) Set forth on Schedule 2.10 is a list or description ------------- of each material license or permit required for the conduct of the business of Conning, together with the name of the governmental agency or entity issuing each such license and permit. To the knowledge of Conning Corp., each of such licenses and permits is valid and in full force and effect. Except as noted on Schedule 2.10, none of such licenses and permits will be ------------- rescinded solely as a result of a change in control of Conning. 2.11 Real Property. Conning Corp. does not own any real ------------- property. Schedule 2.11 lists and provides descriptions of ------------- 14 20 all real property leased or subleased to Conning Corp. and all other real property which is used by Conning Corp. and not owned by Conning Corp. (the "Conning Leased Real Property"). Except as otherwise described on Schedule 2.11: (a) there are no leases, subleases, licenses, concessions or - ------------- other agreements, written or oral, granting to any person or entity the right to use or occupy any portion of the Conning Leased Real Property which are not listed on Schedule 2.17; (b) no person or entity (other than Conning ------------- Corp. or Conning) is in possession of any of the Conning Leased Real Property; (c) neither the current use of the Conning Leased Real Property nor the operation of Conning Corp.'s business violates any agreement affecting the Conning Leased Real Property or any applicable legal requirements; and (d) all certificates of occupancy, permits, licenses, approvals and other authorizations required in connection with the past, present and proposed operation of its business on the Conning Leased Real Property have been lawfully issued to Conning Corp. and are, as of the date hereof, and will be following the consummation of the transactions contemplated hereby, in full force and effect. 2.12 Assets. Conning Corp. has good and marketable title to, ------ or a valid leasehold interest in, all material properties and assets used by it, located on its premises or shown on the Conning Balance Sheet or acquired after the date thereof, free and clear of all Liens, except for Liens disclosed on the Conning Balance Sheet or Schedule 2.11 (as to real ------------- property) or Schedule 2.12 (as to all other properties and assets) and ------------- except for properties and assets disposed of for fair consideration in the ordinary course of business since the date of the Conning Balance Sheet. Conning Corp. owns or leases or has the valid and enforceable right to use all material assets, tangible or intangible, necessary for the conduct of its business as presently conducted and as proposed to be conducted, and, upon the Closing, Conning Corp. will continue to have the same rights with respect to such assets. All of the material tangible assets of Conning Corp. are in good operating condition and repair as required for their use as presently conducted or planned by Conning Corp. and conform to all applicable Laws, and no notice of any violation of any Law relating to any of such property or assets has been received by Conning Corp. except such as have been fully complied with. 2.13 Absence of Certain Changes. Since March 31, 1995, except -------------------------- as set forth in the Conning Financial Statements or Schedule 2.13 or as ------------- explicitly provided for under this Agreement, there has not been: (a) Any material adverse change in (i) the business or condition (financial or otherwise) or operations of Conning Corp., or (ii) the condition of the assets and property, 15 21 real and personal, tangible and intangible, of Conning Corp. (the "Conning Property"); (b) Any loss or notice of the expected loss of any of Conning's customers or any material decrease in or change in the terms of such customers' business relationships or dealings with Conning; (c) Any declaration, setting aside, or payment of any dividend or any distribution (in cash or in kind) to any shareholder of Conning Corp. on account of or with respect to any securities of or interests in Conning Corp., or any direct or indirect redemption, purchase, repurchase or other acquisition by Conning Corp. of any securities of or interests in Conning Corp.; (d) Any increase in compensation or other remuneration payable to or for the benefit of or committed to be paid to or for the benefit of any partner, director, officer, agent, or employee of Conning Corp., or in any benefits granted under any Plan (defined below) with or for the benefit of any such partner, director, officer, agent, or employee, except for regularly scheduled raises consistent with past practices in timing and amount; (e) Any transaction entered into or carried out by Conning Corp. other than in the ordinary course of business; (f) Any borrowing or incurrence of any other indebtedness (including letter of credit and foreign exchange obligations), contingent or otherwise, by or on behalf of Conning Corp.; or any endorsement, assumption, or guarantee of payment or performance of any loan or obligation of any other person or entity by Conning Corp.; (g) Any change made by Conning Corp. in its methods of doing business or of accounting; (h) Any grant by Conning Corp. of any mortgage, security interest, or other encumbrance with respect to the Conning Property; (i) Any sale, lease, or disposition of, or any agreement to sell, lease, or dispose of, any of the Conning Property other than arm's-length sales in the ordinary course of business of Conning Corp.; (j) Any modification or termination of any Conning Contract (defined below) or any material term thereof other than in the ordinary course of business; (k) Any purchase by Conning Corp. of capital 16 22 assets with a value individually or in the aggregate in excess of $50,000; (l) Any loan or advance made by Conning Corp. to any person or entity; or (m) Any binding commitment or agreement by a Shareholder or Conning Corp. to do any of the foregoing items (b) through (k). 2.14 No Breach of Law or Governing Document. Conning Corp. is -------------------------------------- not in material default under or in material breach or material violation of any applicable statute, law, ordinance, decree, order, injunction, rule, directive, or regulation of any Government ("Law") or the provisions of any Government permit, franchise, or license, or any provision of its constituent documents. Neither the execution of this Agreement nor the Closing do or will constitute or result in any such default or violation. 2.15 Litigation. Except as set forth on Schedule 2.15, (a) ---------- ------------- there is no suit, claim, litigation, proceeding (administrative, judicial, or in arbitration, mediation or alternative dispute resolution), Government or grand jury investigation, or other action (any of the foregoing, "Action") pending or, to the knowledge of any Shareholder or Conning Corp., threatened against Conning Corp. or involving its business, any of the Conning Property, or, in connection with its business, any of its partners, directors, officers, agents, or other personnel, including, without limitation, any Action challenging, enjoining, or preventing this Agreement or the consummation of the transactions contemplated hereby; and (b) Conning Corp. is not subject to any order, writ, injunction, or decree of any court or other Government entity ("Order") other than Orders of general applicability. There is no Action pending or, to the knowledge of Conning Corp., threatened against Conning Corp. or any of the Shareholders or Option Holders challenging, enjoining, or preventing this Agreement or the consummation of the transactions contemplated hereby. 2.16 Environmental Matters. --------------------- (a) Except as set forth on Schedule 2.16 Conning Corp. ------------- complies, and has at all times complied with, and does not cause, has not caused, and will not cause liability to be incurred by Conning Corp. under, any and all current or prior Law relating to the protection of health or the environment, including, without limitation: the Clean Air Act, the Federal Water Pollution Control Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substance Control Act, 17 23 and the common law, including the law of nuisance and strict liability (collectively, "Environmental Law"). Except as set forth on Schedule 2.16, ------------- Conning Corp. is not in violation of and has not violated any Environmental Law. (b) Except as set forth on Schedule 2.16, Conning Corp. ------------- possesses and is in compliance with all necessary permits, registrations, approvals, and licenses, and has properly made all filings with and submissions to any Government or other authority required by any Environmental Law. No deficiencies have been asserted by any such Government or authority with respect to such items. (c) Except as set forth on Schedule 2.16, there has been ------------- no spill, discharge, leak, leaching, emission, migration, injection, disposal, escape, dumping, or release of any kind on, beneath, above, or into any and all property which Conning Corp. currently or previously owned, leased, occupied or used or into the environment surrounding such property of any pollutants, contaminants, hazardous substances, hazardous chemicals, toxic substances, hazardous wastes, infectious wastes, radioactive materials, petroleum including crude oil or any fraction thereof, asbestos fibers, or solid wastes (collectively, "Hazardous Materials"), including, without limitation, those defined in any Environmental Law. (d) Set forth on Schedule 2.16 is a list of all reports, ------------- surveys and other written materials commissioned or developed by or on behalf of Conning Corp. since 1985 with respect to environmental matters relating to Conning Corp. 2.17 Contracts. --------- (a) Set forth on Schedule 2.17 is a list of each written ------------- or oral contract, agreement, lease, indenture, and evidence of indebtedness (including letter of credit and foreign exchange obligations and purchase orders for either the purchase of materials or the sale of a product) to which Conning Corp. is a party or of which it is a beneficiary which involves an outstanding, contingent, or continuing liability or obligation of or to Conning Corp. (a "Conning Contract") and which (i) is material to the business, financial condition or operations of Conning Corp., (ii) involves (A) a guaranty, indemnity, or power of attorney, (B) a sharing of payments or joint venture, (C) a sales agency, representation, distributorship or franchise arrangement, (D) restrictions on competition or confidentiality agreements, or (E) an obligation in excess of $50,000, (iii) has resulted or will result in a loss to Conning Corp., or (iv) is not in the ordinary course of business of Conning Corp. Conning Corp. does not provide investment advisory services to any registered investment company. 18 24 (b) Except as indicated on Schedule 2.17, neither ------------- Conning Corp. nor, to the knowledge of Conning Corp., any other party to a Conning Contract is in default under or in breach or violation of any Conning Contract, and, to the knowledge of Conning Corp., no event has occurred that, through the passage of time or the giving of notice, or both, would constitute, and neither the execution of this Agreement nor the Closing hereunder do or will constitute or result in, such a default, breach or violation, cause the acceleration of any obligation of any party thereto or the creation of a lien or encumbrance upon any Property or the Conning Common Stock, or require any consent thereunder to the transactions contemplated herein. 2.18 Intellectual Property. --------------------- (a) Schedule 2.18 contains a true, complete and accurate list ------------- of all patents, trademarks, service marks, copyrights, applications for patents and for registration of trademarks, service marks and copyrights and software licenses which are material to the business of Conning Corp. Schedule 2.18 accurately identifies, where appropriate, one or more of the - ------------- following for each item of such intellectual property: filing date, issue date, classification of invention or goods covered, country of origin, licensor, license date and licensed subject matter. Schedule 2.18 contains ------------- a complete and accurate list of all licenses and other rights granted by Conning Corp. to any third party with respect to any item of the Conning Intellectual Property (as hereinafter defined). (b) Conning Corp. represents and warrants as follows: (i) the Conning Intellectual Property is valid and enforceable and encompasses all proprietary rights material to the operation of its business as presently conducted or proposed to be conducted (in each case free and clear of all Liens); (ii) to the knowledge of Conning Corp., it has taken all actions necessary to maintain and protect the Conning Intellectual Property; (iii) there has been no claim made against Conning Corp. asserting the invalidity, misuse or unenforceability of any of the Conning Intellectual Property or challenging Conning Corp.'s right to use or ownership of any of the Conning Intellectual Property; (iv) Conning Corp. is not aware of any infringement or misappropriation of any of the Conning Intellectual Property or of any facts raising a likelihood of infringement or misappropriate; (v) to the knowledge of Conning Corp., the conduct of its business has not infringed or misappropriated, and does not infringe or misappropriate, any intellectual property or proprietary right of any other entity; (vii) no loss of any of the Conning Intellectual Property is known by Conning Corp. to be threatened, pending or reasonably foreseeable; and (viii) the consummation of the transactions contemplated by this Agreement 19 25 will not materially alter, impair or extinguish any of the Conning Intellectual Property. (c) For purposes of this Agreement, "Conning Intellectual Property" shall mean all of the following (in whatever form or medium) which are owned by or licensed to Conning Corp.: (i) patents, trademarks, service marks and copyrights, (ii) applications for patents and for registration of trademarks, service marks and copyrights, (iii) trade secrets and trade names, and (iv) all other items of proprietary know-how or intellectual property. 2.19 Insurance. Conning Corp. has during the past five years --------- maintained: (i) general comprehensive liability insurance against such risks as are customarily insured against by businesses similar to Conning Corp. and in at least such amounts as are usually carried by persons or entities engaged in the same or a similar business, and (ii) insurance as required by law or under any agreement to which Conning Corp. is or has been a party, including, without limitation, unemployment and workers' compensation coverage. A list of each such currently effective insurance policy is set forth on Schedule 2.19. ------------- 2.20 Officers, Directors, Employees, and Consultants. Set ----------------------------------------------- forth on Schedule 2.20 is a list of: (a) all current directors of Conning ------------- Corp., (b) all current officers (with office held) of Conning Corp., (c) all employees (active or other) of Conning Corp., (d) all current paid consultants to Conning Corp., and (e) all retirees and terminated employees of Conning Corp. for which Conning Corp. has any benefits responsibility or other continuing or contingent obligation, together, in each case, with the current rate of compensation (if any) payable to each. Conning Corp. is not indebted to any partner, director, officer, employee or agent of Conning Corp., except for amounts due as (x) normal salaries, wages and bonuses, (y) as disclosed on Schedule 2.20, or (z) in reimbursement of ordinary expenses ------------- on a current basis. 2.21 Bank Accounts of Conning Corp. Set forth on Schedule 2.21 ------------------------------ ------------- hereto is a list of the locations and numbers of all bank accounts and safe deposit boxes maintained by Conning Corp., together with the names of all persons who are authorized signatories or have access thereto. 2.22 Transactions with Related Persons. Except as set forth on --------------------------------- Schedule 2.22, Conning Corp. has no obligations, contractual or otherwise, - ------------- owed to or owing from, directly or indirectly, any officer, director or Equity Holder or any affiliate of any of them or of Conning Corp. 2.23 Labor Matters. Set forth on Schedule 2.23 is each ------------- ------------- 20 26 collective bargaining, works council, union representation or similar agreement or arrangement to which Conning Corp. is or has been a party or by which it is or has been bound. Except as set forth on Schedule 2.23: ------------- (a) Conning Corp. is not and has not engaged in any unfair labor practice; (b) There is no labor strike, dispute, slowdown, or stoppage pending or, to the knowledge of any Shareholder or Conning Corp., threatened against Conning Corp.; (c) No right of representation exists respecting Conning Corp.'s employees; (d) No collective bargaining agreement is currently being negotiated and no organizing effort is currently being made with respect to Conning Corp.'s employees; and (e) No current or former employee of Conning Corp. has any claim against Conning Corp. on account of or for (i) overtime pay, other than overtime pay for the current payroll period, (ii) wages or salary (excluding current bonus, accruals and amounts accruing under pension and profit sharing and other employee benefit plans) for any period other than the current payroll period, (iii) vacation, time off or pay in lieu of vacation or time off, other than that earned in respect of the current fiscal year, or (iv) any violation of any Law relating to minimum wages or maximum hours of work. 2.24 Employee Benefit Matters. ------------------------ (a) Except as set forth on Schedule 2.24, Conning Corp. ------------- does not have outstanding and is not a party to or subject to liability under: (i) any agreement, arrangement, plan or policy, whether or not considered legally binding, that involves (A) any pension, retirement, profit sharing, deferred compensation, bonus, stock option, stock purchase, health, welfare, or incentive plan; or (B) any welfare or "fringe" benefits, including, without limitation, vacation, severance, disability, medical, hospitalization, dental, life and other insurance, tuition, company car, club dues, sick leave, maternity, paternity or family leave, or other benefits; or (ii) any employment, consulting, engagement, or retainer agreement or arrangement whereby Conning Corp. employs, retains or engages any individual or other entity as an employee, consultant or independent contractor to Conning Corp. ((i) and (ii) together, the "Conning Plans," and each item thereunder, a "Conning Plan"). True, correct, and complete copies of all documents creating or evidencing any Conning Plan listed on Schedule 2.24 have been delivered to General American. There are ------------- 21 27 no negotiations, demands or proposals which are pending or threatened or which have been made since December 31, 1992 which concern matters now covered, or that would be covered, by the foregoing types of agreement, arrangement, plan, or policy. (b) Each Conning Plan complies with and has been administered, operated, and maintained in compliance with, and, except as set forth on Schedule 2.24, Conning Corp. has no direct or indirect ------------- liability under, the Code or the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), as the case may be, or any other Law applicable to any Conning Plan, and no Conning Plan is subject to Title IV of ERISA. (c) No "reportable event" (as defined in ERISA) or "prohibited transaction" (as defined in the Code or ERISA) has occurred, and Conning Corp. has no knowledge of a situation which would give rise to a reportable event or prohibited transaction, with respect to any Conning Plan. (d) All contributions for all periods ending prior to the Closing Date which are required to be made prior to the Closing Date (including periods from the first day of the current plan year to the Closing Date) will be made prior to the Closing Date by Conning and all members of the controlled group in accordance with past practice. All insurance premiums due have been paid in full, subject only to normal retrospective adjustments in the ordinary course, with regard to the Conning Plans for policy years or other applicable policy periods ending on or before the Closing Date. Corp. has not made any contribution to any multi-employer plan (as defined in ERISA), Conning Corp. has never been a member of a controlled group which contributed to any such plan, and Conning Corp. has never been under common control with an employer which contributed to any such plans. (e) The statements of assets and liabilities of the Conning Plans as of the end of the fiscal year ending December 31, 1993, and the statements of changes in fund balances, financial position and net assets available for benefits under such Conning Plans for such fiscal year, copies of which have been furnished to General American, fairly present the financial condition of such Conning Plans as of such date and the results of operations thereof for the year ended on such date, all in accordance with GAAP applied on a consistent basis. (f) All of the Conning Plans, to the extent applicable, are in compliance with the continuation of health benefit provisions contained in the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), and with Section 1862(b)(4)(A)(i) of the Social Security Act, and Conning 22 28 Corp. does not have any liability for any excise tax imposed by Code Section 5000. Except as set forth on Schedule 2.24, Conning Corp. has no liability ------------- or obligation to provide life, medical or other welfare benefits to former or retired employees, other than under COBRA. (g) Also set forth on Schedule 2.24 are all employee ------------- benefit plans which Conning Corp. has terminated or taken action to terminate since January 1, 1991. Such terminations have been carried out in accordance with all provisions of Law, including, without limitation, all applicable reporting and other provisions of the Code and ERISA. Except as described on Schedule 2.24 hereto, Conning Corp. has no liability to, and ------------- has not received notice alleging such liability from, any person or entity, including, without limitation, the PBGC, any other Government agency or any participant in or beneficiary of any such plan, nor is Conning Corp. liable for any excise, income or other tax or penalty as a result of or in connection with such termination. Conning Corp. has obtained a favorable determination letter from the Internal Revenue Service with respect to the termination of each of such plans, true, complete and correct copies of which have been delivered to General American. The favorable determination letters were received after full and accurate disclosure by Conning Corp. of all material facts to the appropriate Government agencies. (h) To the extent applicable with respect to each Conning Plan, true, correct and complete copies of the most recent (i) determination letter and any outstanding request for a determination letter; (ii) Form 5500 and attached Schedule B; (iii) Form 5310 and any related filings with the PBGC; (iv) ruling letter and any outstanding request for a ruling letter with respect to the tax-exempt status of any voluntary employees' beneficiary association ("VEBA") which is implementing such Conning Plan; and (v) general notification to employees of their rights under Code Section 4980B and form of letter(s) distributed upon the occurrence of a qualifying event described in Code Section 4980B, in the case of a Conning Plan that is a "group health plan" as defined in Code Section 162(i) have been delivered to General American. 2.25 Discrimination and Occupational Safety and Health. ------------------------------------------------- Except as set forth on Schedule 2.25, no person has any claim or basis for ------------- any Action against Conning Corp. arising out of any Law relating to discrimination in employment or employment practices or occupational safety and health standards. Since December 31, 1992, Conning Corp. has not received any notice from any person alleging a violation of such law or occupational safety or health standards. 23 29 2.26 Alien Employment Eligibility. With respect to each person ---------------------------- employed by Conning Corp. on or after May 1, 1987, and who actually commenced such employment on or after November 6, 1986: (a) Conning Corp. hired such person in compliance with the Immigration Reform and Control Act of 1986 and the rules and regulations thereunder ("IRCA"); and (b) Conning Corp. has complied with all record-keeping and other regulatory requirements under IRCA. 2.27 Governmental Approvals and Filings. Except for compliance ---------------------------------- with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R Act") and except as set forth on Schedule 2.27, none of the ------------- Shareholders or Conning Corp. is required to obtain any approval, consent, or authorization of, or to make any declaration or filing with, any Government for the valid execution and delivery of this Agreement or any other agreement to be delivered hereunder or the performance or consummation of the transactions contemplated hereby or thereby. 2.28 Brokers, Finders. Except as set forth on Schedule 2.28, ---------------- ------------- no finder, broker, agent, or other intermediary acting on behalf of any Equity Holder or Conning Corp. is entitled to a commission, fee, or other compensation or obligation in connection with the negotiation or consummation of this Agreement or any of the transactions contemplated hereby. 2.29 Outside Financial Interests. Except as identified on --------------------------- Schedule 2.29, no director (excluding David Stone, Stephen Fickes, David - ------------- Clark, George Kelly and Joseph D. Sargent), officer, Equity Holder or any affiliate of any of them or of Conning Corp. has any direct or indirect financial interest in any competitor with or supplier or customer of, or any other person or entity that has any transactions or other business relationship with, Conning Corp.; provided, however, that for this purpose ownership of corporate securities having no more than 5% of the outstanding voting power of any competitor, supplier, customer or other person or entity, which securities are listed on any national securities exchange or authorized for quotation on the Automated Quotations System of the National Association of Securities Dealers, Inc., shall not be deemed to be such a financial interest, provided such person has no other connection or relationship with such competitor, supplier, customer or other person or entity. 2.30 Guarantees. Except as set forth on Schedule 2.30, Conning ---------- ------------- Corp. is not a guarantor, indemnitor, surety or accommodation party or otherwise liable for any indebtedness of any other person or entity except as endorser of checks received and deposited in the ordinary course of business. 24 30 2.31 Foreign Operations and Export Control. Conning Corp. has ------------------------------------- at all times acted: (a) pursuant to valid qualifications to do business in all jurisdictions outside the United States where such qualification is required by local law and the failure to do so would have a material adverse effect on the business, operations or condition (financial or otherwise) of Conning Corp.; (b) in material compliance with all applicable foreign laws, including without limitation laws relating to foreign investment, foreign exchange control, immigration, employment and taxation; (c) without notice of material violation of and in material compliance with all relevant anti-boycott legislation, including without limitation the Tax Reform Act of 1976, as amended, the Export Administration Act of 1979, as amended, and regulations thereunder, including all reporting requirements; (d) without material violation of and pursuant to any material, required export licenses granted under the Export Administration Act of 1979, as amended, and regulations thereunder, which licenses are described on Schedule 2.31; and ------------- (e) without violation of the Foreign Corrupt Practices Act of 1977, as amended. 2.32 Disclosure. Each Schedule and each document attached as a ---------- Schedule is true, correct, and complete in all material respects. No representation or warranty by Conning Corp., Conning or the Equity Holders in this Agreement or any Schedule referred to herein or in any agreement to be delivered hereunder contains any untrue statement of a material fact or any omission of a material fact necessary to make the statements contained herein and therein, in light of the circumstances under which the statements were made, not misleading. 2.33 Qualified Investors. The Equity Holders listed on ------------------- Schedule 2.33 are each "accredited investors" within the meaning of Rule 501 - ------------- of Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as amended (the "1933 Act"). The remaining 20 Equity Holders either alone or with their "purchaser representative" (as such term is defined for purposes of Rule 501 of Regulation D), have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the transactions provided for in this Agreement. Conning has delivered to General American true, complete and correct copies of investor questionnaires 25 31 establishing the status of each Equity Holder, and his or her purchaser representative, where applicable, duly executed by each such Equity Holder and purchaser representative, where applicable. Conning Corp. has no reason to believe that CAM should not rely on such investor questionnaires. 2.34 Purchase for Investment. ----------------------- (a) Each Equity Holder is acquiring the shares of CAM Preferred Stock issuable hereunder for his own account and not with a view to, or for sale in connection with, any "distribution," as such term is used in Section 2(11) of the 1933 Act, of any shares of CAM Preferred Stock in violation of the 1933 Act. (b) Each Equity Holder understands that (i) the shares of CAM issued pursuant to this Agreement will be restricted securities within the meaning of Rule 144 of the 1933 Act ("Rule 144"); (ii) such securities are not registered; (iii) such securities must be held indefinitely and that no transfer of such securities may be made by the Equity Holder unless (A) the sale of such securities has been registered under the 1933 Act and any applicable state securities laws, or (B) an exemption from registration is available under applicable state securities laws and the 1933 Act, including in accordance with the terms and conditions of Rule 144; and (iv) in any event, the exemption from registration under Rule 144 will not be available unless such securities have been beneficially owned for at least two years. (c) Each Equity Holder understands that the certificates representing the shares of CAM Preferred Stock issued pursuant to this Agreement shall bear a legend substantially as follows: "The sale, transfer or encumbrance of this certificate is subject to an Agreement between the Corporation and all of its Shareholders. A copy of this Agreement is on file in the office of the Secretary of the Corporation. The Agreement provides, among other things, for certain obligations to sell and to purchase the Shares evidenced by this certificate, for a designated purchase price. By accepting the Shares evidenced by this certificate, the holder agrees to be bound by said Agreement." "The shares represented by this certificate have not been registered under the Securities Act of 1933 or any applicable state law. They may not be offered for sale, sold, transferred or pledged without (1) registration under the Securities Act of 1933 and any applicable state law, or (2) at holder's expense, an opinion 26 32 (satisfactory to the Company) that registration is not required." ARTICLE III REPRESENTATIONS AND WARRANTIES OF --------------------------------- GENERAL AMERICAN, GAHC, GAIMCO AND CAM -------------------------------------- General American, GAHC, GAIMCO and CAM hereby make the following representations and warranties to each of Conning Corp., Conning and the Equity Holders, each of which is true and correct on the date hereof and will be true and correct as of the Closing Date and each of which shall survive the Closing as specified in Section 7.1 hereof. 3.1 Enforceable Agreement; Existence and Qualification. -------------------------------------------------- (a) General American, GAHC, GAIMCO and CAM each have full power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by General American, GAHC, GAIMCO and CAM have been duly authorized by all requisite corporate action. This Agreement constitutes the valid and binding obligation of General American, GAHC, GAIMCO and CAM, enforceable in accordance with its terms. (b) General American, GAIMCO and CAM are each corporations duly organized, validly existing and in good standing under the laws of the State of Missouri. Each of General American, GAIMCO and CAM has all requisite corporate power and authority to own, lease and use its assets and properties and to conduct the business in which it is engaged. Each of GAIMCO and CAM is duly licensed or qualified to do business as a foreign corporation and is in good standing in the state(s), countries or other jurisdictions listed on Schedule 3.1(b), and is not required to be --------------- registered, licensed or qualified to do business in any other jurisdiction in which the failure to so qualify would result in losses to GAIMCO or CAM in excess of $25,000. GAIMCO has delivered to Conning Corp. true, complete and correct copies of the constituent documents, as currently in effect, of GAIMCO and CAM. (c) Neither GAIMCO nor CAM is a party to, subject to or bound by any note, bond, mortgage, indenture, deed of trust, agreement, lien, contract or other instrument or obligation or any statute, law, rule, regulation, judgment, order, writ, injunction, or decree of any court, administrative or regulatory body, governmental agency, arbitrator, mediator or similar body, franchise or license, which is material to its business and which would (i) conflict with or be breached or 27 33 violated or the obligations thereunder accelerated or increased (whether or not with notice or lapse of time or both) by the execution, delivery or performance by GAIMCO and CAM of this Agreement or (ii) prevent the carrying out of the transactions contemplated hereby. Except as set forth on Schedule 3.1(c) and except for compliance with the provisions of the H-S-R - --------------- Act, none of General American, GAHC, GAIMCO or CAM is required to obtain any waiver or consent of any third person or governmental authority for the execution of this Agreement or the consummation of the transactions contemplated hereby. The execution of this Agreement and the consummation of the transactions contemplated hereby will not result in the creation of any material Lien against GAIMCO or CAM or any of their respective properties or assets. 3.2 Capitalization and Related Matters. ---------------------------------- (a) Capital Stock. The entire authorized capital ------------- stock of GAIMCO consists solely of 100 shares of GAIMCO Common Stock, of which 10 shares are issued and outstanding. No other capital stock of GAIMCO is authorized or issued. The entire authorized capital stock of CAM consists solely of (i) 20,000,000 shares of CAM Common Stock, of which 0 shares are issued and outstanding, and (ii) 20,000,000 shares of CAM Non-Voting Common Stock, of which 0 shares are issued and outstanding, and (iii) 20,000,000 shares of preferred stock (all of which will be designated as CAM Preferred Stock upon filing of the Certificate of Designation with the Secretary of State of Missouri), of which 0 shares are issued and outstanding. No other capital stock of GAIMCO or CAM is authorized or issued. GAHC is the record and beneficial owner of all of the outstanding capital stock of GAIMCO and CAM. All of the issued and outstanding shares of the capital stock of GAIMCO are duly authorized, validly issued, fully paid, non-assessable and free of preemptive rights, without restriction on the transfer thereof other than pursuant to applicable federal and state securities laws, and all of such shares have been so issued in full compliance with all applicable federal and state securities laws. (b) Other Securities. There are no outstanding ---------------- subscriptions, rights, options, warrants, conversion privileges or agreements of any kind entitling any person or entity to acquire from GAIMCO or CAM any shares of the capital stock of GAIMCO or CAM or any other type of security of GAIMCO or CAM. 3.3 The CAM Preferred Stock and CAM Options. The shares of --------------------------------------- CAM Preferred Stock to be issued to the Equity Holders hereunder, when delivered hereunder, will be duly authorized, validly issued, fully paid, nonassessable, and free of preemptive rights, without restriction on the transfer thereof other than pursuant to applicable federal and state securities laws and as 28 34 contemplated by this Agreement and the Shareholders' Agreement. At and after Closing, CAM will reserve for issuance under the CAM Options a sufficient number of shares of CAM Non-Voting Common Stock, which will be, when issued, duly authorized, validly issued, fully paid, nonassessable, and free of preemptive rights, without restriction on the transfer thereof other transfer thereof other than pursuant to applicable federal and state securities laws and as contemplated by this Agreement. 3.4 Subsidiaries. Neither GAIMCO nor CAM, directly or ------------ indirectly, owns or has the right to acquire 10% or more of the voting securities or other equity interest in, or directly or indirectly control, any other corporation, partnership, joint venture or other entity. 3.5 Property. Except as set forth on Schedule 3.5, GAIMCO is -------- ------------ the sole owner of all right, title, and interest in and to all material assets reflected on the GAIMCO Balance Sheet (defined below) and owns or has the valid right to lease all property, real and personal, tangible and intangible, used by it in, or necessary for it to transact, the business in which it is engaged, and there exists no material restriction on the use or transfer of such assets or property. Except as noted on Schedule 3.5, the ------------ assets owned or leased by GAIMCO constitute all of the property and property rights used or necessary for the conduct of the business of GAIMCO in the manner and to the extent presently conducted by GAIMCO. No such assets or property are in the possession of others and GAIMCO holds no property on consignment. 3.6 Financial Statements. -------------------- (a) Set forth on Schedule 3.6 are (i) the audited ------------ balance sheet of GAIMCO as of December 31, 1994, 1993 and 1992, and the related statements of earnings, shareholders' equity and changes in financial position or cash flow for the fiscal years then ended and all notes and schedules thereto, and (ii) the unaudited balance sheet of GAIMCO as of June 30, 1995 (the "GAIMCO Balance Sheet") and the related statements of earnings and changes in financial position for the period then ended, together with any notes or schedules thereto ((i) and (ii) together, the "GAIMCO Financial Statements"). (b) Also set forth on Schedule 3.6 are the audited ------------ balance sheet of General American as of December 31, 1994, and the related statements of earnings, shareholders' equity and changes in financial position or cash flow for the fiscal year then ended and all notes and schedules thereto (the "General American Financial Statements"). (c) The GAIMCO Financial Statements and the 29 35 General American Financial Statements (i) are true, complete, and correct, (ii) present fairly the financial position, results of operations, and cash flows of GAIMCO and General American, respectively, at the dates and for the periods indicated, and (iii) have been prepared in accordance with GAAP applied on a consistent basis (except that unaudited financial statements do not contain footnotes and are subject to year-end audit adjustments, which will not be material in the aggregate). 3.7 Books and Records. The books of account, corporate record ----------------- books, minute books, bank accounts, and other records of GAIMCO and CAM are true, correct, and complete in all material respects, have been maintained in accordance with good business practices, and the matters contained therein are accurately reflected in the GAIMCO Financial Statements to the extent appropriate. 3.8 No Undisclosed Liabilities. Neither GAIMCO nor CAM has -------------------------- any liabilities or obligations whatsoever, known or unknown, accrued, absolute, contingent, or other, except (a) as set forth on the GAIMCO Balance Sheet or Schedule 3.8, or (b) those incurred in the ordinary course ------------ of the business of GAIMCO and CAM, consistent with past practice, since the date of the GAIMCO Balance Sheet, none of which will, or could, have an adverse effect upon the business or condition (financial or otherwise) or operations of GAIMCO or CAM. 3.9 Taxes. ----- (a) GAIMCO and each of its Tax Affiliates has timely filed or caused to be filed with the appropriate Government entity all Tax Returns (the returns applicable to GAIMCO are hereinafter referred to as the "GAIMCO Tax Returns"), and no GAIMCO Tax Returns for any open tax year have been amended. All GAIMCO Tax Returns are true, correct, and complete. There are no grounds for assertion of any understatement penalty under Section 6661 of the Code (prior to repeal) or Section 6662 of the Code. (b) All Taxes due and payable by GAIMCO or any of its Tax Affiliates with respect to all periods ending on or prior to the date hereof have been timely and fully paid, and there are no grounds for the assertion or assessment of any additional Taxes against GAIMCO or any of its Tax Affiliates or their respective assets with respect to such periods. Except as specified in a letter to Conning Corp.'s counsel dated the date hereof (the "Article III Tax Disclosure Letter"), there are no audits of any GAIMCO Tax Returns of GAIMCO or any of its Tax Affiliates pending or threatened. Except as specified on the Article III Tax Disclosure Letter, there is no waiver of any 30 36 statute of limitations in effect with respect to any GAIMCO Tax Returns. (c) All unpaid Taxes for all periods up to and including the Closing Date are properly accrued on the books of GAIMCO and its Tax Affiliates. All unpaid Taxes for all periods up to the date of the GAIMCO Balance Sheet are properly accrued on the GAIMCO Financial Statements. The Article III Tax Disclosure Letter lists all GAIMCO Tax Returns for periods up to and including the Closing Date (whether the period ends on such date) which have not been filed on or before the Closing Date. (d) There are no Liens for Taxes upon any assets of GAIMCO or its Tax Affiliates, except Liens for Taxes not yet due and payable. (e) Except as specified on the Article III Tax Disclosure Letter, true, correct and complete copies of all GAIMCO income Tax Returns, tax examination reports and statements of deficiencies assessed against, or agreed to with respect to GAIMCO or any of its Tax Affiliates with respect to the last four (4) years with the Internal Revenue Service or any taxing authority have been delivered to Conning Corp. (f) Except as set forth on the Article III Tax Disclosure Letter, neither GAIMCO nor any of its Tax Affiliates is or ever has been a member of an "affiliated group" within the meaning of Section 1504 of the Code, except for the affiliated group of which General American is the common parent. (g) GAIMCO and each of its Tax Affiliates has complied with all Law relating to the withholding of Taxes and the payment thereof (including, without limitation, withholding of Taxes under Section 1441 and 1442 of the Code, or any similar provision under foreign Law), and has timely and properly withheld from employee wages and paid over to the proper Government all amounts required to be withheld and paid over under applicable Law. (h) Neither GAIMCO nor any of its Tax Affiliates is a party to any safe harbor lease within the meaning of section 168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982. None of GAIMCO's or its Tax Affiliates' property or assets has been financed with or directly or indirectly secures any industrial revenue bonds or debt the interest on which is tax-exempt under Section 103(a) of the Code. Neither GAIMCO nor any of its Tax Affiliates is a borrower or guarantor of any outstanding industrial revenue bonds, and none of such parties is a tenant, principal user or related person to any principal user (within the meaning of section 144(a) of the Code) of any property which 31 37 has been financed or improved with the proceeds of any industrial revenue bonds. (i) GAIMCO is not and has not been a real property holding company within the meaning of Section 897(c) of the Code, and GAIMCO shall so certify upon Conning Corp.'s request. (j) GAIMCO is not required to include in income any adjustment under Section 481(a) of the Code by reason of a change in accounting method initiated by GAIMCO and the Internal Revenue Service has not proposed any such adjustment or change in accounting method. GAIMCO has no pending private letter ruling request with the Internal Revenue Service. (k) None of the property owned by GAIMCO or any of its Tax Affiliates is tax-exempt use property within the meaning of section 168(h) of the Code. (l) No consent has been filed relating to GAIMCO pursuant to section 341(f) of the Code. (m) GAIMCO is not a partner in any joint venture, partnership or other arrangement or contract that could be treated as a partnership for federal income tax purposes. (n) Except as set forth on the Article III Tax Disclosure Letter, neither GAIMCO nor any of its Tax Affiliates is a party to or bound by any affiliated group consolidated return tax allocation agreement, tax sharing agreement or tax indemnification agreement. (o) Except as set forth on the Article III Tax Disclosure Letter, GAIMCO is not liable for Taxes to any foreign taxing authority and does not have and has not had a permanent establishment in any foreign country, as defined in any applicable tax treaty or convention between the United States and such foreign country. (p) All material elections with respect to Taxes affecting GAIMCO as of the date hereof are set forth in the Article III Tax Disclosure Letter. No new elections with respect to Taxes, or any changes in current elections with respect to Taxes of GAIMCO or any of its Tax Affiliates or affecting any of such parties shall be made after the date of this Agreement without the prior written consent of Conning Corp. (q) GAIMCO is not a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any "excess 32 38 parachute payments" within the meaning of section 280G of the Code. (r) GAIMCO and each of its Tax Affiliates have not participated in an international boycott within the meaning of section 999 of the Code. 3.10 Accounts Receivable. Set forth on Schedule 3.10 is a list ------------------- ------------- of all the accounts receivable of GAIMCO as of March 31, 1995. Such accounts receivable and any accounts receivable arising between such date and the Closing Date (the "GAIMCO Accounts Receivable") arose or will have arisen in the ordinary and usual course of the business of GAIMCO. Except as set forth on Schedule 3.10, the GAIMCO Accounts Receivable are not and ------------- will not be on the Closing Date subject to any counterclaim, set-off, defense, security interest, claim, or other encumbrance. Except to the extent of any reserve therefor on the GAIMCO Balance Sheet or paid in full prior to Closing, the GAIMCO Accounts Receivable are and will be current and collectible and will be paid in full, net of reserves, on or before 90 days after the Closing Date. 3.11 Regulatory Matters; Permits and Licenses. ---------------------------------------- (a) GAIMCO is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940. GAIMCO is licensed under the laws relating to the conduct of a securities business in the jurisdictions set forth on Schedule 3.11. No ------------- litigation, proceeding or investigation is pending or, to the knowledge of GAIMCO, threatened, which might result in the termination or the suspension of the registration or licensing of GAIMCO or any of its approved persons, principals or registered representatives, or in any other disciplinary action against it or any of them under any applicable statute, rule or regulation. (b) Set forth on Schedule 3.11 is a list or description ------------- of each material license or permit required for the conduct of the business of GAIMCO, together with the name of the governmental agency or entity issuing each such license and permit. To the knowledge of GAIMCO, each of such licenses and permits is valid and in full force and effect. Except as noted on Schedule 3.11, none of such licenses and permits will be rescinded ------------- solely as a result of a change in control of GAIMCO. 3.12 Real Property. Neither GAIMCO nor CAM owns any real ------------- property. Schedule 3.12 lists and provides descriptions of all real ------------- property leased or subleased to GAIMCO or CAM and all other real property which is used by GAIMCO or CAM and not owned by GAIMCO or CAM (the "GAIMCO Leased Real Property"). Except as otherwise described on Schedule 3.12: ------------- (a) there are no leases, 33 39 subleases, licenses, concessions or other agreements, written or oral, granting to any person or entity the right to use or occupy any portion of the GAIMCO Leased Real Property which are not listed on Schedule 3.18; (b) ------------- no person or entity (other than GAIMCO) is in possession of any of the GAIMCO Leased Real Property; (c) neither the current use of the GAIMCO Leased Real Property nor the operation of GAIMCO's business violates any agreement affecting the GAIMCO Leased Real Property or any applicable legal requirements; and (d) all certificates of occupancy, permits, licenses, approvals and other authorizations required in connection with the past, present and proposed operation of its business on the GAIMCO Leased Real Property have been lawfully issued to GAIMCO and are, as of the date hereof, and will be following the consummation of the transactions contemplated hereby, in full force and effect. 3.13 Assets. GAIMCO has good and marketable title to, or a ------ valid leasehold interest in, all material properties and assets used by it, located on its premises or shown on the GAIMCO Balance Sheet or acquired after the date thereof, free and clear of all Liens, except for Liens disclosed on the GAIMCO Balance Sheet or Schedule 3.12 (as to real property) ------------- or Schedule 3.13 (as to all other properties and assets) and except for ------------- properties and assets disposed of for fair consideration in the ordinary course of business since the date of the GAIMCO Balance Sheet. Except as set forth on Schedule 3.12 or 3.13, GAIMCO owns or leases or has the valid ------------- ---- and enforceable right to use all material assets, tangible or intangible, necessary for the conduct of its business as presently conducted and as proposed to be conducted, and, upon the Closing, GAIMCO will continue to have the same rights with respect to such assets. All of the material tangible assets of GAIMCO are in good operating condition and repair as required for their use as presently conducted or planned by GAIMCO and conform to all applicable Laws, and no notice of any violation of any Law relating to any of such property or assets has been received by GAIMCO except such as have been fully complied with. 3.14 Absence of Certain Changes. Since March 31, 1995, except -------------------------- as set forth in the GAIMCO Financial Statements or Schedule 3.14 hereto or ------------- as explicitly provided for under this Agreement, there has not been: (a) Any material adverse change in (i) the business or condition (financial or otherwise) or operations of GAIMCO or CAM, or (ii) the condition of the assets and property, real and personal, tangible and intangible, of GAIMCO and CAM (the "GAIMCO Property"); (b) Any declaration, setting aside, or payment of any dividend or any distribution (in cash or in kind) to any shareholder of GAIMCO or CAM on account of or with respect to any 34 40 securities of or interests in GAIMCO or CAM, or any direct or indirect redemption, purchase, repurchase or other acquisition by GAIMCO or CAM of any securities of or interests in GAIMCO or CAM; (c) Any increase in compensation or other remuneration payable to or for the benefit of or committed to be paid to or for the benefit of any partner, director, officer, agent, or employee of GAIMCO or CAM, or in any benefits granted under any GAIMCO Plan (defined below) with or for the benefit of any such partner, director, officer, agent, or employee, except for regularly scheduled raises consistent with past practices in timing and amount; (d) Any transaction entered into or carried out by GAIMCO or CAM other than in the ordinary course of business; (e) Any borrowing or incurrence of any other indebtedness (including letter of credit and foreign exchange obligations), contingent or otherwise, by or on behalf of GAIMCO or CAM; or any endorsement, assumption, or guarantee of payment or performance of any loan or obligation of any other person or entity by GAIMCO or CAM; (f) Any change made by GAIMCO or CAM in its methods of doing business or of accounting; (g) Any grant by GAIMCO or CAM of any mortgage, security interest, or other encumbrance with respect to the GAIMCO Property; (h) Any sale, lease, or disposition of, or any agreement to sell, lease, or dispose of, any of the GAIMCO Property other than arm's-length sales in the ordinary course of business of GAIMCO and CAM; (i) Any modification or termination of any GAIMCO Contract (defined below) or any material term thereof other than in the ordinary course of business; (j) Any purchase by GAIMCO or CAM of capital assets with a value individually or in the aggregate in excess of $50,000; (k) Any loan or advance made by GAIMCO or CAM to any person or entity; (l) Any binding commitment or agreement by a GAIMCO or CAM to do any of the foregoing items (b) through (k); or 35 41 (m) Any material adverse change in the business or financial condition of General American. 3.15 No Breach of Law or Governing Document. Neither GAIMCO -------------------------------------- nor CAM is in material default under or in material breach or material violation of any applicable Law or the provisions of any Government permit, franchise, or license, or any provision of its constituent documents. Neither the execution of this Agreement nor the Closing do or will constitute or result in any such default or violation. 3.16 Litigation. Except as set forth on Schedule 3.16, (a) ---------- ------------- there is no Action pending or, to the knowledge of GAIMCO, threatened against GAIMCO or CAM or involving their businesses, any of the GAIMCO Property, or, in connection with their businesses, any of their partners, directors, officers, agents, or other personnel, including, without limitation, any Action challenging, enjoining, or preventing this Agreement or the consummation of the transactions contemplated hereby; and (b) neither GAIMCO nor CAM is subject to any Order other than Orders of general applicability. There is no Action pending or, to the knowledge of GAIMCO, threatened against GAIMCO or CAM challenging, enjoining, or preventing this Agreement or the consummation of the transactions contemplated hereby. 3.17 Environmental Matters. --------------------- (a) Except as set forth on Schedule 3.17, GAIMCO and CAM ------------- comply, and have at all times complied with, and do not cause, have not caused, and will not cause liability to be incurred by GAIMCO or CAM under, any and all current or prior Environmental Law. Except as set forth on Schedule 3.17, neither GAIMCO nor CAM is in violation of or has violated any - ------------- Environmental Law. (b) Except as set forth on Schedule 3.17, GAIMCO and CAM ------------- possess and are in compliance with all necessary permits, registrations, approvals, and licenses, and has properly made all filings with and submissions to any Government or other authority required by any Environmental Law. No deficiencies have been asserted by any such Government or authority with respect to such items. (c) Except as set forth on Schedule 3.17, there has been ------------- no spill, discharge, leak, leaching, emission, migration, injection, disposal, escape, dumping, or release of any kind on, beneath, above, or into any and all property which GAIMCO or CAM currently or previously owned, leased, occupied or used or into the environment surrounding such property of any Hazardous Materials, including, without limitation, those defined in any Environmental Law. 36 42 (d) Set forth on Schedule 3.17 is a list of all reports, ------------- surveys and other written materials commissioned or developed by or on behalf of GAIMCO or CAM since 1985 with respect to environmental matters relating to GAIMCO or the GAIMCO Environmental Property. 3.18 Contracts. --------- (a) Set forth on Schedule 3.18 is a list of each written ------------- or oral contract, agreement, lease, indenture, and evidence of indebtedness (including letter of credit and foreign exchange obligations and purchase orders for either the purchase of materials or the sale of a product) to which GAIMCO or CAM is a party or of which it is a beneficiary which involves an outstanding, contingent, or continuing liability or obligation of or to GAIMCO or CAM (a "GAIMCO Contract") and which (i) is material to the business, financial condition or operations of GAIMCO and CAM, (ii) involves (A) a guaranty, indemnity, or power of attorney, (B) a sharing of payments or joint venture, (C) a sales agency, representation, distributorship or franchise arrangement, (D) restrictions on competition or confidentiality agreements, or (E) an obligation in excess of $50,000, (iii) has resulted or will result in a loss to GAIMCO or CAM, or (iv) is not in the ordinary course of business of GAIMCO or CAM. (b) Except as indicated on Schedule 3.18, neither GAIMCO ------------- nor CAM nor, to the knowledge of GAIMCO, any other party to a GAIMCO Contract is in default under or in breach or violation of any GAIMCO Contract, and, to the knowledge of GAIMCO, no event has occurred that, through the passage of time or the giving of notice, or both, would constitute, and neither the execution of this Agreement nor the Closing hereunder do or will constitute or result in, such a default, breach or violation, cause the acceleration of any obligation of any party thereto or the creation of a lien or encumbrance upon any GAIMCO Property or the GAIMCO Common Stock or the CAM capital stock, or require any consent thereunder to the transactions contemplated herein. 3.19 Intellectual Property. --------------------- (a) Schedule 3.19 contains a true, complete and accurate list ------------- of all patents, trademarks, service marks, copyrights, applications for patents and for registration of trademarks, service marks and copyrights and software licenses which are material to the business of GAIMCO or CAM. Schedule 3.19 accurately identifies, where appropriate, one or more of the - ------------- following for each item of such intellectual property: filing date, issue date, classification of invention or goods covered, country of origin, licensor, license date and licensed subject 37 43 matter. Schedule 3.19 contains a complete and accurate list of all licenses ------------- and other rights granted by GAIMCO or CAM to any third party with respect to any item of the GAIMCO Intellectual Property (as hereinafter defined). (b) (i) the GAIMCO Intellectual Property is valid and enforceable and encompasses all proprietary rights material to the operation of GAIMCO's and CAM's businesses as presently conducted or proposed to be conducted (in each case free and clear of all Liens); (ii) to the knowledge of GAIMCO, GAIMCO and CAM have taken all actions necessary to maintain and protect the GAIMCO Intellectual Property; (iii) there has been no claim made against GAIMCO or CAM asserting the invalidity, misuse or unenforceability of any of the GAIMCO Intellectual Property or challenging GAIMCO's or CAM's right to use or ownership of any of the GAIMCO Intellectual Property; (iv) GAIMCO is not aware of any infringement or misappropriation of any of the GAIMCO Intellectual Property or of any facts raising a likelihood of infringement or misappropriate; (v) to the knowledge of GAIMCO, the conduct of GAIMCO's and CAM's businesses has not infringed or misappropriated, and does not infringe or misappropriate, any intellectual property or proprietary right of any other entity; (vi) no loss of any of the GAIMCO Intellectual Property is known to by GAIMCO to be threatened, pending or reasonably foreseeable; and (vii) the consummation of the transactions contemplated by this Agreement will not materially alter, impair or extinguish any of the GAIMCO Intellectual Property. (c) For purposes of this Agreement, "GAIMCO Intellectual Property" shall mean all of the following (in whatever form or medium) which are owned by or licensed to GAIMCO or CAM: (i) patents, trademarks, service marks and copyrights, (ii) applications for patents and for registration of trademarks, service marks and copyrights, (iii) trade secrets and trade names, and (iv) all other items of proprietary know-how or intellectual property. 3.20 Insurance. GAIMCO and CAM have during the past five years --------- maintained: (i) general comprehensive liability insurance against such risks as are customarily insured against by businesses similar to GAIMCO and CAM and in at least such amounts as are usually carried by persons or entities engaged in the same or a similar business, and (ii) insurance as required by law or under any agreement to which GAIMCO or CAM is or has been a party, including, without limitation, unemployment and workers' compensation coverage. A list of each such currently effective insurance policy is set forth on Schedule 3.20. ------------- 3.21 Officers, Directors, Employees, and Consultants. Set ----------------------------------------------- forth on Schedule 3.21 is a list of: (a) all current directors of GAIMCO ------------- and CAM, (b) all current officers (with 38 44 office held) of GAIMCO and CAM, (c) all employees (active or other) of GAIMCO and CAM, (d) all current paid consultants to GAIMCO and CAM, and (e) all retirees and terminated employees of GAIMCO and CAM for which GAIMCO or CAM has any benefits responsibility or other continuing or contingent obligation, together, in each case, with the current rate of compensation (if any) payable to each. Neither GAIMCO nor CAM is indebted to any partner, director, officer, employee or agent of GAIMCO or CAM, except for amounts due as (x) normal salaries, wages and bonuses, (y) as disclosed on Schedule 3.21, or (z) in reimbursement of ordinary expenses on a current - ------------- basis. 3.22 Bank Accounts of GAIMCO and CAM. Set forth on Schedule 3.22 ------------------------------- ------------- hereto is a list of the locations and numbers of all bank accounts and safe deposit boxes maintained by GAIMCO and CAM, together with the names of all persons who are authorized signatories or have access thereto. 3.23 Transactions with Related Persons. Except as set forth on --------------------------------- Schedule 3.23 hereto, neither GAIMCO nor CAM has any obligations, - ------------- contractual or otherwise, owed to or owing from, directly or indirectly, any officer or director or any affiliate thereof or of GAIMCO or CAM. 3.24 Labor Matters. Set forth on Schedule 3.24 is each ------------- ------------- collective bargaining, works council, union representation or similar agreement or arrangement to which GAIMCO or CAM is or has been a party or by which it is or has been bound. Except as set forth on Schedule 3.24: ------------- (a) Neither GAIMCO nor CAM is or has been engaged in any unfair labor practice; (b) There is no labor strike, dispute, slowdown, or stoppage pending or, to the knowledge of GAIMCO, threatened against GAIMCO or CAM; (c) No right of representation exists respecting GAIMCO's or CAM's employees; (d) No collective bargaining agreement is currently being negotiated and no organizing effort is currently being made with respect to GAIMCO's or CAM's employees; and (e) No current or former employee of GAIMCO or CAM has any claim against GAIMCO or CAM on account of or for (i) overtime pay, other than overtime pay for the current payroll period, (ii) wages or salary (excluding current bonus, accruals and amounts accruing under pension and profit sharing and other employee benefit plans) for any period other than the current payroll period, (iii) vacation, time off or pay in lieu of 39 45 vacation or time off, other than that earned in respect of the current fiscal year, or (iv) any violation of any Law relating to minimum wages or maximum hours of work. 3.25 Employee Benefit Matters. ------------------------ (a) Except as set forth on Schedule 3.25, neither GAIMCO ------------- nor CAM has outstanding or is a party to or subject to liability under: (i) any agreement, arrangement, plan or policy, whether or not considered legally binding, that involves (A) any pension, retirement, profit sharing, deferred compensation, bonus, stock option, stock purchase, health, welfare, or incentive plan; or (B) any welfare or "fringe" benefits, including, without limitation, vacation, severance, disability, medical, hospitalization, dental, life and other insurance, tuition, company car, club dues, sick leave, maternity, paternity or family leave, or other benefits; or (ii) any employment, consulting, engagement, or retainer agreement or arrangement whereby GAIMCO or CAM employs, retains or engages any individual or other entity as an employee, consultant or independent contractor to GAIMCO or CAM ((i) and (ii) together, the "GAIMCO Plans," and each item thereunder, a "GAIMCO Plan"). True, correct, and complete copies of all documents creating or evidencing any GAIMCO Plan listed on Schedule 3.25 ------------- have been delivered to Conning Corp. Except as set forth on Schedule 3.25, ------------- there are no negotiations, demands or proposals which are pending or threatened or which have been made since December 31, 1992 which concern matters now covered, or that would be covered, by the foregoing types of agreement, arrangement, plan, or policy. (b) Each GAIMCO Plan complies with and has been administered, operated, and maintained in compliance with, and, except as set forth on Schedule 3.25, neither GAIMCO nor CAM has any direct or ------------- indirect liability under, the Code or ERISA, as the case may be, or any other Law applicable to any GAIMCO Plan, and no GAIMCO Plan is subject to Title IV of ERISA. (c) No "reportable event" (as defined in ERISA) or "prohibited transaction" (as defined in the Code or ERISA) has occurred, and GAHC has no knowledge of a situation which would give rise to a reportable event or prohibited transaction, with respect to any GAIMCO Plan. (d) All contributions for all periods ending prior to the Closing Date which are required to be made prior to the Closing Date will be made prior to the Closing Date by GAIMCO or CAM and all members of the controlled group in accordance with past practice. All insurance premiums due have been paid in full, subject only to normal retrospective adjustments in the ordinary course, with regard to the GAIMCO Plans for policy years or other applicable policy periods ending on or before the 40 46 Closing Date. (e) Neither GAIMCO nor CAM has made any contributions to any multi-employer plan (as defined in ERISA), neither GAIMCO nor CAM has ever been a member of a controlled group which contributed to any such plan, and neither GAIMCO nor CAM has ever been under common control with an employer which contributed to any such plans. (f) The statements of assets and liabilities of the GAIMCO Plans as of the end of the fiscal year ending December 31, 1993, and the statements of changes in fund balances, financial position and net assets available for benefits under such GAIMCO Plans for such fiscal year, copies of which have been furnished to Conning Corp., fairly present the financial condition of such GAIMCO Plans as of such date and the results of operations thereof for the year ended on such date, all in accordance with GAAP applied on a consistent basis, and the actuarial assumptions used for funding purposes have not been changed since the last written report of actuaries on such GAIMCO Plans, which written reports have been furnished to Conning Corp. (g) All of the GAIMCO Plans, to the extent applicable, are in compliance with the continuation of health benefit provisions contained in COBRA, and with Section 1862(b)(4)(A)(i) of the Social Security Act, and GAIMCO does not have any liability for any excise tax imposed by Code Section 5000. Neither GAIMCO nor CAM has any liability or obligation to provide life, medical or other welfare benefits to former or retired employees, other than under COBRA. (h) Also set forth on Schedule 3.25 are all employee ------------- benefit plans which GAIMCO or CAM has terminated or taken action to terminate since January 1, 1991. Such terminations have been carried out in accordance with all provisions of Law, including, without limitation, all applicable reporting and other provisions of the Code and ERISA and with respect to the PBGC. Except as described on Schedule 3.25 hereto, neither ------------- GAIMCO nor CAM has any liability to, and has not received notice alleging such liability from, any person or entity, including, without limitation, the PBGC, any other Government agency or any participant in or beneficiary of any such plan, nor is GAIMCO or CAM liable for any excise, income or other tax or penalty as a result of or in connection with such termination. GAIMCO or CAM, as the case may be, has obtained a favorable determination letter from the Internal Revenue Service with respect to the termination of each of such plans, true, complete and correct copies of which have been delivered to Conning Corp. The favorable determination letters were received after full and accurate disclosure by GAIMCO and CAM of all material facts to the appropriate Government agencies. 41 47 (i) To the extent applicable with respect to each GAIMCO Plan, true, correct and complete copies of the most recent (i) determination letter and any outstanding request for a determination letter; (ii) Form 5500 and attached Schedule B; (iii) Form 5310 and any related filings with the PBGC; (iv) ruling letter and any outstanding request for a ruling letter with respect to the tax-exempt status of any voluntary employees' beneficiary association ("VEBA") which is implementing such GAIMCO Plan; and (v) general notification to employees of their rights under Code Section 4980B and form of letter(s) distributed upon the occurrence of a qualifying event described in Code Section 4980B, in the case of a GAIMCO Plan that is a "group health plan" as defined in Code Section 162(i) have been delivered to General American. 3.26 Discrimination and Occupational Safety and Health. ------------------------------------------------- Except as set forth on Schedule 3.26, no person has any claim or basis for ------------- any Action against GAIMCO or CAM arising out of any Law relating to discrimination in employment or employment practices or occupational safety and health standards. Since December 31, 1992, neither GAIMCO nor CAM has received any notice from any person alleging a violation of such law or occupational safety or health standards. 3.27 Alien Employment Eligibility. With respect to each person ---------------------------- employed by GAIMCO or CAM on or after May 1, 1987, and who actually commenced such employment on or after November 6, 1986: (a) GAIMCO or CAM hired such person in compliance with the IRCA; and (b) GAIMCO or CAM has complied with all record-keeping and other regulatory requirements under IRCA. 3.28 Governmental Approvals and Filings. Except for compliance ---------------------------------- with the H-S-R Act and except as set forth on Schedule 3.28, none of General ------------- American, GAHC, GAIMCO and CAM is required to obtain any approval, consent, or authorization of, or to make any declaration or filing with, any Government for the valid execution and delivery of this Agreement or any other agreement to be delivered hereunder or the performance or consummation of the transactions contemplated hereby or thereby. 3.29 Brokers, Finders. Except as set forth on Schedule 3.29, ---------------- ------------- no finder, broker, agent, or other intermediary acting on behalf of General American, GAHC, GAIMCO or CAM is entitled to a commission, fee, or other compensation or obligation in connection with the negotiation or consummation of this Agreement or any of the transactions contemplated hereby. 3.30 Outside Financial Interests. Except as identified on --------------------------- Schedule 3.30, no director, officer or shareholder of GAIMCO has any direct - ------------- or indirect financial interest in any competitor 42 48 with or supplier or customer of, or any other person or entity that has any transactions or other business relationship with, GAIMCO or CAM; provided, however, that for this purpose ownership of corporate securities having no more than 5% of the outstanding voting power of any competitor, supplier, customer or other person or entity, which securities are listed on any national securities exchange or authorized for quotation on the Automated Quotations System of the National Association of Securities Dealers, Inc., shall not be deemed to be such a financial interest, provided such person has no other connection or relationship with such competitor, supplier, customer or other person or entity. 3.31 Guarantees. Except as set forth on Schedule 3.31, neither ---------- ------------- GAIMCO nor CAM is a guarantor, indemnitor, surety or accommodation party or otherwise liable for any indebtedness of any other person or entity except as endorser of checks received and deposited in the ordinary course of business. 3.32 Foreign Operations and Export Control. GAIMCO and CAM ------------------------------------- have at all times acted: (a) pursuant to valid qualifications to do business in all jurisdictions outside the United States where such qualification is required by local law and the failure to do so would have a material adverse effect on the business, operations, or condition (financial or otherwise) of GAIMCO or CAM; (b) in material compliance with all applicable foreign laws, including without limitation laws relating to foreign investment, foreign exchange control, immigration, employment and taxation; (c) without notice of material violation of and in material compliance with all relevant anti-boycott legislation, including without limitation the Tax Reform Act of 1976, as amended, the Export Administration Act of 1979, as amended, and regulations thereunder, including all reporting requirements; (d) without material violation of and pursuant to any material, required export licenses granted under the Export Administration Act of 1979, as amended, and regulations thereunder, which licenses are described on Schedule 3.32; and ------------- (e) without violation of the Foreign Corrupt Practices Act of 1977, as amended. 3.33 Disclosure. Each Schedule and each document attached as a ---------- Schedule is true, correct, and complete in all 43 49 material respects. No representation or warranty by General American, GAHC, GAIMCO or CAM in this Agreement or any Schedule referred to herein or in any agreement to be delivered hereunder contains any untrue statement of a material fact or any omission of a material fact necessary to make the statements contained herein and therein, in light of the circumstances under which the statements were made, not misleading. ARTICLE IV ADDITIONAL COVENANTS OF THE PARTIES ----------------------------------- 4.1 Conduct of Business. Prior to Closing, without the prior ------------------- written consent of General American, neither Conning Corp. nor Conning will or will agree to, and, without the prior written consent of Conning Corp., GAIMCO will not and will not agree to: (a) Grant any increase in the rate of pay of any of its employees, grant any increase in the salaries of any officer, employee or agent, enter into or increase the benefits provided under any bonus, profit-sharing, incentive compensation, pension, retirement, medical, hospitalization, life insurance or other insurance plan or plans, or other contracts or commitments, or in any other way increase in any amount the benefits or compensation of any such officer, employee or agent, except, however, ordinary increases in compensation not unusual in character or amount made in the ordinary course of business to employees who are not directors or officers; provided, however, that Conning Corp. may pay bonuses to its employees prior to Closing in an aggregate amount not to exceed $3,300,000 (which amount is independent from Conning's standard employee bonus plan which remains in effect); (b) Enter into (i) any employment contract or (ii) any collective bargaining agreement; (c) Enter into any contract or commitment or engage in any transaction which is not in the usual and ordinary course of business or which is inconsistent with past practices; (d) Sell or dispose of or encumber any material amount of assets (except pursuant to existing Contracts disclosed herein); (e) Make, or enter into any contract for, any material capital expenditure or enter into any material lease of equipment or real estate (except pursuant to existing Contracts disclosed herein); (f) Enter into any contract or commitment, whether for the purchase or sale of inventory, supplies, other 44 50 products or services or otherwise, whether in the ordinary course of business or otherwise, involving more than $50,000, or enter into any series of such contracts with one party or affiliated group of parties involving more than $100,000 in the aggregate; (g) Create, assume, incur or guarantee any indebtedness other than (i) in the usual and ordinary course of business and with a maturity date of less than one year or (ii) that incurred pursuant to existing Contracts disclosed herein; (h) Declare or pay any dividend on, issue or make any sale of, or distribution in respect of, its capital stock or directly or indirectly redeem, purchase or otherwise acquire any of its capital stock except as may be required under the Conning Corporation Shareholders' Agreement dated February 25, 1993; (i) Conduct or transact business other than in a manner consistent with its past practices or change any accounting procedures or practices or its financial structure; (j) Make any amendments to or changes in its Articles or Certificate of Incorporation or By-Laws, or, with respect to the Subsidiaries, any of their respective constituent documents; or (k) Perform any act, or attempt to do any act, or permit any act or omission to act, which will or may reasonably be expected to cause a breach by such party of any Contract to which it is a party, including this Agreement. 4.2 Access to Records. Until the Closing, GAIMCO shall afford ----------------- to authorized representatives of Conning Corp. reasonable access during normal business hours to all premises, properties, books, records, personnel and data of GAIMCO. Until the Closing, Conning Corp. and Conning shall afford to authorized representatives of General American, reasonable access during normal business hours to all premises, properties, books, records, personnel and data of Conning Corp. and Conning. No such access, and no other investigation or discovery of facts shall affect the discovering party's right to recover for any breach of any representation or warranty hereunder. 4.3 Preservation of Business. Each of Conning Corp., Conning ------------------------ and GAIMCO shall conduct their respective activities substantially in the same manner as heretofore conducted and shall use its best efforts to keep its business organization intact, including its present employees and present relationships with customers and others having business relations with it. 45 51 4.4 Insurance and Maintenance of Property. Each of Conning ------------------------------------- Corp., Conning and GAIMCO will maintain their respective existing insurance policies on property owned or leased by it in full force and effect and will operate, maintain and repair all of such property in a manner consistent with past practice. 4.5 Books, Records and Financial Statements. From the date --------------------------------------- hereof until Closing, each of Conning Corp., Conning and GAIMCO will maintain their respective books and financial records in accordance with GAAP consistently applied. Said books and financial records shall fairly and accurately reflect the operations, results and condition, financial and otherwise, of each such party. Each such party shall furnish to the others promptly, as available, financial statements and operating reports applicable to it since March 31, 1995, all of which shall be prepared in accordance with GAAP consistently applied and shall present fairly the consolidated financial position and results of operations of such party at the dates and for the periods indicated. 4.6 Other Governmental Filings. The Equity Holders, Conning -------------------------- Corp., Conning, General American, GAHC, GAIMCO and CAM will cooperate with each other in making, as soon as practicable following the execution hereof, all filings required by any governmental agency in connection with the transactions contemplated by this Agreement, including, without limitation, all filings required pursuant to the H-S-R Act and all appropriate federal and state securities or "blue sky" filings with respect to the shares of CAM Preferred Stock to be issued pursuant to this Agreement. All information provided by the Equity Holders, Conning Corp., Conning, General American, GAHC, GAIMCO and CAM in connection with such filings will be true, accurate and complete in all material respects and will comply in all material respects with all applicable laws and regulations. 4.7 Notification of Certain Matters. Between the date of this ------------------------------- Agreement and the Closing, each of the parties hereto shall give prompt notice to the others of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty of such party contained in this Agreement to be untrue or inaccurate in any respect any time from the date hereof to the Closing Date and (ii) any failure of such party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that such disclosure shall not be deemed to -------- ------- cure any breach of a representation, warranty, covenant or agreement or to satisfy any condition. 46 52 4.8 No Solicitation. --------------- (a) From the date hereof until the termination hereof, Conning Corp., Conning and the Equity Holders agree not to, and will not authorize any of Conning Corp.'s or Conning's officers, directors, employees or other agents to, directly or indirectly, (i) take any action to seek, initiate or encourage any offer from any person, entity or group (other than General American or its subsidiaries) to acquire any shares of capital stock, options or other securities of Conning Corp. or Conning, to merge or consolidate with Conning Corp. or Conning, or to otherwise acquire any significant portion of Conning Corp.'s or Conning's assets (a "Third Party Offer"), or (ii) engage in negotiations concerning or disclose non-public financial information relating to Conning Corp. or Conning, or any confidential or proprietary trade or business information relating to the businesses of Conning Corp. or Conning, or afford access to the properties, books or records of Conning Corp. or Conning (except as required by Law), to any third party that may be considering a Third Party Offer. Since June 14, 1995, none of the Equity Holders and none of Conning Corp. or Conning or their respective officers, directors, employees or other agents has engaged in any activities, discussions or negotiations with any parties with respect to any of the foregoing. (b) Conning Corp., Conning or the Equity Holders, as the case may be, will orally notify General American immediately, followed by prompt written notice (identifying the offeror and describing, in reasonable detail, the terms of the offer or the request for information), of any Third Party Offer from any person, entity or group (other than from General American or its subsidiaries) or of any request for information with respect to a Third Party Offer or any indication from any person, entity or group that it or another person, entity or group is considering making a Third Party Offer. 4.9 Offering Memorandum. In connection with the execution of ------------------- this Agreement, General American, GAHC, GAIMCO, CAM, Conning Corp. and Conning have cooperated to prepare and distribute to the Equity Holders an offering memorandum of CAM (the "Offering Memorandum") relating to the transactions contemplated hereby. General American, GAHC, GAIMCO and CAM agree to indemnify and hold harmless Conning Corp. and Conning and their respective directors, officers, control persons, employees, agents, attorneys, accountants and other representatives from and against any liability (including attorneys' fees) relating to or arising out of information provided by them or on their behalf in writing for inclusion in the Offering Memorandum or any state filing. Conning Corp. and Conning agree to indemnify and hold harmless General American, GAHC, GAIMCO and CAM and their respective directors, officers, 47 53 control persons, employees, agents, attorneys, accountants and other representatives from and against any liability (including attorneys' fees) relating to or arising out of information provided by them or on their behalf in writing for inclusion in the Offering Memorandum or any state filing. The covenants contained in this Section shall survive the Closing without limitation and are intended to benefit the indemnified parties and shall be enforceable by such persons. 4.10 Approval of Parachute Payments. With respect to potential ------------------------------ "parachute payments" that may arise other than under the Employment Agreements, prior to the Closing, Conning Corp. will take such action as is necessary to cause such items to fall within an exemption under Section 280G(b)(5) of the Code. 4.11 Notice to Customers. Prior to Closing, Conning will send ------------------- a notice and request for consent to the transactions contemplated hereby, in a form reasonably acceptable to GAHC, to each of its customers. 4.12 Filing of Certificate of Designation. Prior to Closing, ------------------------------------ CAM shall file the Certificate of Designation with the Secretary of State of Missouri. ARTICLE V CONDITIONS TO THE OBLIGATIONS ----------------------------- GENERAL AMERICAN, GAHC, GAIMCO AND CAM -------------------------------------- The obligations of General American, GAHC, GAIMCO and CAM at Closing shall be subject to the satisfaction at Closing of each of the following conditions, subject to the right of such parties to waive any one or more of such conditions: 5.1 Representations and Warranties. The Equity Holders', ------------------------------ Conning Corp.'s and Conning's representations and warranties set forth in Article II shall have been true and correct in all material respects when made and shall be true and correct in all material respects on the Closing Date, as though such representations and warranties were made at and as of such date. 5.2 Performance of Agreement. The Equity Holders, Conning ------------------------ Corp. and Conning shall have performed and complied in all material respects with all covenants, conditions, and other obligations under this Agreement to be performed or complied with by them at or prior to Closing. 5.3 Certificate. Conning Corp., Conning and the Shareholders ----------- shall have delivered to GAHC at Closing a certificate executed by each of them, dated the Closing Date, to 48 54 the effect that the conditions set forth in Sections 5.1 and 5.2 have been satisfied, which, in the case of Penn. Corp. shall only certify as to the representations and warranties made by it in Article II hereof. Such certificate shall be deemed an additional representation and warranty of Conning Corp., Conning and the Shareholders hereunder. 5.4 Approvals. All required consents and approvals from --------- Governments and from JMB/Urban CityPlace Limited Partnership shall have been obtained and all waiting periods required by Law, including, without limitation, those required under the H-S-R Act, shall have expired. 5.5 No Adverse Proceeding. No Action shall have been overtly --------------------- threatened or pending (a) for the purpose of enjoining or preventing the consummation of this Agreement or any of the transactions contemplated hereby or (b) which claims that this Agreement, such transactions, or their consummation, is illegal or in violation of any agreement applicable to Conning Corp., Conning or any Equity Holder. 5.6 Opinions of Counsel. Conning Corp. shall have delivered ------------------- to GAHC at Closing opinions of Conning Corp.'s, Conning's and the Equity Holders' counsel, in the forms attached hereto as Exhibit K. --------- 5.7 Employment Agreements. The Employment Agreements shall --------------------- have been executed and delivered to CAM by the Key Employees at Closing. 5.8 Adverse Change. There shall have been no material adverse -------------- change, actual or overtly threatened, in the business or condition, financial or otherwise, assets, liabilities or prospects of Conning and Conning Corp. 5.9 Shareholders' Agreement. The Shareholders' Agreement ----------------------- shall have been executed and delivered by the Equity Holders (excluding the Specified Shareholders) to CAM and GAHC at Closing. 5.10 Investor Questionnaires. An investor questionnaire and ----------------------- such other documentation reasonably acceptable to General American shall have been executed and delivered to General American and CAM by each Shareholder and Option Holder receiving Preferred Stock hereunder. Such documentation shall be sufficient in the sole discretion of General American and its counsel to ensure compliance with the requirements of the Securities Act of 1933, as amended, and any other Laws applicable to the issuance of the CAM Preferred Stock hereunder and the conversion thereof. 49 55 5.11 Approval of Parachute Payments. With respect to potential ------------------------------ "parachute payments" that may arise under the Employment Agreements, prior to the Closing, Conning Corp. shall have taken such action as is necessary to cause such items to fall within an exemption under Section 280G(b)(5) of the Code. 5.12 Redemption of Preferred Stock. Conning Corp. shall have ----------------------------- redeemed all shares of its Preferred Stock for an aggregate purchase price of no more than $3.85 million, plus accrued and unpaid dividends. ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE ------------------------------------ EQUITY HOLDERS, CONNING CORP. AND CONNING ----------------------------------------- The obligations of Conning Corp., Conning and the Equity Holders at Closing shall be subject to the satisfaction at the Closing of the following conditions, subject to the right of such parties to waive any one or more of such conditions: 6.1 Representations and Warranties. The representations and ------------------------------ warranties of General American, GAHC, GAIMCO and CAM set forth in Article III shall have been true and correct in all material respects when made and shall be true and correct in all material respects on the Closing Date as though such representations and warranties were made at and as of such date and time. 6.2 Performance of Agreement. General American, GAHC, GAIMCO ------------------------ and CAM shall have performed and complied in all material respects with all covenants, conditions, and other obligations under this Agreement to be performed or complied with by them at or prior to the Closing. 6.3 Certificate. General American, GAHC, GAIMCO and CAM shall ----------- have delivered to the Equity Holders, Conning Corp. and Conning at the Closing a certificate of General American, GAHC, GAIMCO and CAM executed by each of them, dated the Closing Date, to the effect that the conditions set forth in Sections 6.1 and 6.2 have been satisfied. Such certificate shall be deemed an additional representation and warranty of General American, GAHC, GAIMCO and CAM hereunder. 6.4 Approvals. All required consents and approvals from --------- Governments and from third parties under Contracts shall have been obtained and all waiting periods required by Law, including, without limitation, those required under the H-S-R Act, shall have expired. 6.5 No Adverse Proceeding. No Action shall have been --------------------- threatened or pending (a) for the purpose of enjoining or 50 56 preventing the consummation of this Agreement or any of the transactions contemplated hereby or (b) which claims that this Agreement, such transactions, or their consummation, is illegal or in violation of any agreement applicable to General American, GAHC, GAIMCO or CAM. 6.6 Adverse Change. There shall have been no material adverse -------------- change, actual or overtly threatened, in the business or condition, financial or otherwise, assets, liabilities or prospects of GAIMCO or CAM. 6.7 Opinions of Counsel. GAHC shall have delivered to Conning ------------------- Corp. at Closing opinions of General American's, GAHC's, GAIMCO's and CAM's counsel, in the forms attached hereto as Exhibit L. --------- 6.8 Investor Questionnaire. GAHC shall have executed and ---------------------- delivered to CAM an investor questionnaire and such other documentation reasonably acceptable to Conning Corp. to ensure compliance with the requirements of the Securities Act of 1933, as amended, and any other Laws applicable to the issuance of the CAM Common Stock hereunder. 6.9 Employment Agreements. The Employment Agreement shall --------------------- have been executed and delivered to the Key Employees by CAM at Closing. 6.10 Shareholders' Agreement. The Shareholders' Agreement ----------------------- shall have been executed and delivered to the Equity Holders (excluding the Specified Shareholders) by CAM and GAHC at Closing. 6.11 Option Agreements. The Option Agreements shall have been ----------------- executed and delivered to each of the New Optionees by CAM at Closing. ARTICLE VII INDEMNIFICATION --------------- 7.1 Survival of Representations and Warranties. All ------------------------------------------ representations and warranties of the parties made in this Agreement or in any exhibit, Schedule, certificate, instrument or any document delivered pursuant hereto (excluding the Offering Memorandum, which is provided for in Section 4.9) shall survive the Closing and shall remain in effect for a period of eighteen months after the Closing Date but thereafter shall expire and no party shall be entitled to make a claim for indemnification with respect to such representations and warranties unless a claim with respect thereto shall have been made in writing against the party responsible for indemnification hereunder prior to the expiration of such eighteen month period; provided, that the 51 57 foregoing limitation shall not apply to the representations and warranties made in Sections 2.8 and 3.9, which shall survive until the expiration of all applicable statutes of limitation. All representations and warranties hereunder shall be deemed to be material and relied upon by the parties with or to whom the same were made, notwithstanding any investigation or inspection made by or on behalf of such party or parties. 7.2 Indemnification of General American, GAHC, GAIMCO and CAM. --------------------------------------------------------- (a) The Shareholders and the Option Holders (except Penn. Corp., which shall be liable hereunder only pursuant to paragraph (i) hereof in the case of a breach of a representation and warranty made by Penn. Corp. with resect to itself and pursuant to paragraph (iv) hereof for its pro rata share of all liability thereunder, in accordance with the percentages set forth on Penn. Corp.'s signature page hereof), severally and not jointly, shall hold General American, GAHC, GAIMCO, CAM, Conning Corp. and Conning and their respective affiliates and the shareholders, directors, officers, partners, successors, assigns, and agents of each of them (the "CAM Indemnified Persons"), harmless and indemnify each of them from and against, and waives any claim for contribution or indemnity from any CAM Indemnified Person with respect to, any and all claims, losses, damages, liabilities, penalties, fines, expenses or costs ("Losses"), plus reasonable attorneys' fees and expenses incurred in connection with Losses and/or enforcement of this Agreement, plus interest from the date incurred through the date of payment at the prime lending rate of Boatmen's Bank of St. Louis, N.A. from time to time prevailing (in all, "Indemnified Losses") incurred or to be incurred by any CAM Indemnified Person resulting from or arising out of: (i) Any inaccuracy in or incompleteness or incorrectness of Conning's, Conning Corp.'s and the Equity Holders' representations or warranties set forth in this Agreement or any certificate, instrument or other document delivered hereunder; (ii) Any breach or violation of Conning's, Conning Corp.'s and the Equity Holders' covenants or agreements contained in this Agreement, including the provisions of this Article VII; (iii) Any liability of Conning Corp. or any of its Tax Affiliates for Taxes for any taxable period ending on or before the Closing Date, except to the extent provided for as a tax liability in the Conning Balance Sheet or unless such liability arises from matters disclosed in the Article II Tax Disclosure Letter; or 52 58 (iv) the pending litigation (the "Pending Litigation") styled (i) Lionheart Group, Inc., et al. v. Conning & Company, (the "Lionheart Litigation") and (ii) Cynthia Maleski, ---------------- Insurance Commissioner of the Commonwealth of Pennsylvania, in her ------------------------------------------------------------------ capacity as Liquidator of Rockwood Insurance Company(In Liquidation) -------------------------------------------------------------------- and as assignee of Rockwood Casualty Insurance Company vs. Conning & -------------------------------------------------------------------- Company, et al., to the extent Indemnified Losses arising out of such --------------- litigation exceed applicable insurance deductibles, the costs not reimbursed by insurance incurred by Conning after the Closing Date in defending such litigation and applicable insurance proceeds, if any, received by Conning on account of such litigation. (b) In addition, the Option Holders, severally and not jointly, shall hold the CAM Indemnified Persons harmless and indemnify each of them from and against any and all Taxes for pre-Closing periods on any recognized gain (without regard to offsetting deductions) to Conning Corp. or Conning resulting from the transfer of CAM Preferred Stock in consideration for the cancellation of the Conning Options pursuant to the terms of this Agreement and the Option Cancellation Agreements; provided, however, that neither CAM nor Conning Corp. nor Conning shall be permitted to settle or compromise any claim for which the Option Holders are obligated to indemnify CAM Indemnified Persons under this Section 7.2(b) without the consent of the Representative (as hereinafter defined), which consent shall not be unreasonably withheld. 7.3 Indemnification of Equity Holders. --------------------------------- (a) General American and CAM shall hold the Equity Holders and their permitted assigns and agents (the "Shareholder Indemnified Persons") harmless and indemnify each of them from and against, and waives any claim for contribution or indemnity from any Shareholder Indemnified Person, any and all Indemnified Losses incurred or to be incurred by any of them resulting from or arising out of: (i) Any inaccuracy in or incompleteness or incorrectness of General American's, GAHC's, GAIMCO's and CAM's representations or warranties set forth in this Agreement or any certificate, instrument or other document delivered hereunder; (ii) Any breach or violation of General American's, GAHC's, GAIMCO's and CAM's covenants or agreements contained in this Agreement, including the provisions of this Article VII; or 53 59 (iii) Any liability of GAIMCO or any of its Tax Affiliates for Taxes for any taxable period ending on or before the Closing Date, except to the extent provided for as a tax liability in the GAIMCO Balance Sheet or unless such liability arises from matters disclosed in the Article III Tax Disclosure Letter. (b) In addition, subject to the limitations contained in Section 7.4(g) of this Agreement, subsequent to the closing of the transactions contemplated by this Agreement, General American and CAM shall cause Conning to hold the Equity Holders and their permitted assigns harmless and indemnify them from and against any liability for federal and state income taxes (including any interest or penalties attributable thereto) resulting directly from (i) a determination by the Internal Revenue Service ("IRS") or state taxing authority that any portion of the fair market value of the CAM Preferred Stock and/or cash received by the Equity Holders under the terms of this Agreement constitutes compensation for services, and (ii) the receipt of any indemnity payment pursuant to this Section 7.3(b); provided, however, that at the request of General American, -------- ------- CAM, or Conning, as the case may be, such indemnifying party shall have the right, with respect to this issue, to participate in the audit, investigation or other proceeding (including being timely provided with relevant correspondence) leading to such a determination by the IRS or state taxing authority and approve any settlement, which approval shall not be unreasonably withheld. 7.4 Limitations on Indemnity. ------------------------ (a) The Shareholders' and Option Holders' obligation to indemnify CAM Indemnified Persons pursuant to Section 7.2(a)(iii) and the Option Holders' obligation to indemnify CAM Indemnified Persons pursuant to Section 7.2(b) shall terminate upon the expiration of the applicable statutes of limitation unless a claim with respect thereto shall have been made in writing against the Shareholders and/or the Option Holders, as the case may be, prior to the expiration of such statutes of limitation. (b) The Shareholders' and Option Holders' obligation to indemnify CAM Indemnified Persons pursuant to Section 7.2(a)(iv) shall terminate upon the final, non-appealable resolution by agreement or by a court of competent jurisdiction of the Pending Litigation unless a claim with respect thereto shall have been made in writing against the Shareholders and the Option Holders prior to such resolution. (c) The Shareholders and the Option Holders shall have no obligation to indemnify the CAM Indemnified Persons pursuant to Section 7.2(a) unless Indemnified Losses under such 54 60 Section exceed $200,000 in the aggregate, but if so to the full extent of Indemnified Losses in excess of $200,000 in the aggregate. (d) The Shareholders and the Option Holders shall have no obligation to indemnify the CAM Indemnified Persons pursuant to Section 7.2(a) in excess of $4,000,000 in the aggregate; provided, however, that to the extent Indemnified Losses include any payments on account of the Lionheart Litigation and Indemnified Losses exceed in the aggregate $4,000,000, the Shareholders' and Option Holders' indemnification shall continue for up to an additional $1,000,000, provided that such additional $1,000,000 indemnification obligation shall not exceed the aggregate amount of Indemnified Losses arising out of or resulting from the Lionheart Litigation. (e) General American and CAM shall have no obligation to indemnify the Shareholder Indemnified Persons pursuant to Section 7.3 unless Indemnified Losses under such Section exceed $200,000 in the aggregate, but if so to the full extent of Indemnified Losses in excess of $200,000 in the aggregate. General American and CAM shall have no obligation to indemnify the Shareholder Indemnified Persons pursuant to Section 7.3 in excess of $4,000,000 in the aggregate. (f) The obligations of the Shareholders and the Option Holders pursuant to Section 7.2 are several and each Shareholder and Option Holder shall be liable only for his, her or its pro rata amount of the indemnification obligation in accordance with the percentages set forth on each such Equity Holder's signature page hereof. (g) The obligation of General American and CAM to cause Conning to indemnify the Equity Holders for income tax liabilities under Section 7.3(b) of this Agreement shall be limited to the amount of the corresponding tax benefits received by Conning, CAM, or General American, as the case may be, which result from deductions, losses, or other tax benefits actually realized with respect to its income tax returns corresponding to that portion of the fair market value of the CAM Preferred Stock and/or cash which is treated as compensation for services pursuant to such a determination; provided, that in the event of such an adverse determination -------- by the IRS or state taxing authority affecting an Equity Holder, then Conning, CAM, or General American, as the case may be, shall use reasonable good faith efforts and take all reasonably appropriate actions to maximize such corresponding tax benefits consistent with achieving a final overall settlement with the applicable taxing authority on all tax issues which is optimal from Conning's or CAM's (as the case may be) perspective as a taxpayer; provided further, the indemnifying party shall not be obligated to -------- ------- make 55 61 any indemnity payments until the tax liability of Conning or CAM, as the case may be, for the year or years in question is finally agreed with the taxing authority or otherwise finally determined; and provided further, -------- ------- that an Equity Holder claiming hereunder shall give prompt notice to the indemnifying party of a proposed tax adjustment within the meaning of Section 7.3(b), provided that the failure to give such notice shall not affect such Equity Holder's entitlement to indemnity except to the extent the indemnifying party is in fact prejudiced thereby. 7.5 Notice of Claim. In the event that any party hereto seeks --------------- indemnification hereunder on behalf of itself or himself or another indemnified person, such party (the "Indemnified Party") shall give written notice to the party or parties obligated to indemnify such party (the "Indemnifying Party") specifying the facts constituting the basis for such claim and the amount, if known, of the claim asserted. The failure of the Indemnifying Party, within a period of thirty (30) days after the giving of such notice by the Indemnified Party, to give written notice to the Indemnified Party of the intention to contest such claim shall be deemed an agreement that the claim is a valid claim and at such time as it is known, the amount thereof shall be paid promptly by the Indemnifying Party. 7.6 Right to Contest Claims of Third Persons. If an ---------------------------------------- Indemnified Party asserts a claim for indemnification hereunder because of a claim made by any claimant not a party, the Indemnified Party shall give the Indemnifying Party reasonably prompt notice thereof, but in no event more than ten (10) business days after said assertion is actually known to the Indemnified Party; provided, however, that the right of a person to be indemnified hereunder in respect of claims made by a third party shall not be adversely affected by a failure to give such notice unless, and then only to the extent that, an Indemnifying Party is prejudiced thereby. The Indemnifying Party shall have the right, upon written notice to the Indemnified Party, and using counsel reasonably satisfactory to the Indemnified Party, to investigate, secure, contest or settle the claim alleged by such third person (hereinafter called a "Third-Person Claim"), provided that the Indemnified Party may participate voluntarily, at its own expense, in any such Third-Person Claim through representatives and counsel of its own choice, and, provided further, that the Indemnifying Party unconditionally acknowledges to the Indemnified Party in writing his or its obligation to indemnify the persons to be indemnified hereunder with respect to all elements of such Third-Person Claim. Unless and until the Indemnifying Party elects to defend the Third-Person Claim, the Indemnified Party shall have the full right, at its option, to do so and to look to the Indemnifying Party under the provisions of this Agreement for the amount of the costs, if any, of defense. The failure of the Indemnifying Party to respond in writing to 56 62 the aforesaid notice of the Indemnified Party with respect to such Third-Person Claim within twenty (20) days after receipt thereof shall be deemed an election not to defend the same. Notwithstanding the foregoing, an Indemnifying Party shall only be responsible for the fees and expenses of one counsel for all Indemnified Parties with respect to any Third-Person Claim. If the Indemnifying Party does not assume the defense of any such Third-Person Claim, including any litigation resulting therefrom, (a) the Indemnified Party may defend against such claim or litigation, in such manner as it may deem appropriate, including, but not limited to, settling such claim or litigation, after giving notice of the same to the Indemnifying Party, on such terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying Party shall be entitled to participate in (but not to control) the defense of such action, with its own counsel at its own expense. If the Indemnifying Party thereafter seeks to question the manner in which the Indemnified Party defended such Third-Person Claim or the amount or nature of any such settlement, the Indemnifying Party shall have the burden to prove by clear and convincing evidence that the Indemnified Party did not defend or settle such Third-Person Claim in a reasonably prudent manner. The Parties shall make available to each other all relevant information in their possession relating to any such Third-Person Claim and shall cooperate in the defense thereof. Notwithstanding the provisions of this Section, CAM shall control the defense and settlement or resolution of the Pending Litigation, provided that the consent of the Representative, which may not be unreasonably withheld, must be obtained prior to the settlement of such litigation in excess of applicable insurance proceeds. 7.7 Return or Cancellation of Legended Shares; Escrow ------------------------------------------------- Withdrawals. - ----------- (a) In order to secure the Equity Holders' indemnification obligations hereunder, certain of the certificates evidencing the shares of CAM Preferred Stock issuable to the Equity Holders (the "Certificates") have been legended as provided in Section 1.9. If payment is not made in accordance with Section 7.7(b), satisfaction of the Shareholders' and the Option Holders' indemnification obligations pursuant to Section 7.2(a) shall be effected through (a) the cancellation of Certificates evidencing shares of CAM Preferred Stock registered in the names of such holders with an aggregate value equal to the unsatisfied indemnification obligations, based on a per share value calculated in accordance with Section 11.3(a) of the Shareholders' Agreement, and allocated among the Shareholders and Option Holders in accordance with their relative percentages set forth on their respective signature pages, and (b) the withdrawal from the Escrow Funds of a portion of the Escrow Funds with an aggregate value equal to the unsatisfied indemnification obligations, allocated among the Specified Shareholders 57 63 (excluding Penn. Corp.) in accordance with the percentages set forth on their respective signature pages. If payment is not made in accordance with Section 7.7(b), satisfaction of the Option Holders' indemnification obligations pursuant to Section 7.2(b) shall be effected through the cancellation of Certificates evidencing shares of CAM Preferred Stock with an aggregate value equal to the Indemnified Losses, based on a per share value calculated in accordance with Section 11.3(a) of the Shareholders' Agreement and allocated among the Option Holders in accordance with the percentages set forth on their respective signature pages. The portion of Indemnified Losses for which an Option Holder or Shareholder is responsible, as set forth on their respective signature pages, is referred to herein as that Equity Holder's "Adjusted Ratable Share." (b) In the event a CAM Indemnified Person is entitled to indemnification for an Indemnified Loss, each Shareholder or Option Holder, as the case may be, shall deliver to the Representative either (i) a Certificate or Certificates sufficient to satisfy such Shareholder's or Option Holder's Adjusted Ratable Share of such Indemnified Losses, or (ii) a cashier's or certified check equal to such Equity Holder's Adjusted Ratable Share of such Indemnified Losses. The Representative shall, upon receipt of such Certificates and/or checks, deliver such Certificates and/or checks to CAM, which will cancel the surrendered Certificates and issue to the Representative Certificates for each Equity Holder who has delivered Certificates to the Representative evidencing the number of shares of CAM Preferred Stock owned by such Equity Holder after deduction of such Equity Holder's Adjusted Ratable Share of the Indemnified Losses. In the event a Shareholder or Equity Holder does not deliver his or her Certificate or a check as provided above, CAM shall be permitted to (i) cancel the Certificate(s) held by such Equity Holder and shall issue to such Equity Holder a new Certificate evidencing the number of shares of CAM Preferred Stock owned by such Equity Holder after deduction of such Equity Holder's Adjusted Ratable Share of the Indemnified Losses, or (ii) if such Equity Holder does not hold any Certificates, pursue any and all of its legal or equitable remedies against such Equity Holder in order to recover such Equity Holder's Adjusted Ratable Share of the Indemnified Losses. 7.8 Exclusive Remedy. The provisions of this Article VII and ---------------- the documents and agreements to be entered into pursuant hereto shall constitute the exclusive remedy of the parties with respect to any claims or Indemnified Losses resulting from or arising out of the provisions of this Agreement or the transactions contemplated hereby which may be asserted after the Closing; provided, that the foregoing shall not preclude any claim for injunctive or other non-monetary equitable 58 64 relief or any claim based on fraud or intentional misrepresentation. ARTICLE VIII MISCELLANEOUS PROVISIONS ------------------------ 8.1 Notice. All notices, requests, demands, and other ------ communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given and made upon being delivered either by courier or fax delivery to the party for whom it is intended, provided that a copy thereof is deposited, postage prepaid, certified or registered mail, return receipt requested, in the United States mail, bearing the address shown in this Section 8.1 for, or such other address as may be designated in writing hereafter by, such party: If to General American, GAHC, GAIMCO or CAM: Leonard M. Rubenstein Executive Vice President--Investments General American Life Insurance Company 700 Market Street St. Louis, Missouri 63101 Fax: (314) 444-0726 With a copy to: James L. Nouss, Jr., Esq. Bryan Cave LLP 211 North Broadway, Suite 3600 One Metropolitan Square St. Louis, Missouri 63102 Fax: (314) 259-2020 If to Conning Corp.: Maurice W. Slayton President and CEO Conning & Company CityPlace II 185 Asylum Street Hartford, CT 06103 Fax: (203) 520-1269 With a copy to: Thomas L. Fairfield, Esq. LeBoeuf, Lamb, Greene & MacRae LLP Goodwin Square 59 65 225 Asylum Street Hartford, CT 06103 Fax: (203) 293-3555 If to the Shareholders and/or the Specified Shareholders and/or the Option Holders, in care of the Representative: Maurice W. Slayton President and CEO Conning & Company CityPlace II 185 Asylum Street Hartford, CT 06103 Fax: (203) 520-1269 8.2 Appointment of Representative. ----------------------------- (a) By execution hereof, the Shareholders, the Option Holders and the Specified Shareholders hereby designate Maurice W. Slayton as the "Representative." The Representative shall have full power to act on behalf of the Shareholders, the Option Holders and the Specified Shareholders in the manner specified herein and in connection with all matters with respect to which action by the Representative is contemplated by this Agreement, except that no amendment adversely affecting Penn. Corp.'s rights hereunder or altering the amount, type or nature of consideration payable to the Equity Holders hereunder shall be valid unless approved in writing by Penn Corp. (b) The Representative shall take all actions required to be taken by the Representative under this Agreement and may take any action contemplated by this Agreement on behalf of the Shareholders, the Option Holders and the Specified Shareholders. By giving notice to the Representative in the manner provided by Section 8.1, General American, GAHC, GAIMCO or CAM, as the case may be, shall be deemed to have given notice to all of the Shareholders and Option Holders and the Specified Shareholder. (c) In the event that a CAM Indemnified Person gives notice to the Representative of a Third-Person Claim for which indemnification may be sought, the Representative shall have the authority to determine, in his sole judgment and in accordance with Section 7.6, whether to retain counsel (and to select that counsel) to protect the Shareholder's, the Option Holders', and the Specified Shareholders' interests, whether to assume the defense of or otherwise to control the handling of the Third-Person Claim, and to make all other decisions required to be made by the Shareholders, the Option Holders or the Specified Shareholders pursuant to Article VII of this Agreement, including, without limitation, whether to consent or withhold his 60 66 consent to any settlement or compromise of a Third-Person Claim. The Representative is hereby also authorized (but not required) to seek approval of any proposed action or decision affecting the interests of the Shareholders, Option Holders or Specified Shareholders hereunder and in such event shall be authorized to act in accordance with the approval of such holders whose aggregate percentages as set forth on their respective signature pages constitute 51% or more of the indemnification obligations of such holders, provided that the Representative shall not have the authority to consent to the settlement of the Pending Litigation without the approval of Penn. Corp., which will not be unreasonably withheld. (d) In the event that the Representative shall resign or otherwise cease to act as the Representative, the Representative shall be authorized to select a replacement Representative, subject to the written approval of Shareholders, Option Holders and Specified Shareholders who hold in the aggregate 51% or more of the total percentages set forth on the Equity Holders' signature pages (a "Majority of Interested Shareholders"), or, if the Representative shall not have selected a replacement who shall have been approved by a Majority of Interested Shareholders as aforesaid by the date the Representative ceases to act in such capacity, then a Majority of Interested Shareholders shall be authorized to select a replacement Representative by written consent. (e) The Representative shall have no liability to the Shareholders, the Option Holders or the Specified Shareholders with respect to any action taken or not taken by him under this Agreement except for his own gross negligence or willful misconduct. The Representative may act in reliance upon the advice of counsel satisfactory to him in reference to any matter in connection with this Agreement and shall not incur any liability for any action taken in good faith in accordance with such advice. (f) Any action taken by the Representative may be considered by General American, GAHC, GAIMCO and CAM to be the action of each Shareholder, Option Holder and/or the Specified Shareholder for whom such action was taken for all purposes of this Agreement. 8.3 Termination of Shareholder Agreement. Conning Corp. and ------------------------------------ each Equity Holder agree that the Shareholders' Agreement dated February 25, 1993 and each and every other agreement restricting the transfer of Conning Corp. capital stock or options for Conning Corp. capital stock shall terminate on the Closing Date and all provisions thereof are hereby waived with respect to the transactions contemplated hereby. 61 67 8.4 Entire Agreement. This Agreement and the Schedules and ---------------- Exhibits hereto embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings relative to such subject matter. 8.5 Assignment; Binding Agreement. This Agreement and various ----------------------------- rights and obligations arising hereunder shall inure to the benefit of and be binding upon the parties, their successors, and assigns and their legal representatives, and permitted assigns. Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be transferred, delegated, or assigned by Conning, Conning Corp., the Specified Shareholders, any Shareholder or any Option Holder without the prior written consent of General American, or by General American, GAHC, GAIMCO or CAM without the prior written consent of Conning Corp. 8.6 Counterparts. This Agreement may be executed ------------ simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 8.7 Headings; Interpretation. The article and section ------------------------ headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of the Agreement. Each reference in this Agreement to an Article, Section, Schedule or Exhibit, unless otherwise indicated, shall mean an Article or a Section of this Agreement or a Schedule or Exhibit attached to this Agreement, respectively. References herein to "days," unless otherwise indicated, are to consecutive calendar days. The term "person" includes any Government. Gender-specific references such as "its," "his," and "her" shall include all other genders. 8.8 Expenses. Regardless of whether the transactions -------- contemplated hereby are consummated, General American shall pay its own and GAIMCO's, GAHC's and CAM's legal and accounting fees, costs and expenses in connection with such transactions and the Shareholders and Option Holders shall be permitted to cause Conning to pay their and Conning Corp.'s and Conning's reasonable legal, investment banking and accounting fees, costs and expenses in connection with such transactions. 8.9 Termination of the Agreement. This Agreement may be ---------------------------- terminated by a party hereto without further liability or obligation if (a) such party is not in breach or violation hereof and (b) the conditions to such party's obligations at Closing have not been satisfied on or before August 31, 1995. In the event of such termination, nothing in this Section or elsewhere in this Agreement shall impair or restrict the rights of the terminating party to any and all remedies at law or in equity in the event of a breach of or default under this Agreement by another party. 62 68 8.10 Governing Law. This Agreement shall in all respects be ------------- construed in accordance with and governed by the substantive laws of the State of Missouri, without reference to its choice of law rules. 8.11 Confidentiality. No party to this Agreement shall make --------------- any public disclosure of the terms hereof or the transactions contemplated hereby without the prior written consent of the other parties, except as required by law. 8.12 Further Assurances. From and after the Closing, the ------------------ parties shall do such acts and execute such documents and instruments as may be reasonably required to make effective the transactions contemplated hereby. 63 69 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first above written. GENERAL AMERICAN LIFE INSURANCE COMPANY By /s/ Richard A. Liddy -------------------------------- Richard A. Liddy Chairman, President and Chief Executive Officer GENERAL AMERICAN HOLDING COMPANY By /s/ Richard A. Liddy -------------------------------- Richard A. Liddy Chairman and President GENERAL AMERICAN INVESTMENT MANAGEMENT COMPANY By /s/ Leonard M. Rubenstein -------------------------------- Leonard M. Rubenstein President CONNING ASSET MANAGEMENT COMPANY By /s/ Leonard M. Rubenstein -------------------------------- Name: Title: CONNING & COMPANY By /s/ Maurice W. Slayton -------------------------------- Maurice W. Slayton Chairman of the Board, President and Chief Executive Officer CONNING CORPORATION By /s/ Maurice W. Slayton -------------------------------- Maurice W. Slayton Chairman of the Board, President and Chief Executive Officer EQUITY HOLDER /s/ M. W. Slayton ----------------------------------- /s/ Mark E. Hansen ----------------------------------- /s/ Thomas D. Sargent ----------------------------------- /s/ William C. Shenton ----------------------------------- /s/ Stephan L. Christiansen ----------------------------------- /s/ Gordon G. Pratt ----------------------------------- /s/ John Clinton ----------------------------------- /s/ Donald L. McDonald ----------------------------------- /s/ Thomas A. Byrne ----------------------------------- /s/ Scott E. Daniels ----------------------------------- /s/ Paul Goulekas ----------------------------------- /s/ John A. Corroon, Jr. ----------------------------------- /s/ David N. Reid ----------------------------------- /s/ Paul J. Sellier ----------------------------------- /s/ Daniel J. Mainolfi ----------------------------------- /s/ John B. Kleiman ----------------------------------- /s/ Fred M. Schpero ----------------------------------- /s/ Steven F. Piaker ----------------------------------- /s/ Seth C. Miller ----------------------------------- /s/ Gerard Vecchio ----------------------------------- /s/ Joseph D. Sargent ----------------------------------- /s/ G. Kelly, Jr. ----------------------------------- /s/ David W. Clark ----------------------------------- /s/ Gary Ransom ----------------------------------- 70 TABLE OF DEFINITIONS -------------------- "Certificate of Designation".......................... 2 1933 Act.............................................. 25 Accounts Receivable................................... 13 Action................................................ 17 Adjusted Ratable Share................................ 56 Agreement............................................. 1 Article II Tax Disclosure Letter...................... 10 Article III Tax Disclosure Letter..................... 30 Buyer Indemnified Persons............................. 51 CAM................................................... 1 CAM Common Stock...................................... 2 CAM Indemnified Persons............................... 51 CAM Non-Voting Common Stock........................... 5 CAM Note.............................................. 3 CAM Optionees......................................... 5 CAM Preferred Stock................................... 2 Certificates.......................................... 56 Closing............................................... 3 Closing Date.......................................... 3 COBRA................................................. 22 Code.................................................. 10 Conning............................................... 1 Conning Accounts Receivable........................... 13 Conning Balance Sheet................................. 10 Conning Common Stock.................................. 1 Conning Contract...................................... 18 Conning Corp. ........................................ 1 Conning Corp. Note.................................... 3 Conning Financial Statements.......................... 10 Conning Funds......................................... 9 Conning Intellectual Property......................... 19 Conning Leased Real Property.......................... 14 Conning Non-Voting Common Stock....................... 2 Conning Options....................................... 1 Conning Plan.......................................... 21 Conning Plans......................................... 21 Conning Property...................................... 15 Conning Tax Returns................................... 10 Contract.............................................. 18 Days.................................................. 61 Employment Agreements................................. 5 Environmental Law..................................... 17 Equity Holders........................................ 3 ERISA................................................. 21 Escrow Agent.......................................... 6 Escrow Agreement...................................... 6 Escrow Deposit........................................ 6 Escrow Funds.......................................... 6 Financial Statements.................................. 10 GAAP.................................................. 10 GAHC.................................................. 1 71 GAIMCO................................................ 1 GAIMCO Accounts Receivable............................ 32 GAIMCO Balance Sheet.................................. 29 GAIMCO Common Stock................................... 1 GAIMCO Contract....................................... 36 GAIMCO Financial Statements........................... 29 GAIMCO Intellectual Property.......................... 37 GAIMCO Leased Real Property........................... 33 GAIMCO Plan........................................... 39 GAIMCO Plans.......................................... 39 GAIMCO Property....................................... 34 GAIMCO Tax Returns.................................... 30 General American...................................... 1 General American Financial Statements................. 29 Government............................................ 13 H-S-R Act............................................. 8 Hazardous Materials................................... 18 Indemnified Losses.................................... 51 Indemnified Party..................................... 55 Indemnifying Party.................................... 53 Intellectual Property................................. 19 IRCA.................................................. 23 Key Employees......................................... 5 Law................................................... 16 Leased Real Property.................................. 33 Legend................................................ 5 Liens................................................. 8 Lionheart Litigation.................................. 51 Losses................................................ 51 Offering Memorandum................................... 46 Option Agreements..................................... 5 Option Cancellation Agreements........................ 4 Option Holders........................................ 1 Option Shares......................................... 5 Order................................................. 17 Pending Litigation.................................... 51 Penn. Corp............................................ 4 Person................................................ 61 Plan.................................................. 21 Plans................................................. 21 Property.............................................. 15 Regulation D.......................................... 25 Representative........................................ 59 Return................................................ 13 Rule 144.............................................. 25 Shareholder Indemnified Persons....................... 52 Shareholders.......................................... 1 Shareholders' Agreement............................... 3 Specified Shareholders................................ 2 Tax Affiliate......................................... 13 Tax Returns........................................... 10 Taxes................................................. 13 Third Party Offer..................................... 46 72 Third-Person Claim.................................... 55
73 LIST OF SCHEDULES
Schedule Number Description of Schedule - --------------- ----------------------- Schedule 2.1(c) Licenses Schedule 2.1(d) Third Party Authority Schedule 2.2(a) Ownership of Capital Stock of Conning Corporation, a Delaware Corporation Schedule 2.2(b) Options and Other Securities Schedule 2.3 Conning Subsidiaries Schedule 2.4 Property Schedule 2.5 Financial Statements Schedule 2.7 Undisclosed Liabilities Schedule 2.8 Article II Disclosure Letter Schedule 2.9 Accounts Receivable Schedule 2.10 Regulatory Matters: Permits and Licenses Schedule 2.11 Property (Leased) Schedule 2.12 Assets Schedule 2.13 Absence of Changes Schedule 2.15 Litigation Schedule 2.15 Supplement to Litigation Schedule 2.16 Environmental Matters Schedule 2.17 Contracts Exhibit 2.17a Insurance Asset Management, Advisory and Accounting Contracts Exhibit 2.17b Consulting / Financial Advisory Contracts Schedule 2.18 Intellectual Property Schedule 2.18a Registered Copyrights Schedule 2.19 Insurance Schedule 2.20 Officers, Directors Employees and Consultants Schedule 2.20 Supplemental Disclosure: Officers, Directors Employees and Consultants Schedule 2.21 Bank Accounts Schedule 2.22 Transaction with Related Parties Schedule 2.23 Labor Matters Schedule 2.24 Employee Benefits Schedule 2.25 Discrimination and Occupational Safety and Health Schedule 2.27 Governmental Approvals and Filings Schedule 2.28 Broker & Finder Fees Schedule 2.29 Outside Financial Interest Schedule 2.30 Guarantees Schedule 2.31 Foreign Operations and Export Control Schedule 2.33 Qualified Investors Schedule 3.1(b) Existence and Qualifications Schedule 3.1(c) Existence and Qualifications 74 Schedule 3.5 Property Schedule 3.6 Financial Statements Schedule 3.8 Undisclosed Liabilities Schedule 3.10 Accounts Receivable Schedule 3.11 Regulatory Matters Schedule 3.12 Real Property Schedule 3.13 Assets Schedule 3.14 Absence of Changes Schedule 3.16 Litigation Schedule 3.17 Environmental Schedule 3.18 Contracts Schedule 3.19 Intellectual Property Schedule 3.20 Insurance Schedule 3.21 Officers, Directors, et al Schedule 3.22 Bank Accounts Schedule 3.23 Related Persons Schedule 3.24 Labor Schedule 3.25 ERISA Schedule 3.26 OSHA Schedule 3.28 Approvals Schedule 3.29 Brokers Schedule 3.30 Outside Interests Schedule 3.31 Guarantees Exhibit A Certificate of Designation Exhibit B CAM and Conning Corp. Notes Exhibit C Shareholders' Agreement Exhibit D Option Cancellation Agreement Exhibit E CAM Optionees Exhibit F Option Agreement Exhibit G Key Employees Exhibit H Employment Agreements Exhibit I Legend Exhibit J Escrow Agreement Exhibit K Opinions of Conning Corp.'s, Conning's and the Equity Holders' Counsel Exhibit L Opinions of General American's, GAHC's, GAIMCO's and CAM's Counsel Separate schedule for each individual equity holder, listing the name and address of the equity holder, number of shares of Conning, Inc. (formerly Conning Corporation) common stock contributed by the equity holder, number of shares of the Company (formerly Conning Asset Management Company) preferred stock received by the equity holder for such Conning, Inc. common stock, amount of cash received for such Conning, Inc. common stock, number of options to purchase Conning, Inc. common stock held by the equity holder canceled, number of shares of Company preferred stock received by the equity holder for such canceled options, amount of cash received by the equity holder for such canceled options and the pro rata (by number and percentage) shares of indemnity applicable to the equity holder pursuant to Sections 7.2(a), 7.2(a)(iv), 7.2(a) excluding 7.2(a)(iv) and 7.2(b) of the Contribution Agreement.
EX-3.1 3 RESTATED ARTICLES OF INCORPORATION 1 RESTATED ARTICLES OF INCORPORATION OF CONNING CORPORATION ARTICLE ONE - NAME The name of the corporation (hereinafter referred to as the "Corporation") is: Conning Corporation. ARTICLE TWO - REGISTERED OFFICE The address of the Corporation's registered office in the State of Missouri is 700 Market Street, St. Louis, Missouri 63101 and the name of its registered agent at such address is Matthew P. McCauley. ARTICLE THREE - AUTHORIZED SHARES The aggregate number, class and par value of shares which the Corporation shall have authority to issue is ninety-three million seven hundred ninety thousand (93,790,000) shares of stock, all of which shall have a par value of One Cent ($0.01) per share, divided into (a) fifty million (50,000,000) shares of Class A Voting Common Stock, (b) twenty million (20,000,000) shares of Class B Non-Voting Common Stock and (c) twenty-three million seven hundred ninety thousand (23,790,000) shares of Preferred Stock. The preferences, qualifications, limitations, restrictions, and the special or relative rights, including convertible rights, if any, in respect of the shares of each class are as follows: A. Preferred Stock. 1. Subject to the requirements of the General and Business Corporation Law of Missouri (the "GBCL") and the provisions of these Articles of Incorporation, the Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more series. The description of shares of each series of Preferred Stock, including any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption shall be as set forth in these Articles of Incorporation or any amendment hereto or in a resolution or resolutions adopted by the Board of Directors and, to the extent set forth in any such resolution or resolutions, such information shall be certified to the Secretary of State of Missouri filed as required by law from time to time prior to the issuance of any shares of such series. 2. The Board of Directors is expressly authorized, prior to issuance, by adopting resolutions providing for the issuance of, or providing for a change in the number of, shares of any particular series of Preferred Stock and, if and to the extent from time to time required 1 2 by law, by filing certification thereto with the Secretary of State of Missouri, to set or change the number of shares to be included in each series of Preferred Stock and to set or change in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms and conditions of redemption relating to the shares of each such series. Notwithstanding the foregoing, the Board of Directors shall not be authorized to change the right of the Class A Voting Common Stock of the Corporation to vote one vote per share on all matters submitted for stockholder action. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, setting or changing the following: (a) the distinctive serial designation of such series and the number of shares constituting such series (provided that the aggregate number of shares constituting all series of Preferred Stock shall not exceed twenty-three million seven hundred ninety thousand (23,790,000) shares). (b) the annual dividend rate, if any, on shares of such series, whether and the extent to which dividends shall be cumulative or non-cumulative, the relative rights of priority, if any, of payment of any dividends, and the time at which, and the terms and conditions on which, any dividends shall be paid; (c) whether the shares of such series shall be redeemable or purchasable and, if so, the terms and conditions of such redemption or purchase, including the date or dates upon and after which such shares shall be redeemable or purchasable, and the amount per share payable in case of redemption or purchase, which amount may vary under different conditions and at different redemption or purchase dates; (d) the obligation, if any, of the Corporation to retire shares of such series pursuant to a sinking fund and the terms and conditions of any such sinking fund; (e) whether shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) whether the shares of such series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (g) the rights of the holders of shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of such holders with respect thereto; and (h) any other relative rights, powers, preferences, qualifications, limitations or restrictions thereof relating to such series. 2 3 3. The shares of Preferred Stock of any one series shall be identical with each other in all respects except as to the dates from and after which dividends thereon shall cumulate, if cumulative. B. Series A Convertible Preferred Stock. A total of 3,190,000 shares of the Company's Preferred Stock, par value One Cent ($.01) per share, designated as "Series A Convertible Preferred Stock" ("Series A Preferred Stock"), are hereby authorized for issuance with the voting powers, preferences and other special rights, and qualifications, limitations and restrictions thereof set forth below. 1. Designation and Amount. The number of shares of Series A ---------------------- Preferred Stock to be authorized for issuance shall be 3,190,000. 2. Dividends and Distributions. The holders of shares of --------------------------- Series A Preferred Stock shall be entitled to receive out of funds legally available for the purpose, quarterly dividends payable in cash on the first business day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the issuance of the Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the Applicable Dividend Rate multiplied by the Liquidation Value. The Applicable Dividend Rate shall be the ninety (90) day United States Treasury Bill rate (as published in The Wall Street Journal in the "Ask Yield" column) ----------------------- in effect on the previous Quarterly Dividend Payment Date. Such dividends shall be cumulative and shall accrue from the relevant date of issue whether or not there are any funds of the Company legally available for the payment of dividends. 3. Voting Rights. The Series A Preferred Stock shall carry no ------------- voting rights. 4. Conversion. ---------- a. Conversion Events. ----------------- (1) At any time and from time to time, any holder of Series A Preferred Stock may convert all or any portion of the Series A Preferred Stock (including any fraction of a share) held by such holder into the number of shares of the Company's non-voting common stock, par value $.01 per share (the "Non-Voting Common Stock"), computed by dividing the number of shares of Series A Preferred Stock to be converted by the Conversion Rate (as defined below) then in effect. (2) If during the three-year period ending on the third anniversary of the issuance of the Series A Preferred Stock, the Company sells any capital stock pursuant to an initial public offering (an "IPO") of any class of the Company's capital stock in which the common stock equivalent per share price at which such stock is sold is equal to or greater than the Liquidation Value multiplied by the Conversion Rate (a "Qualified IPO"), then each share of the Series A Preferred Stock shall, immediately prior 3 4 to the consummation of such Qualified IPO, automatically convert to a number (or fraction) of shares of the Company's voting common stock, par value $.01 per share (the "Voting Common Stock"), equal to one (1) divided by the Conversion Rate then in effect. b. Conversion Rate. The Conversion Rate shall equal one --------------- (1) divided by the number of shares of Non-Voting Common Stock or Voting Common Stock (the "Conversion Stock") into which each share of Series A Preferred Stock is convertible. The initial Conversion Rate shall be one (1), entitling a holder of Series A Preferred Stock to one share of Non-Voting Common Stock or Voting Common Stock, as the case may be, for each share of Series A Preferred Stock. In order to prevent certain types of dilution of the conversion rights granted under this Section 4, the Conversion Rate shall be subject to adjustment from time to time as follows: (1) In the event that there is any change in the number of shares of Conversion Stock outstanding by reason of an Extraordinary Conversion Stock Event (defined below), the Conversion Rate in effect immediately prior thereto shall be adjusted so that the holder of a share of Series A Preferred Stock surrendered for conversion after the record date fixing stockholders to be affected by such event shall be entitled to receive, upon conversion, the number of shares of Conversion Stock which such holder would have owned or have been entitled to receive after the happening of such event had such share of Series A Preferred Stock been converted immediately prior to the record or other effective date of such change in the Company's capitalization. An "Extraordinary Conversion Stock Event" shall mean (i) the issue of additional shares of Conversion Stock as a dividend or other non-cash distribution on outstanding shares of Conversion Stock, (ii) a subdivision of outstanding shares of Conversion Stock into a greater number of shares of Conversion Stock, or (iii) a combination or reverse stock split of outstanding shares of Conversion Stock into a smaller number of shares of Conversion Stock. (2) In the event of an issuance of Conversion Stock by the Company (whether such sale is in consideration for cash or securities) to General American Holding Company ("GAHC") or an affiliate of GAHC at a price per share less than the Liquidation Value multiplied by the Conversion Rate then in effect, unless approved by the holders of 75% of the Series A Preferred Stock outstanding, the Conversion Rate shall be adjusted so as to provide that each holder of Series A Preferred Stock will maintain, upon conversion of such Series A Preferred Stock, the same percentage equity interest in the Company on a fully diluted basis as such holder had prior to such issuance of Conversion Stock to GAHC or an affiliate of GAHC. (3) If the Conversion Stock shall be changed into the same or different number of shares of any class or classes of capital stock, whether by capital reorganization, recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for elsewhere in this Section 4(b)) or in the event of a merger or consolidation of the Company with or into another corporation or the sale of substantially all of the Company's assets to any other person, then and in each such event the holders of the Series A Preferred Stock shall have the right thereafter to 4 5 convert such shares into the kind and amount of shares of capital stock and other securities and property receivable upon such reorganization, recapitalization, reclassification, merger, consolidation, sale or other change by the holders of the number of shares of Conversion Stock into which such shares of Series A Preferred Stock might have been converted immediately prior to such reorganization, recapitalization, reclassification, merger, consolidation, sale or change. c. Conversion Procedure. -------------------- (1) Each optional conversion of Series A Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Series A Preferred Stock to be converted are surrendered at the principal office of the Company. At such time as such conversion has been effected, the rights of the holder of such Series A Preferred Stock as such holder with respect to such shares of Series A Preferred Stock shall cease and such holder shall be deemed to have become the holder of record of the shares of Conversion Stock represented thereby; provided, however, that if such holder is entitled to accrued dividends with respect to the shares of Series A Preferred Stock converted that have not been paid prior to such conversion, such holder's entitlement thereto shall not be affected by such conversion and the Company shall pay such dividends to the converting holder as soon thereafter as funds of the Company are legally available for such payment. (2) Upon the occurrence of the conversion event occasioned by the occurrence of a Qualified IPO, (i) the holders of the Series A Preferred Stock shall, upon notice from the Company, surrender the certificates representing such shares at the office of the Company or of its transfer agent. Thereupon, there shall be issued and delivered to such holder a certificate or certificates for the number of shares of Conversion Stock into which the shares of Series A Preferred Stock so surrendered were convertible on the date on which such conversion occurred. The Company shall not be obligated to issue such certificates unless certificates evidencing the shares of Series A Preferred Stock being converted are either delivered to the Company or any such transfer agent, or the holder notifies the Company that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection therewith. (3) As soon as possible after a conversion has been effected (but in any event within five business days after the surrender of the shares of Series A Preferred Stock to be converted), the Company shall deliver to the converting holder a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion. (4) The issuance of certificates for shares of Conversion Stock upon conversion of Series A Preferred Stock shall be made without charge to the holders of such Series A Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Company in connection with such conversion and the related issuance of shares of 5 6 Conversion Stock. Upon conversion of each share of Series A Preferred Stock, the Company shall take all such actions as are necessary in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable. 5. Preemptive Rights. ----------------- a. If the Company issues, sells, transfers or otherwise disposes of any shares of the capital stock of the Company of any class or series (collectively, the "Equity Securities") for cash in a transaction not described in Section 4(b)(2) (a "Third Party Sale"), each holder of Series A Preferred Stock (an "Eligible Investor") shall have an option to purchase, on the terms and conditions (including price) of the Third Party Sale, up to that amount of the Equity Securities sold in such Third Party Sale as would maintain such Eligible Investor's percentage equity interest in the Company on a fully diluted basis. b. No less than twenty (20) days prior to the consummation of a Third Party Sale, the Company shall notify each Eligible Investor of the Third Party Sale and the terms and conditions thereof. Within fifteen (15) days after receipt of such notice, each Eligible Investor shall notify the Company as to the amount of the Equity Securities such Eligible Investor desires to purchase. If an Eligible Investor gives the Company timely notice that the Eligible Investor desires to purchase any of the Equity Securities offered by the Company, then payment for the Equity Securities shall be by bank cashier's or certified check or wire transfer against delivery of the securities at the executive offices of the Company at the time of the scheduled closing therefor. Each Eligible Investor shall cooperate with the Company in taking such actions as may be necessary or desirable in order to ensure that the sale of Equity Securities to such Eligible Investor complies with all applicable federal and state securities laws. In no event will the Company be required to sell Equity Securities to an Eligible Investor if, in the Company's reasonable opinion, such sale would violate federal or state securities or any other applicable law, rule or regulation. 6. Certain Restrictions. -------------------- a. The Company shall not, without the prior written consent of the holders of a majority of the Series A Preferred Stock, increase the authorized number of shares of Series A Preferred Stock or issue any securities of the Company ranking on a parity with or senior in priority to the Series A Preferred Stock. b. Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Company shall not: (1) declare or pay dividends on or make any other distributions on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; or 6 7 (2) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled. c. In the event that in any given quarter the Board of Directors of the Company shall declare a dividend payable upon the then outstanding shares of stock ranking junior to the Series A Preferred Stock ("Junior Securities") (other than a stock dividend on the Conversion Stock distributed in the form of additional shares of Conversion Stock) in an amount which exceeds the amount per share on an as converted basis of dividends required pursuant to Section 2 hereof to be paid in such quarter with respect to the Preferred Stock (such amount being the "Excess Dividend"), each holder of shares of Series A Preferred Stock shall be entitled to participate in such Excess Dividend in an amount equal to the amount of dividends as would be declared payable on the largest number of whole shares of Conversion Stock into which the shares of Series A Preferred Stock held by such holder could be converted pursuant hereto, such number determined as of the record date for the determination of holders of stock ranking junior to the Series A Preferred Stock entitled to receive such Excess Dividend. d. The Company agrees not to enter, or permit any of its subsidiaries to enter, into any transaction, including, without limitation, any loan or extension of credit, guarantee, management contract or royalty agreement, deferred or contingent compensation agreement, consulting or other agreement with any affiliate except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such subsidiary than would obtain in a comparable arm's length transaction with a person not an affiliate. The promissory notes dated August 11, 1995 made payable to General American Life Insurance Company by the Company and Conning Corporation shall not be deemed to violate the provisions of this paragraph. e. The Company agrees at all times that it will not, by any amendment of the Company's articles of incorporation, or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, seek to avoid the observance or performance hereof, but will at all times take such actions as are necessary or appropriate in order to protect the rights of the holders of the Series A Preferred Stock hereunder against impairment. f. Nothing contained herein shall be deemed to prohibit the Company from issuing shares of its capital stock in exchange for non-cash consideration, and such issuance shall not trigger the preemptive rights provided in Section 5 hereof. 7. Reacquired Shares. Any shares of Series A Preferred Stock ----------------- purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of 7 8 Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. 8. Liquidation, Dissolution, or Winding Up. Upon any --------------------------------------- liquidation, dissolution or winding up of the Company, each holder of Series A Preferred Stock shall be entitled to be paid per share of Series A Preferred Stock, before any distribution or payment is made upon any Junior Securities, $5.33 plus accrued but unpaid dividends (the "Liquidation Value"), and the holders of Series A Preferred Stock shall not be entitled to any further payment. If upon any such liquidation, dissolution or winding up of the Company, the Company's assets to be distributed among the holders of the Series A Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets to be distributed shall be distributed ratably among such holders based upon the aggregate Liquidation Value of the Series A Preferred Stock held by each such holder. Neither the consolidation or merger of the Company into or with any other entity or entities, nor the sale or transfer by the Company of all or any part of its assets, nor the reduction of the capital stock of the Company, shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of this Section. 9. Registration of Transfer. The Company shall keep at its ------------------------ principal office a register for the registration of Series A Preferred Stock. Upon the surrender of any certificate representing Series A Preferred Stock at such place, the Company shall, at the request of the record holder of such certificate, execute and deliver (at the Company's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of Series A Preferred Stock represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of shares of Series A Preferred Stock as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Series A Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Series A Preferred Stock represented by the surrendered certificate. 10. Replacement. ----------- Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of Series A Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender of such certificate, the Company shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Series A Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. 8 9 C. Series B Convertible Preferred Stock. A total of 600,000 shares of the Company's Preferred Stock, par value One Cent ($.01) per share, designated as "Series B Convertible Preferred Stock" ("Series B Preferred Stock"), are hereby authorized for issuance with the voting powers, preferences and other special rights, and qualifications, limitations and restrictions thereof set forth below. 1. Designation; Amount and Rank. ---------------------------- a. The number of shares of Series B Preferred Stock to be authorized for issuance shall be 600,000. b. The Series B Preferred Stock, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company, shall rank senior to the Company's non-voting common stock, par value $.01 per share (the "Non-Voting Common Stock") and the Company's voting common stock, par value $.01 per share (the "Voting Common Stock"), and to all other classes and series of equity securities of the Company, except for the Series A Convertible Preferred Stock, par value $.01 per share ("Series A Preferred Stock"), with which the Series B Preferred Stock shall be of equal rank. 2. Dividends and Distributions. The holders of shares of --------------------------- Series B Preferred Stock shall be entitled to receive out of funds legally available for the purpose, quarterly dividends payable in cash on the first business day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the issuance of the Series B Preferred Stock, in an amount per share (rounded to the nearest cent) equal to five percent (5%) per annum multiplied by the Liquidation Value. Such dividends shall be cumulative and shall accrue from the relevant date of issue whether or not there are any funds of the Company legally available for the payment of dividends. 3. Voting Rights. The Series B Preferred Stock shall carry no ------------- voting rights. 4. Conversion. ---------- a. Conversion Right. At any time and from time to time, ---------------- any holder of Series B Preferred Stock may convert all or any portion of the Series B Preferred Stock (including any fraction of a share) held by such holder into a number of shares of the Company's Non-Voting Common Stock computed by dividing the number of shares of Series B Preferred Stock to be converted by the Conversion Rate (as defined below) then in effect. To convert shares of Series B Preferred Stock pursuant to this Section 4(a), the holder of such shares shall pay the Company an amount equal to the applicable Conversion Price (as defined below) multiplied by the number of shares of Series B Preferred Stock to be converted. b. Conversion Rate. The Conversion Rate shall equal one --------------- (1) divided by the number of shares of Non-Voting Common Stock (the "Conversion Stock") into which each 9 10 share of Series B Preferred Stock is convertible. The initial Conversion Rate shall be one (1), entitling a holder of Series B Preferred Stock to one share of Non-Voting Common Stock for each share of Series B Preferred Stock. In order to prevent certain types of dilution of the conversion rights granted under this Section 4, the Conversion Rate shall be subject to adjustment from time to time as follows: (1) In the event that there is any change in the number of shares of Conversion Stock outstanding by reason of an Extraordinary Conversion Stock Event (defined below), the Conversion Rate in effect immediately prior thereto shall be adjusted so that the holder of a share of Series B Preferred Stock surrendered for conversion after the record date fixing stockholders to be affected by such event shall be entitled to receive, upon conversion, the number of shares of Conversion Stock which such holder would have owned or have been entitled to receive after the happening of such event had such share of Series B Preferred Stock been converted immediately prior to the record or other effective date of such change in the Company's capitalization. An "Extraordinary Conversion Stock Event" shall mean (i) the issue of additional shares of Conversion Stock as a dividend or other non-cash distribution on outstanding shares of Conversion Stock, (ii) a subdivision of outstanding shares of Conversion Stock into a greater number of shares of Conversion Stock, or (iii) a combination or reverse stock split of outstanding shares of Conversion Stock into a smaller number of shares of Conversion Stock. (2) If the Conversion Stock shall be changed into the same or different number of shares of any class or classes of capital stock, whether by capital reorganization, recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for elsewhere in this Section 4(b)) or in the event of a merger or consolidation of the Company with or into another corporation or the sale of substantially all of the Company's assets to any other person, then and in each such event the holders of the Series B Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of capital stock and other securities and property receivable upon such reorganization, recapitalization, reclassification, merger, consolidation, sale or other change by the holders of the number of shares of Conversion Stock into which such shares of Series B Preferred Stock might have been converted immediately prior to such reorganization, recapitalization, reclassification, merger, consolidation, sale or change. c. Conversion Procedure. -------------------- (1) Each conversion of Series B Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Series B Preferred Stock to be converted are surrendered at the principal office of the Company, together with payment of the Conversion Price therefor. At such time as such conversion has been effected, the rights of the holder of such Series B Preferred Stock as such holder with respect to such shares of Series B Preferred Stock shall cease and such holder shall be deemed to have become the holder of record of the shares of Conversion Stock represented thereby; provided, however, that if such holder is entitled to 10 11 accrued dividends with respect to the shares of Series B Preferred Stock converted that have not been paid prior to such conversion, such holder's entitlement thereto shall not be affected by such conversion and the Company shall pay such dividends to the converting holder as soon thereafter as funds of the Company are legally available for such payment. (2) As soon as possible after a conversion has been effected (but in any event within five business days after the surrender of the shares of Series B Preferred Stock to be converted and payment of the Conversion Price therefor), the Company shall deliver to the converting holder a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion. (3) The issuance of certificates for shares of Conversion Stock upon conversion of Series B Preferred Stock shall be made without charge to the holders of such Series B Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Company in connection with such conversion and the related issuance of shares of Conversion Stock. Upon conversion of each share of Series B Preferred Stock, the Company shall take all such actions as are necessary in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable. d. Conversion Price. The Conversion Price shall be ---------------- $1.67 per share of Series B Preferred Stock; provided, however, that in the event of an initial public offering of any class of the Company's capital stock (an "IPO"), if the price per share (less underwriting discounts and commissions) at which the Company stock is sold in the IPO (the "IPO Price") is less than $7.00 per share, then the Conversion Price shall equal the IPO Price less $5.33. In the event the Conversion Rate is adjusted pursuant to Section 4(b), the Conversion Price and this Section 4(d) shall also be adjusted accordingly. 5. Certain Restrictions. -------------------- e. The Company shall not, without the prior written consent of the holders of a majority of the Series B Preferred Stock, increase the authorized number of shares of Series B Preferred Stock or issue any securities of the Company ranking on a parity with or senior in priority to the Series B Preferred Stock. f. Whenever quarterly dividends or other dividends or distributions payable on the Series B Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series B Preferred Stock outstanding shall have been paid in full, the Company shall not: (1) declare or pay dividends on or make any other distributions on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock; or 11 12 (2) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, except dividends paid ratably on the Series B Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled. g. In the event that in any given quarter the Board of Directors of the Company shall declare a dividend payable upon the then outstanding shares of stock ranking junior to the Series B Preferred Stock ("Junior Securities") (other than a stock dividend on the Conversion Stock distributed in the form of additional shares of Conversion Stock) in an amount which exceeds the amount per share on an as converted basis of dividends required pursuant to Section 2 hereof to be paid in such quarter with respect to the Series B Preferred Stock (such amount being the "Excess Dividend"), each holder of shares of Series B Preferred Stock shall be entitled to participate in such Excess Dividend in an amount equal to the amount of dividends as would be declared payable on the largest number of whole shares of Conversion Stock into which the shares of Series B Preferred Stock held by such holder could be converted pursuant hereto, such number determined as of the record date for the determination of holders of stock ranking junior to the Series B Preferred Stock entitled to receive such Excess Dividend. h. The Company agrees not to enter, or permit any of its subsidiaries to enter, into any transaction, including, without limitation, any loan or extension of credit, guarantee, management contract or royalty agreement, deferred or contingent compensation agreement, consulting or other agreement with any affiliate except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such subsidiary than would obtain in a comparable arm's length transaction with a person not an affiliate. i. The Company agrees at all times that it will not, by any amendment of the Company's articles of incorporation, or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, seek to avoid the observance or performance hereof, but will at all times take such actions as are necessary or appropriate in order to protect the rights of the holders of the Series B Preferred Stock hereunder against impairment. j. Nothing contained herein shall be deemed to prohibit the Company from issuing shares of its capital stock in exchange for non-cash consideration. 6. Reacquired Shares. Any shares of Series B Preferred Stock ----------------- purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. 12 13 7. Liquidation, Dissolution, or Winding Up. Upon any --------------------------------------- liquidation, dissolution or winding up of the Company, each holder of Series B Preferred Stock shall be entitled to be paid per share of Series B Preferred Stock, before any distribution or payment is made upon any Junior Securities, $5.33 plus accrued but unpaid dividends (the "Liquidation Value"), and the holders of Series B Preferred Stock shall not be entitled to any further payment. If upon any such liquidation, dissolution or winding up of the Company, the Company's assets to be distributed among the holders of the Company's Series A Preferred Stock and the Series B Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets to be distributed shall be distributed ratably among such holders in accordance with the respective amounts which they are entitled to be paid. Neither the consolidation or merger of the Company into or with any other entity or entities, nor the sale or transfer by the Company of all or any part of its assets, nor the reduction of the capital stock of the Company, shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of this Section. 8. Registration of Transfer. The Company shall keep at its ------------------------ principal office a register for the registration of Series B Preferred Stock. Upon the surrender of any certificate representing Series B Preferred Stock at such place, the Company shall, at the request of the record holder of such certificate, execute and deliver (at the Company's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of Series B Preferred Stock represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of shares of Series B Preferred Stock as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Series B Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Series B Preferred Stock represented by the surrendered certificate. 9. Replacement. Upon receipt of evidence reasonably ----------- satisfactory to the Company (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of Series B Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender of such certificate, the Company shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Series B Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. D. Common Stock. 1. Subject to Article Four hereof or as otherwise provided by the GBCL, each holder of the Class A Voting Common Stock shall be entitled to one vote per share of Class A Voting Common Stock on all matters to be voted on by the shareholders. The Class A Voting Common Stock and the Class B Non-Voting Common Stock shall be identical in all respects except that the holders of Class B Non-Voting Common Stock shall have no voting power for any purpose whatsoever unless and until (a) the occurrence of a Qualified IPO (as such term is defined 13 14 pursuant to the terms of the Corporation's Series A Convertible Preferred Stock), in which event each of the then outstanding shares of the Class B Non-Voting Common Stock shall become one share of Class A Voting Common Stock, or (b) a holder of Class B Non-Voting Common Stock chooses to sell such holder's shares of Class B Non-Voting Common Stock and the Corporation elects not to purchase such shares pursuant to a right of first refusal granted the Corporation in any then-existing agreement among the shareholders of the Corporation, in which event each of the shares proposed to be sold by such holder that is actually sold shall become one share of Class A Voting Common Stock. 2. Except as specifically provided herein, all preemptive rights of shareholders are hereby denied, so that no stock or other security of the Corporation shall carry with it and no holder or owner of any share or shares of stock or other security or securities of the Corporation shall have any preferential or preemptive right to acquire additional shares of stock or of any other security of the Corporation. 3. All cumulative voting rights are hereby denied, so that no stock or other security of the Corporation shall carry with it and no holder or owner of any share or shares of such stock or security shall have any right to cumulative voting in the election of directors or for any other purpose. 4. The foregoing provisions are not intended to modify or prohibit any provisions of any voting trust or agreement between or among holders or owners of shares of stock or other securities of the Corporation. ARTICLE FOUR - RESTRICTIONS ON VOTING STOCK The following restrictions apply to the Voting Stock (as such term is defined below) of the Corporation: A. Certain Definitions. For purposes of this Section, the following words have the meanings indicated: 1. "Affiliate" means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by or is under common control with, such Person. The term "control" (including the terms "controlling," "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. 2. "Associate" means, with respect to any Person, (i) any other Person (other than the Corporation or a Subsidiary of which a majority of each class of equity securities is owned by the Corporation) of which such Person is an officer, director, trustee or partner or is directly or indirectly the beneficial owner of ten percent (10%) or more of any class of equity securities; (ii) any trust or other estate in which such Person serves as a trustee or in a similar fiduciary capacity; 14 15 (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person; or (iv) any investment company registered under the Investment Company Act of 1940, as amended, for which such Person or any Affiliate of such Person serves as investment adviser. 3. A Person shall be deemed to "own" any shares of Voting Stock: (i) that such Person beneficially owns directly or indirectly, whether or not of record; or (ii) that such Person has the right to acquire pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants or options or otherwise, whether or not conditional; or (iii) that are beneficially owned, directly or indirectly (including shares deemed to be owned through application of clause (ii) above), whether or not of record, by an Affiliate or Associate of such Person; or (iv) that are beneficially owned, directly or indirectly, whether or not of record, by any other Person (including any shares which such other Person has the right to acquire pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants or options or otherwise, whether or not conditional) with whom such Person has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of Voting Stock; provided, however, that (A) directors, -------- ------- officers and employees of the Corporation shall not be deemed to have any such agreement, arrangement or understanding solely on the basis of their status, or actions taken in their capacities, as directors, officers or employees of the Corporation or any Affiliates of the Corporation, and (B) a Person shall not be deemed the owner of or to own any shares of Voting Stock solely because (x) such shares of Voting Stock have been tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered shares of Voting Stock are accepted for payment or exchange or (y) such Person or any of such Person's Affiliates or Associates has or shares the power to vote or direct the voting of such shares of Voting Stock pursuant to a revocable proxy given in response to a public proxy or consent solicitation made to more than ten (10) holders of shares of Voting Stock and pursuant to, and in accordance with, applicable rules and regulations under the Exchange Act, except if such power (or arrangements relating thereto) is then reportable under Item 6 of Schedule 13D under the Exchange Act (or any similar provision of a comparable or successor report). The outstanding shares of capital stock of the Corporation shall include those shares deemed owned through the application of clauses (ii) and (iii) above, but shall not include any other shares that may be issuable pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants, options or otherwise, whether or not conditional. 15 16 For all purposes hereof "beneficial" ownership, with respect to any securities, shall include, without limitation, (i) the power to vote, or direct the voting of, such securities or (ii) the power to exercise investment discretion over such securities, including the power to dispose, or to direct the disposition, of such securities. Furthermore, a Person shall be deemed to own "beneficially" any securities that such Person owns beneficially for purposes of Sections 13(d) of the Exchange Act or any rules and regulations promulgated thereunder, as in effect from time to time (or any similar successor provisions of law). 4. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute thereto. 5. "Group", with respect to any Person, shall include: (i) such Person; (ii) any Affiliates and Associates of such Person; and (iii) those additional Persons that, together with such Person, jointly file a statement of beneficial ownership with respect to securities of the Corporation pursuant to Section 13(d) of the Exchange Act or any successor provision, irrespective of any disclaimers of beneficial ownership. 6. "Person" means any individual, corporation, association, partnership, joint venture, trust, organization, business, government or any government agency or political subdivision thereof or any other entity. 7. "Voting Stock" means all outstanding shares of capital stock of the Corporation entitled to vote in the election of directors; and each reference to a portion of shares of Voting Stock shall refer to such proportion of the votes entitled to be cast by such shares. 8. "Subsidiary" means any Person of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of Section D of this -------- ------- Article Four, the term "Subsidiary" shall mean only a Person of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. B. Limitation on Entitlement to Vote Applicable to Certain Stockholders. With respect to any matter submitted to a vote of the holders of the Voting Stock at any meeting of such holders or any matter upon which the holders of Voting Stock propose or purport to take action by written consent without a meeting: (i) no Person that owns Voting Stock may vote that number of such shares that constitutes the Excludable Shares, if any, owned by such Person (provided, however, that if such Person is a member of a Group, such -------- ------- Person shall be subject to clause (ii) below rather than to this clause (i)); (ii) no Person that is a member of a Group of Persons owning Voting Shares may vote that number of shares owned by such Person that constitutes the Allocable Excludable Shares, if any, owned by such Person; and (iii) that number of 16 17 shares having the status of Excludable Shares (adjusted as necessary to give effect to the provisos to the definition set forth below of Allocable Excludable Shares) shall be excluded and deducted from the total number of shares of Voting Stock deemed to be outstanding for purposes of determining the number of shares of Voting Stock necessary to constitute a quorum at any such meeting or to approve a matter submitted for shareholder approval at any such meeting or by means of any such written consent. For purposes of this Article Four: (a) the term "Excludable Shares" means, with respect to any Person or Group, that number of shares of Voting Stock owned by such Person or Group, as the case may be, that would result in such Person or Group, as the case may be, owning more than twenty percent (20%) of the combined voting power of the outstanding shares of Voting Stock (with the determination of the voting power of each Person and Group owning Voting Stock being calculated and recalculated for this purpose as often as is necessary to give effect to the exclusion from voting and the determination of shares deemed to be outstanding for purposes related thereto of Excludable Shares held by other Persons or Groups); and (b) the term "Allocable Excludable Shares" means, with respect to each Person that is a member of a Group which owns Excludable Shares, a number of shares owned by such Person equal to such Person's pro rata share (based upon the number of shares of Voting Stock owned by such Person) within such Group of the total amount of Excludable Shares owned by such Group; provided, however, that shares that are deemed owned by two or -------- ------- more Persons who are members of such Group as a result of attributions in accordance with Section A.3. of this Article Four hereof shall for this purpose be deemed to be owned by such one of such Persons which most directly owns such shares; and provided, further, that, with respect to any Person -------- ------- that is a member of more than one such Group, "Allocable Excludable Shares" means the greatest number of Excludable Shares so allocated with respect to such Person with respect to any single Group. C. Right of Inquiry of the Corporation. The Corporation shall have the right but not the obligation to inquire of any Person whom the Corporation believes may own Voting Stock or any other Person who purports to exercise voting rights with respect to any Voting Stock, and each such Person shall have the obligation to provide such information to the Corporation as the Corporation may reasonably request, with respect to any matters pertinent to the operation or implementation of this Article Four, including, without limitation, (i) the number of shares owned by such Person, (ii) whether shares owned of record by such Person are owned by other Persons and the identity of such other Persons and the nature of their ownership interest, (iii) whether any Affiliates or Associates of such Person own any Voting Stock, (iv) whether such Person is a member of a Group of Persons owning Voting Stock, or (v) whether such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding with any other Person with respect to any Voting Stock. D. Persons to Whom This Article Does Not Apply. 17 18 The provisions of Section B of this Article Four shall not apply to (i) General American Life Insurance Company, a Missouri mutual insurance company ("General American"), General American Holding Company, a Missouri corporation ("Holding Company"), any Affiliate of General American or Holding Company, or any Subsidiary, (ii) any savings, profit-sharing, stock bonus or employee stock ownership plan or plans established by the Corporation or a Subsidiary and qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended, or any successor provision, which holds shares of Voting Stock on behalf of participating employees and their beneficiaries with the right to instruct the trustee how to vote such shares of Voting Stock with respect to all matters submitted to shareholders for voting, or (iii) participating employees and beneficiaries under the plans referred to in the immediately preceding clause (ii) because of their participation in such savings, profit-sharing, stock bonus or employee ownership plans. In addition, the provisions of Section B of this Article Four shall not be applicable with respect to any Person or Group if the conditions specified in either Section D.1. or D.2 below are met: 1. Approval in Advance by the Board of Directors. The board of directors of the Corporation (the "Board of Directors") (i) has expressly approved in advance either (A) the acquisition of outstanding shares of Voting Stock by such Person or Group that caused such Person or Group to become the owner of Excludable Shares, or (B) the issue or sale by the Corporation of shares of Voting Stock to such Person or Group that caused such effect, and (ii) in advance of such acquisition or issue or sale have expressly determined that such provisions shall not be applicable to such Person or Group. 2. Approval by Board of Directors. The Board of Directors has determined that such provision shall not apply to such Person or Group. E. Powers of the Board of Directors. The Board of Directors shall have the power, but not the obligation, to determine, for the purposes of this Article Four, on the basis of information actually known to it or, in its discretion, after reasonable inquiry, all facts necessary to determine compliance with or implementation of this Article Four, including, without limitation, (i) the number of shares of Voting Stock owned by any Person or Group or a member of any Group (including, without limitation, in accordance with the first proviso to the definitions of Excludable Shares and Allocable Excludable Shares set forth in Section B of this Article Four), (ii) whether two or more Persons constitute a Group, (iii) whether a Person is an Affiliate or Associate of another Person or a member of any Group, (iv) whether a Person has an agreement, arrangement or understanding with another Person, (v) the calculation (including the manner of calculation) of the amount of Excludable Shares held by any Person or Group or the Allocable Excludable Shares held by any Person (including, without limitation, in accordance with the first proviso to the definitions of Excludable Shares and Allocable Excludable Shares set forth in Section B of this Article Four hereof), and (vi) any other facts which the Board of Directors determines to be relevant. Any determinations made by the Board of Directors pursuant to this Article Four in good faith and on the basis of such information as was actually known by the Board of Directors and advice as was then actually provided to the Board of Directors for such purpose shall be conclusive and binding upon the Corporation and its shareholders. 18 19 ARTICLE FIVE - INCORPORATOR The name and place of residence of the incorporator of the Corporation is: Name Address ---- ------- Connie B. Walsh 454 Tree Top Lane St. Louis, MO 63122 ARTICLE SIX - DIRECTORS A. Number and Classification. The number of Directors to constitute the Board of Directors is five. Hereafter, the number of Directors shall be fixed by or in the manner provided in the Bylaws of the Corporation, but in no event shall there be fewer than three (3) Directors. The Directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the mode of such classification to be provided for in the Bylaws of the Corporation. Directors other than certain Directors constituting the existing Board of Directors at the time of the adoption of this provision shall be elected to hold office for a term of three years, with the term of office of one class expiring each year. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of stock of the Corporation, other than shares of Common Stock, shall have the right, voting separately by class or series, to elect Directors, the election, term of office, filling of vacancies and other features of such directorship shall be governed by the terms of the Articles of Incorporation of the Corporation or any Certificate of Designation thereunder applicable thereto; and such directors so elected shall not be divided into classes pursuant to this Article Six unless expressly provided by such terms. As used in these Articles of Incorporation, the term "entire Board of Directors" or the "entire Board" means the total number of Directors fixed by, or in accordance with, these Articles of Incorporation and the Bylaws of the Corporation. B. Removal of Directors. Subject to the rights, if any, of the holders of any class of capital stock of the Corporation (other than the Common Stock) then outstanding or any limitation imposed by law, (1) any Director, or the entire Board of Directors, may be removed from office at any time prior to the expiration of his, her or their term of office only for cause and only by the affirmative vote of the holders of record of outstanding shares representing at least 85% of all of the then outstanding shares of capital stock of the Corporation then entitled to vote generally in the election of Directors, voting together as a single class at a special meeting of shareholders called expressly for that purpose (such vote being in addition to any required class or other vote); and (2) any Director may be removed from office by the affirmative vote of a majority of the entire Board of Directors at any time prior to the expiration of his or her term of office, as provided by law, in the event that the Director fails to meet any qualifications stated in the Bylaws for election as a Director or in the 19 20 event that the Director is in breach of any agreement between the Director and the Corporation relating to the Director's service as a Director or employee of the Corporation. C. Vacancies. Subject to the rights, if any, of the holders of any class of capital stock of the Corporation (other than the Common Stock) then outstanding, any vacancies in the Board of Directors which occur for any reason prior to the expiration of the respective term of office of the class in which the vacancy occurs, including vacancies which occur by reason of an increase in the number of Directors or the removal of a Director, shall be filled only by the Board of Directors, acting by the affirmative vote of a majority of the remaining Directors then in office (although less than a quorum). ARTICLE SEVEN - DURATION The duration of the Corporation is perpetual. ARTICLE EIGHT - PURPOSES The Corporation is formed to engage in any lawful act or activity for which a corporation now or hereafter may be organized under the laws of the State of Missouri. ARTICLE NINE - AMENDMENT OF BYLAWS The Bylaws of the Corporation may be amended, altered, changed or repealed, and a provision or provisions inconsistent with the provisions of the Bylaws as they may exist from time to time may be adopted, only by a majority of the entire Board of Directors. ARTICLE TEN - INDEMNIFICATION A. Actions Involving Directors and Officers. The Corporation shall indemnify each person (other than a party plaintiff suing on his or her own behalf or in the right of the Corporation) who at any time is serving or has served as a Director or officer of the Corporation against any claim, liability or expense incurred as a result of such service, or as a result of any other service on behalf of the Corporation, or service at the request of the Corporation as a director, officer, employee, member, or agent of another corporation, partnership, joint venture, trust, trade or industry association, or other enterprise (whether incorporated or unincorporated, for-profit or not-for-profit), to the maximum extent permitted by law. Without limiting the generality of the foregoing, the Corporation shall indemnify any such person who was or is a party (other than a party plaintiff suing on his or her behalf or in the right of the Corporation), or is threatened to be made a party, to any threatened, pending or 20 21 completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, but not limited to, an action by or in the right of the Corporation) by reason of such service against expenses (including, without limitation, attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding. B. Actions Involving Employees or Agents. 1. Permissive Indemnification. The Corporation may, if it deems appropriate and as may be permitted by this Article Ten, indemnify any person (other than a party plaintiff suing on his or her own behalf or in the right of the Corporation) who at any time is serving or has served as an employee or agent of the Corporation against any claim, liability or expense incurred as a result of such service, or as a result of any other service on behalf of the Corporation, or service at the request of the Corporation as a director, officer, employee, member, or agent of another corporation, partnership, joint venture, trust, trade or industry association, or other enterprise (whether incorporated or unincorporated, for-profit or not-for- profit), to the maximum extent permitted by law or to such lesser extent as the Corporation, in its discretion, may deem appropriate. Without limiting the generality of the foregoing, the Corporation may indemnify any such person who was or is a party (other than a party plaintiff suing on his or her own behalf or in the right of the Corporation), or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, but not limited to, an action by or in the right of the Corporation) by reason of such service, against expenses (including, without limitation, attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding. 2. Mandatory Indemnification. To the extent that an employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section B.1 of this Article Ten, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the action, suit or preceding. C. Determination of Right to Indemnification in Certain Circumstances. Any indemnification required under Section A of this Article Ten or authorized by the Corporation in a specific case pursuant to Section B of this Article Ten (unless ordered by a court) shall be made by the Corporation unless a determination is made reasonably and promptly that indemnification of the Director, officer, employee or agent is not proper under the circumstances because he or she has not met the applicable standard of conduct set forth in or established pursuant to this Article Ten. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or even if obtainable a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or (3) by majority vote of the shareholders; provided that no such determination shall preclude an action brought in an appropriate court to challenge such determination. 21 22 D. Advance Payment of Expenses. Expenses incurred by a person who is or was a Director or officer of the Corporation in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of an action, suit or proceeding, and expenses incurred by a person who is or was an employee or agent of the Corporation in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors, in either case upon receipt of an undertaking by or on behalf of the Director, officer, employee or agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in or pursuant to this Article Ten. E. Article Ten Provisions Not Exclusive Right. The indemnification provided by this Article Ten shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled, whether under the Bylaws of the Corporation or any statute, agreement, vote of shareholders or disinterested Directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. F. Indemnification Agreements Authorized. Without limiting the other provisions of this Article Ten, the Corporation is authorized from time to time, without further action by the shareholders of the Corporation, to enter into agreements with any Director, officer, employee or agent of the Corporation providing such rights of indemnification as the Corporation may deem appropriate, up to the maximum extent permitted by law. Any agreement entered into by the Corporation with a Director may be authorized by the other Directors, and such authorization shall not be invalid on the basis that different or similar agreements may have been or may thereafter be entered into with other Directors. G. Standard of Conduct. Except as may otherwise be permitted by law, no person shall be indemnified pursuant to this Article Ten (including without limitation pursuant to any agreement entered into pursuant to Section F of this Article Ten) from or on account of such person's conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct. The Corporation may (but need not) adopt a more restrictive standard of conduct with respect to the indemnification of any employee or agent of the Corporation. H. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or who is or was otherwise serving on behalf or at the request of the Corporation in any capacity against any claim, liability or 22 23 expense asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article Ten. I. Certain Definitions. For the purposes of this Article Ten: 1. Service in Representative Capacity. Any Director or officer of the Corporation who shall serve as a director, officer or employee of any other corporation, partnership, joint venture, trust or other enterprise of which the Corporation, directly or indirectly, is or was the owner of 20% or more of either the outstanding equity interests or the outstanding voting stock (or comparable interests), shall be deemed to be so serving at the request of the Corporation, unless the Board of Directors of the Corporation shall determine otherwise. In all other instances where any person shall serve as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise of which the Corporation is or was a stockholder or creditor, or in which it is or was otherwise interested, if it is not otherwise established that such person is or was serving as a director, officer, employee or agent at the request of the Corporation, the Board of Directors of the Corporation may determine whether such service is or was at the request of the Corporation, and it shall not be necessary to show any actual or prior request for such service. 2. Predecessor Corporations. References to a corporation include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of a constituent corporation or is or was serving at the request of a constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article Ten with respect to the resulting or surviving corporation as he or she would if he or she had served the resulting or surviving corporation in the same capacity. 3. Service for Employee Benefit Plan. The term "other enterprise" shall include, without limitation, employee benefit plans and voting or taking action with respect to stock or other assets therein; the term "serving at the request of the Corporation" shall include, without limitation, any service as a director, officer, employee or agent of a corporation which imposes duties on, or involves services by, a director, officer, employee or agent with respect to any employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have satisfied any standard of care required by or pursuant to this Article Ten in connection with such plan; the term "fines" shall include, without limitation, any excise taxes assessed on a person with respect to an employee benefit plan and shall also include any damages (including treble damages) and any other civil penalties. 23 24 J. Survival. Any indemnification rights provided pursuant to this Article Ten shall continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Notwithstanding any other provisions in these Articles of Incorporation, any indemnification rights arising under or granted pursuant to this Article Ten shall survive amendment or repeal of this Article Ten with respect to any acts or omissions occurring prior to the effective time of such amendment or repeal and persons to whom such indemnification rights are given shall be entitled to rely upon such indemnification rights with respect to such acts or omissions as a binding contract with the Corporation. K. Liability of the Directors. It is the intention of the Corporation to limit the personal liability of the Directors of the Corporation, in their capacity as such, whether to the Corporation, its shareholders or otherwise, to the fullest extent permitted by law. Consequently, should the GBCL or any other applicable law be amended or adopted hereafter so as to permit the elimination or limitation of such liability, the liability of the Directors of the Corporation shall be so eliminated or limited without the need for amendment of these Articles or further action on the part of the shareholders of the Corporation. ARTICLE ELEVEN - AMENDMENT OF ARTICLES OF INCORPORATION The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on the shareholders, Directors and officers of the Corporation are subject to this reserved power; provided, that (in addition to any required class or other vote) the affirmative vote of the holders of record of outstanding shares representing at least 85% of all of the outstanding shares of capital stock of the Corporation then entitled to vote generally in the election of Directors, voting together as a single class, shall be required to amend, alter, change or repeal, or adopt any provision or provisions inconsistent with, Articles Four, Six, Nine, Ten, Twelve, Thirteen or this Article Eleven of these Articles of Incorporation. ARTICLE TWELVE - BUSINESS COMBINATIONS The Corporation hereby subjects itself to and accepts the provisions of Section 351.459 of the GBCL, provided that General American or Holding Company or any Affiliate of General American or Holding Company or any Subsidiary (as each of such terms is defined in Article Four hereof) shall not be deemed to constitute "interested shareholders" for purposes of Section 351.459. ARTICLE THIRTEEN - CONTROL SHARE ACQUISITIONS Section 351.407 of the GBCL shall not apply to control share acquisitions (as defined therein) of shares of the Corporation. 24 EX-3.2 4 FORM OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION 1 ARTICLE THREE - AUTHORIZED SHARES A. Classes and Number of Shares The aggregate number of shares of capital stock which the Corporation is authorized to issue is 70,000,000 shares, consisting of 50,000,000 shares of Common Stock, par value $0.01 per share ("Common Stock"), and 20,000,000 shares of preferred stock, par value $0.01 per share ("Preferred Stock"). The preferences, qualifications, limitations, restrictions, and the special or relative rights, including convertible rights, if any, in respect of the shares of each class are as follows: B. Preferred Stock 1. Subject to the requirements of the General and Business Corporation Law of Missouri (the "GBCL") and the provisions of these Articles of Incorporation, the Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more series. The description of shares of each series of Preferred Stock, including any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption shall be as set forth in these Articles of Incorporation or any amendment hereto, or in a resolution or resolutions adopted by the Board of Directors and, to the extent set forth in any such resolution or resolutions, such information shall be certified to the Secretary of State of Missouri filed as required by law from time to time prior to the issuance of any shares of such series. 2. The Board of Directors is expressly authorized, prior to issuance, by adopting resolutions providing for the issuance of, or providing for a change in the number of, shares of any particular series of Preferred Stock and, if and to the extent from time to time required by law, by filing certification thereto with the Secretary of State of Missouri, to set or change the number of shares to be included in each series of Preferred Stock and to set or change in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms and conditions of redemption relating to the shares of each such series. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, setting or changing the following: (a) the distinctive serial designation of such series and the number of shares constituting such series (provided that the aggregate number of shares constituting all series of Preferred Stock shall not exceed twenty million (20,000,000) shares). (b) the annual dividend rate, if any, on shares of such series, whether and the extent to which dividends shall be cumulative or non-cumulative, the relative rights of priority, if any, of payment of any dividends, and the time at which, and the terms and conditions on which, any dividends shall be paid; 2 (c) whether the shares of such series shall be redeemable or purchasable and, if so, the terms and conditions of such redemption or purchase, including the date or dates upon and after which such shares shall be redeemable or purchasable, and the amount per share payable in case of redemption or purchase, which amount may vary under different conditions and at different redemption or purchase dates; (d) the obligation, if any, of the Corporation to retire shares of such series pursuant to a sinking fund and the terms and conditions of any such sinking fund; (e) whether shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) whether the shares of such series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (g) the rights of the holders of shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of such holders with respect thereto; and (h) any other relative rights, powers, preferences, qualifications, limitations or restrictions thereof relating to such series. C. Common Stock 1. Subject to the provisions of Article Four hereof or as otherwise provided by the GBCL, each holder of the Common Stock shall be entitled to one vote per share of Common Stock on all matters to be voted on by the shareholders. 2. All preemptive rights of shareholders are hereby denied, so that no stock or other security of the Corporation shall carry with it and no holder or owner of any share or shares of stock or other security or securities of the Corporation shall have any preferential or preemptive right to acquire additional shares of stock or of any other security of the Corporation. 3. All cumulative voting rights are hereby denied, so that no stock or other security of the Corporation shall carry with it and no holder or owner of any share or shares of such stock or security shall have any right to cumulative voting in the election of directors or for any other purpose. 4. The foregoing provisions are not intended to modify or prohibit any provisions of any voting trust or agreement between or among holders or owners of shares of stock or other securities of the Corporation. 2 EX-3.3 5 BYLAWS 1 BYLAWS OF CONNING CORPORATION Effective June 12, 1997 2 BYLAWS OF CONNING CORPORATION INDEX -----
Page ---- ARTICLE ONE OFFICES; DEFINITIONS.......................................... 1 Section 1.1 Registered Office........................................ 1 Section 1.2 Other Offices............................................ 1 Section 1.3 Definitions.............................................. 1 ARTICLE TWO SHAREHOLDERS' MEETINGS........................................ 1 Section 2.1 Place of Meetings........................................ 1 Section 2.2 Annual Meetings.......................................... 1 Section 2.3 Special Meeting.......................................... 2 Section 2.4 Notice of Meetings....................................... 2 Section 2.5 List of Shareholders Entitled to Vote.................... 2 Section 2.6 Quorum; Adjournment; Postponement........................ 2 Section 2.7 Voting................................................... 3 Section 2.8 Action by Consent........................................ 4 Section 2.9 Advance Notice of Nominations and Shareholder Proposals.. 4 ARTICLE THREE BOARD OF DIRECTORS.......................................... 7 Section 3.1 Number, Election and Term................................ 7 Section 3.2 Powers................................................... 7 Section 3.3 Meetings; Quorum......................................... 7 Section 3.4 Action by Consent........................................ 8 Section 3.5 Resignation of Directors................................. 8 Section 3.6 Compensation of Directors................................ 8 Section 3.7 Committees; General Rules................................ 8 Section 3.8 Qualifications........................................... 9 ARTICLE FOUR OFFICERS..................................................... 9 Section 4.1 Number, Election and Term................................ 9 Section 4.2 Chairman of the Board.................................... 10 Section 4.3 President................................................ 10 Section 4.4 Vice Presidents.......................................... 10 Section 4.5 Secretary and Assistant Secretaries...................... 10 i 3 Section 4.6 Treasurer and Assistant Treasurers....................... 10 Section 4.7 Controller and Assistant Controllers..................... 11 Section 4.8 Appointed Officers....................................... 11 ARTICLE FIVE CAPITAL STOCK................................................ 11 Section 5.1 Stock Certificates....................................... 11 Section 5.2 Transfer of Stock........................................ 12 Section 5.3 Closing of Transfer Books and Fixing of Record Date...... 12 Section 5.4 Lost or Destroyed Certificates........................... 13 Section 5.5 Transfer Agents and Registrars........................... 13 ARTICLE SIX CORPORATE SEAL................................................ 13 ARTICLE SEVEN FISCAL YEAR................................................. 13
ii 4 BYLAWS OF CONNING CORPORATION ARTICLE ONE OFFICES; DEFINITIONS Section 1.1 Registered Office. The registered office of the ----------------- Corporation in Missouri shall be located at 700 Market Street, St. Louis, Missouri, or at such other address within the State of Missouri as the Board of Directors may from time to time authorize by duly adopted resolution. Section 1.2 Other Offices. The Corporation may maintain such ------------- other offices both within and without the State of Missouri as the business of the Corporation may from time to time require or as the Board of Directors may determine. Section 1.3 Definitions. Unless the context otherwise requires, ----------- defined terms herein shall have the meaning ascribed thereto in the Articles of Incorporation (the "Articles"). ARTICLE TWO SHAREHOLDERS' MEETINGS Section 2.1 Place of Meetings. All meetings of the shareholders ----------------- shall be held at such place within or without the State of Missouri as may be, from time to time, fixed or determined by the Board. Section 2.2 Annual Meetings. The annual meeting of shareholders --------------- for the election of Directors and for the transaction of such other business as properly may come before such meeting shall be held on the second Tuesday in May in each year if not a legal holiday or, if a legal holiday, on the next succeeding business day not a legal holiday, commencing with May 12, 1998; provided, however, the day fixed for such meeting in any year may be changed, by resolution of the Board of Directors, to such other day in April, May, June, July or August which is not a legal holiday, as the Board of Directors may deem to be desirable or appropriate, subject to any applicable limitations of law. Every meeting of the shareholders shall be convened at the hour stated in the notice for the meeting and continue until declared adjourned by a vote of the shareholders present or declared adjourned by the presiding officer. Section 2.3 Special Meeting. Special meetings of the --------------- shareholders or of the holders of any special class of stock of the Corporation, unless otherwise prescribed by statute or by 5 the Articles of Incorporation, may be called only by the affirmative vote of a majority of the entire Board of Directors or by the Chairman of the Board of Directors or the President by request of such a meeting in writing. Such request shall be delivered to the Secretary of the Corporation and shall state the purpose or purposes of the proposed meeting. Upon such direction or request, subject to any requirements or limitations imposed by the Corporation's Articles of Incorporation, by these Bylaws or by law, it shall be the duty of the Secretary to call a special meeting of the shareholders to be held at such time as is specified in the request. Section 2.4 Notice of Meetings. Written or printed notice of ------------------ each meeting of shareholders, stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered or given not less than 10 nor more than 70 days before the date of the meeting, either personally or by mail, by or at the direction of the Secretary to each shareholder of record entitled to vote at such meeting. Attendance of a shareholder at any meeting shall constitute a waiver of notice of such meeting except where such shareholder attends the meeting for the sole and express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Any notice of a shareholders' meeting sent by mail shall be deemed to be delivered when deposited in the United States mail with first class postage thereon prepaid, addressed to the shareholder at such shareholder's address as it appears on the records of the Corporation. Section 2.5 List of Shareholders Entitled to Vote. At least ten ------------------------------------- (10) days before each meeting of the shareholders, a complete list of the shareholders entitled to vote at such meeting shall be prepared and arranged in alphabetical order with the address of each shareholder and the number of shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting, and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in the State of Missouri, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of the shareholders. Failure to comply with the above requirements in respect of lists of shareholders shall not affect the validity of any action taken at such meeting. Section 2.6 Quorum; Adjournment; Postponement. The holders of a --------------------------------- majority of the outstanding shares entitled to vote at any meeting, represented in person or by proxy, shall be requisite and shall constitute a quorum at a meeting of shareholders, except as otherwise provided by law, the Articles or these Bylaws. The shareholders present at a meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of such number of shareholders as to reduce the remaining shareholders to less than a quorum. Whether or not a quorum is present, the chairman of the meeting or a majority of the shareholders entitled to vote thereat, present in person or by proxy, shall have power, except as otherwise provided by statute, successively to adjourn the meeting to such time and place as they may determine, to a date not longer than ninety (90) days after each such adjournment, and no notice of any such adjournment need be given to shareholders if the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken. At any adjourned meeting at 2 6 which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally called. A shareholder's meeting may be successively postponed by resolution of the board of directors to a specified date up to a date ninety days after such postponement or to another place, provided public notice of such postponement is given prior to the date previously scheduled for the meeting. Such notice shall state the new date and place of such postponed meeting. For purposes of this Section 2.6, "adjournment" means a delay in the date, which may also be combined with a change in the place, of a meeting after the meeting has been convened; "postponement" means a delay in the date, which may be combined with a change in the place, of the meeting before it has been convened, but after the time and place thereof have been set forth in a notice delivered or given to shareholders; and public notice shall be deemed to have been given if a public announcement is made by press release reported by a national news service or in a publicly available document filed with the United States Securities and Exchange Commission. Section 2.7 Voting. Subject to the rights of any holders of ------ preferred stock and to the provisions of the Articles of Incorporation, each outstanding share entitled to vote under the provisions of the Articles of Incorporation shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders and, if a quorum is present, the affirmative vote of a majority of the shares represented at the meeting shall be the act of the shareholders unless the vote of a greater number of shares is required by the Articles, by these Bylaws or by law. No person shall be admitted to vote on any shares belonging or hypothecated to the Corporation. A shareholder may vote either in person or by proxy, but no proxy shall be voted after eleven (11) months from the date of its execution unless otherwise provided in the proxy. Without limiting the manner in which a shareholder may authorize a person to act for the shareholder as proxy, the following shall constitute a valid means by which a shareholder may grant such authority: (1) A shareholder or the shareholder's duly authorized attorney in fact may execute a writing authorizing another person to act for the shareholder as proxy. Execution may be accomplished by the shareholder or duly authorized attorney in fact signing such writing or causing the shareholder's signature to be affixed to such writing by any reasonable means, including, but not limited to, facsimile signature; (2) A shareholder may authorize another person to act for the shareholder as proxy by transmitting or authorizing transmission of a telegram, cablegram, facsimile or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram, facsimile or other means of electronic transmission shall either set forth or be submitted with information from which it can be determined that the telegram, cablegram, facsimile or other electronic transmission was authorized by the shareholder. If it is determined that such telegrams, cablegrams, facsimiles or other electronic transmissions are valid, the inspectors or, if there are no 3 7 inspectors, such other persons making such determination shall specify the information upon which they relied. Section 2.8 Action by Consent. Unless otherwise prescribed by ----------------- the Articles of Incorporation, any action required or permitted to be taken by the shareholders of the Corporation may, if otherwise allowed by law, be taken without a meeting of shareholders only if consents in writing, setting forth the action so taken, are signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Section 2.9 Advance Notice of Nominations and Shareholder --------------------------------------------- Proposals. All nominations of individuals for election to the Board and - --------- proposals of business to be considered at any meeting of the shareholders shall be made as set forth in this Section 2.9 of Article Two. (a) Annual Meeting of Shareholders. (1) Nominations of ------------------------------ individuals for election to the Board and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of the Directors or (iii) by any shareholder of the Corporation who was a shareholder of record at the time of giving of notice provided for in this Section 2.9(a) of Article Two, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 2.9(a) of Article Two. (2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of this Section 2.9 of Article Two, the shareholder must have given timely notice thereof in writing to the Secretary. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting or not less than 60 days nor more than 90 days prior to May 12, 1998, in the case of the next annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such shareholder's notice shall set forth (i) as to each person whom the shareholder proposes to nominate for election or reelection as a Director (a) the name, age, business and residential addresses, and principal occupation or employment of each proposed nominee, (b) the class and number of shares of capital stock that are beneficially owned by such nominee on the date of such notice, (c) a description of all arrangements or understandings between the shareholder and each nominee and the name of any other person or persons pursuant to which the nomination or nominations are to be made by the shareholder, (d) all other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (e) the written consent of each proposed nominee to being named as a nominee in the proxy statement and to serve as a Director of the Corporation if so elected; (ii) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired 4 8 to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such shareholder, as they appear on the Corporation's books, and of such beneficial owner, (y) the class and number of shares of stock of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner, and (z) a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or to propose such other business. The Corporation may require any proposed nominee to furnish any information, in addition to that furnished pursuant to clause (i) above, it may reasonably require to determine the eligibility of the proposed nominee to serve as a Director of the Corporation. (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 2.9 of Article Two to the contrary, in the event that the number of Directors to be elected to the Board is increased and there is no public announcement naming all of the nominees for Director or specifying the size of the increased Board made by the Corporation at least 70 days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this Section 2.9(a) of Article Two shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation. (b) Special Meetings of Shareholders. Only such business -------------------------------- shall be conducted, and only such proposals shall be acted upon, at a special meeting of shareholders as shall have been brought before a meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of shareholders at which Directors are to be elected (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of the Board, or (iii) provided that the Board has determined that Directors shall be elected at such special meeting, by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section 2.9 of Article Two, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 2.9(b) of Article Two. In the event the Corporation calls a special meeting of shareholders for the purpose of electing one or more Directors to the Board, any such shareholder may nominate a person or persons (as the case may be) for election to such position as specified in the Corporation's notice of meeting, if the shareholder's notice required by paragraph (a)(2) of this Section 2.9 of Article Two shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. No other proposals of business by a shareholder other than the nomination of persons for election to the Board requested by a shareholder, as provided in this Section 2.9(b), may be considered at a special meeting of the shareholders. 5 9 (c) General. (1) Only such persons who are nominated in ------- accordance with the procedures set forth in this Section 2.9 of Article Two shall be eligible to serve as Directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.9 of Article Two. The Board of Directors may reject any nomination or shareholder proposal submitted for consideration at any meeting of shareholders which is not made in accordance with the terms of this Section 2.9 of Article Two or which is not a proper subject for shareholder action in accordance with provisions of applicable law. Alternatively, if the Board of Directors fails to consider the validity of any nomination or shareholder proposal, the presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 2.9 of Article Two and, if any proposed nomination or business is not in compliance with this Section 2.9 of Article Two, to declare that such defective nomination or proposal be disregarded. This provision shall not prevent the consideration and approval or disapproval at the meeting of reports of officers, Directors and committees of the Board of Directors, but, in connection with such reports, no new business shall be acted upon at the meeting unless stated, filed and received as herein provided. (2) For purposes of this Section 2.9 of Article Two, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press, Reuters or comparable news service or in a document publicly filed by the Company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Section 2.9 of Article Two, a shareholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.9 of Article Two. Nothing in this Section 2.9 of Article Two shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act. ARTICLE THREE BOARD OF DIRECTORS Section 3.1 Number, Election and Term. ------------------------- (a) The Board of Directors shall consist of five persons; provided, however, that in no event shall the number of Directors be less than three (3); provided, further, that except as otherwise provided in the Articles of Incorporation, the number of Directors provided herein may be amended from time to time only by the affirmative vote of a majority of the Board of Directors; and provided, further, that any change in the number of Directors shall be reported to the Secretary of State of the State of Missouri within 30 calendar days of such change. 6 10 (b) The Board of Directors shall be divided into three classes, as nearly equal in number as possible. In the event of any increase in the number of Directors, any additional Directors shall be added to such classes as may be necessary so that all classes shall be as nearly equal in number as possible. In the event of any decrease in the number of Directors, all classes of Directors shall be decreased as nearly equally as may be possible. No reduction in the number of Directors shall affect the term of office of any incumbent Director. Subject to the foregoing, the Board of Directors shall determine the class or classes to which any additional Directors shall be added and the class or classes which shall be decreased in the event of any decrease in the number of Directors. (c) With respect to the current Board of Directors of the Corporation, the first class of Directors shall hold office until the first annual meeting of shareholders in 1998, the second class of Directors shall hold office until the second annual meeting of shareholders in 1999 and the third class of Directors shall hold office until the third annual meeting of shareholders in 2000, or in each case, until his or her successor is elected and qualified. Thereafter, Directors shall be elected to hold office for a term of three years or, in each case, until his or her successor is elected and qualified, and at each annual meeting of shareholders, the successors to the class of Directors whose terms shall then expire shall be elected for a term expiring at the third succeeding annual meeting after that election. Section 3.2 Powers. The property and business of the ------ Corporation shall be managed and controlled by or under the direction of the Board of Directors, which shall exercise or direct the exercise of all of the powers of the Corporation and do or cause to be done all acts and things as are not, by the Articles, by these Bylaws or by law, directed or required to be done or exercised by the shareholders. Section 3.3 Meetings; Quorum. Regular meetings of the Board of ---------------- Directors shall be held at such places, within or without the State of Missouri, and on such days and at such times as shall be fixed from time to time by the Board of Directors. Rules of procedure for the conduct of such meetings may be adopted by resolution of the Board of Directors. Notice of such regular meetings need not be given. A majority of members of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but a lesser number may adjourn a meeting to another time or day if a quorum is not present. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by the Articles, by these Bylaws or by law. Special meetings of the Board of Directors may be held at any time and place, within or without the State of Missouri, upon the call of the Chairman of the Board of Directors, the President or Secretary of the Corporation by oral, written, telefax or telegraphic notice duly given, sent or mailed to each Director, at such Director's last known address, not less than twenty-four hours before such meeting; provided, however, that any Director may, at any time, in writing or by telegram, waive notice of any meeting at which he or she may not be or may not have been present. Attendance of a Director at any meeting shall constitute a waiver of notice of the meeting except where a Director attends a meeting for the sole and express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. 7 11 Members of the Board of Directors or of any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or committee by means of conference telephone or similar communications equipment whereby all persons participating in the meeting can hear each other, and participation in a meeting in this manner shall constitute presence in person at the meeting. Section 3.4 Action by Consent. Any action which is required to ----------------- be or may be taken at a meeting of the Directors may be taken without a meeting if consents in writing, setting forth the action so taken, are signed by all the Directors. Any action which is required to be or may be taken at a meeting of a committee of Directors may be taken without a meeting if consents in writing, setting forth the action so taken, are signed by all the members of the committee. Section 3.5 Resignation of Directors. Any Director of the ------------------------ Corporation may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board of Directors, the President, or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if no time be specified, upon receipt thereof by the Board of Directors or one of the above-named Officers; and, unless specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.6 Compensation of Directors. Directors, as such, may ------------------------- receive such compensation and be reimbursed for expenses of attendance at any meeting of the Board of Directors as shall be determined by resolution of the Board of Directors. Nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Section 3.7 Committees; General Rules. The Board of Directors, ------------------------- by resolution adopted by a majority of the entire Board of Directors, may designate two or more Directors to constitute a committee. Each committee, to the extent provided in such resolution, shall have and may exercise the authority of the Board of Directors, as so delegated in the resolution, in the management of the Corporation. Each committee of the Board of Directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. Vacancies in the membership of each committee shall be filled by the Board of Directors at any regular or special meeting of the Board of Directors. At all meetings of a committee, a majority of the committee members then in office shall constitute a quorum for the purpose of transacting business, and the acts of a majority of the committee members present at any meeting at which there is a quorum shall be the acts of the committee. A Director who may be disqualified, by reason of personal interest, from voting on any particular matter before a meeting of a committee may nevertheless be counted for the purpose of constituting a quorum of the committee. Section 3.8 Qualifications. No person shall be eligible for -------------- election as a Director if such person's 70th birthday shall fall on a date prior to the commencement of the term for which such person is to be elected or appointed. No person shall be qualified to be elected and to hold office as a Director if such person is determined by a majority of the entire Board of Directors to have acted in a manner contrary to the best interests of the Corporation, including, but not limited to, the violation of either Federal or State law, maintenance of interests not properly authorized and 8 12 in conflict with the interests of the Corporation, or breach of any agreement between that Director and the Corporation relating to his or her services as a Director, employee or agent of the Corporation. A Director need not be a shareholder. ARTICLE FOUR OFFICERS Section 4.1 Number, Election and Term. The officers of the ------------------------- Corporation shall be a Chairman of the Board, a President and a Secretary who shall be chosen by the Board of Directors at its first meeting after each annual meeting of shareholders. The Board of Directors may also choose one or more Vice Presidents, a Treasurer, one or more Assistant Secretaries and Assistant Treasurers and such other officers as the Board of Directors may deem appropriate. Any two or more offices, except those of President and Vice President or President and Secretary, may be held by the same person. Officers of the Corporation may be given distinctive designations such as Executive Vice President, Group Vice President, Senior Vice President, Chief Operating Officer, Chief Administrative Officer and Chief Financial Officer. All officers, unless sooner removed, shall hold their respective offices until the first meeting of the Board of Directors after the next succeeding election of the Board of Directors and until their successors shall have been duly elected and qualified. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any vacancy occurring in any such office of the Corporation may be filled only by the Board of Directors. Section 4.2 Chairman of the Board. The Chairman shall be the --------------------- Chief Executive Officer of the Corporation. In addition to his duties as Chairman and Chief Executive Officer, he or she shall be responsible for the general and active management of the business and affairs of the Corporation, subject only to the control of the Board of Directors, shall have full authority in respect to the signing and execution of deeds, bonds, mortgages, contracts and other instruments of the Corporation; and, in the absence or disability of the President, shall exercise all of the powers and discharge all of the duties of the President. Unless otherwise determined by the Board of Directors, he or she shall also be, ex officio, a member of all standing Committees of the Board of Directors, shall preside at all meetings of the shareholders and Directors at which he or she is present and shall perform any other duties prescribed by the Board of Directors or these Bylaws. Section 4.3 President. In the absence of the Chairman of the --------- Board of Directors, the President shall preside at all meetings of the shareholders and Directors at which he or she is present. He or she shall perform any duties prescribed by the Chairman or the Board of Directors and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have equal authority with the Chairman to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where 9 13 permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Section 4.4 Vice Presidents. The Vice Presidents, if any, --------------- in the order of their seniority shall, in the absence or disability of the President, perform the duties and exercise the powers of the President, and shall perform any other duties prescribed by the Chairman, the President or the Board of Directors. Section 4.5 Secretary and Assistant Secretaries. The ----------------------------------- Secretary shall keep or cause to be kept a record of all meetings of the shareholders and the Board of Directors and record all votes and the minutes of all proceedings in a book to be kept for that purpose. He or she shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform any other duties prescribed by the Board of Directors or the President, under whose supervision he or she shall be. He or she shall keep in safe custody the seal of the Corporation and shall affix the same to any instrument requiring it. The Assistant Secretaries, if any, in order of their seniority shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform any other duties prescribed by the Chairman, the President or the Board of Directors. Section 4.6 Treasurer and Assistant Treasurers. The ---------------------------------- Treasurer, if any, shall have the custody of the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors and shall perform any other duties prescribed by the Chairman, the President or the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and Directors, at the regular meetings of the Board of Directors, or whenever they may require it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. The Assistant Treasurers, if any, in the order of their seniority shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform any other duties prescribed by the Board of Directors. Section 4.7 Controller and Assistant Controllers. The ------------------------------------ Controller, if one is elected by the Board of Directors, shall have charge of the accounting records of the Corporation, 10 14 shall maintain appropriate internal control and auditing of the Corporation, and shall perform such other duties as directed by the Board of Directors, the Chairman or other senior officers. The Assistant Controllers, if any, in order of their seniority shall, in the absence or disability of the Controller, perform the duties and exercise the powers of the Controller and shall have any other duties prescribed by the Board of Directors. Section 4.8 Appointed Officers. In addition to the ------------------ corporate officers elected by the Board of Directors, the Chairman may, from time to time, appoint one or more other persons as appointed officers who shall not be deemed to be corporate officers, but may, respectively, be designated with such titles as the Chairman may deem appropriate. The Chairman may prescribe the powers to be exercised and the duties to be performed by each such appointed officer, may designate the term for which each such appointment is made, and may, from time to time, terminate any or all of such appointments with or without cause. Such appointments and termination of appointments shall be reported periodically to the Board of Directors. ARTICLE FIVE CAPITAL STOCK Section 5.1 Stock Certificates. Every holder of stock in the ------------------ Corporation shall be entitled to have a certificate, in any form approved by the Board of Directors, certifying the number and class of shares owned by the shareholder in the Corporation, signed by the Chairman, the President or a Vice President and by the Secretary or Treasurer or an Assistant Secretary or Assistant Treasurer of the Corporation and sealed with the seal of the Corporation. If the certificate is countersigned by a transfer agent other than the Corporation or its employee, or by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile signature, or may be engraved or printed. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on the certificate shall have ceased to be an officer, transfer agent or registrar before the certificate is issued, the certificate may nevertheless be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Section 5.2 Transfer of Stock. The shares of stock of the ----------------- Corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives. Upon transfer, the old certificates shall be surrendered to the Corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other persons as the Board of Directors may designate, by whom they shall be cancelled and new certificates shall thereupon be issued. Except as otherwise expressly provided by the statutes of the State of Missouri, the Corporation shall be entitled to treat the holder of record of any share or shares of stock as the absolute owner thereof for all purposes and, accordingly, shall not be bound to recognize any legal, equitable or other claim to or interest in such share or shares on the part of any other person whether or not it or they shall have express or other notice thereof. Section 5.3 Closing of Transfer Books and Fixing of Record Date. --------------------------------------------------- The Board of Directors shall have the power to close the transfer books of the Corporation for a period not 11 15 exceeding 70 days prior to the date of any meeting of shareholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares shall go into effect. In lieu of so closing the transfer books, the Board of Directors may fix in advance a record date for the determination of the shareholders entitled to notice of and to vote at any meeting and any adjournment thereof, or entitled to receive payment of any dividend or any allotment of rights, or entitled to exercise the rights in respect of any change, conversion or exchange of shares, up to 70 days prior to the date of any meeting of shareholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares shall go into effect. In such case only the shareholders who are shareholders of record on the record date so fixed shall be entitled to receive notice of and to vote at such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the date of closing of the transfer books or the record date fixed as aforesaid. If the Board of Directors does not close the transfer books or set a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders, only the shareholders who are shareholders of record at the close of business on the 20th day preceding the date of the meeting shall be entitled to notice of and to vote at the meeting and upon any adjournment of the meeting, except that if prior to the meeting written waivers of notice of the meeting are signed and delivered to the Corporation by all of the shareholders of record at the time the meeting is convened, only the shareholders who are shareholders of record at the time the meeting is convened shall be entitled to vote at the meeting and any adjournment of the meeting. Section 5.4 Lost or Destroyed Certificates. The holder of ------------------------------ any shares of stock of the Corporation shall immediately notify the Corporation and its transfer agents and registrars, if any, of any loss or destruction of the certificates representing the same. The Corporation may issue a new certificate in place of any certificate theretofore issued by it which is alleged to have been lost or destroyed and the Board of Directors may require the owner of the lost or destroyed certificate or the owner's legal representative to give the Corporation a bond in a sum and in a form approved by the Board of Directors, and with a surety or sureties which the Board of Directors finds satisfactory, to indemnify the Corporation and its transfer agents and registrars, if any, against any claim or liability that may be asserted against or incurred by it or any transfer agent or registrar on account of the alleged loss or destruction of any certificate or the issuance of a new certificate. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is proper so to do. The Board of Directors may delegate to any Officer or Officers of the Corporation any of the powers and authorities contained in this section. Section 5.5 Transfer Agents and Registrars. The Board of ------------------------------ Directors may appoint one or more transfer agents or transfer clerks and one or more registrars which may be banks, trust companies or other financial institutions located within or without the State of Missouri; may define the authority of such transfer agents and registrars of transfers; may require all stock certificates to bear the signature of a transfer agent or a registrar of transfers, or both; and may change or remove any such transfer agent or registrar of transfers. 12 16 ARTICLE SIX CORPORATE SEAL The corporate seal shall be circular in form and shall bear the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Missouri" and otherwise shall be such form as shall be approved from time to time by the Board of Directors. ARTICLE SEVEN FISCAL YEAR The fiscal year of the Corporation shall end the last day of December in each year. 13 EX-10.1 6 INVESTMENT ADVISORY AGREEMENT 1 INVESTMENT ADVISORY AGREEMENT THIS AGREEMENT, made and entered into as of 1 May 1995 by and between General American Life Insurance Company, a Missouri insurance company ("Client"), and General American Investment Management Company ("Advisor"); WITNESSETH THAT; WHEREAS, Client desires that Advisor serve as investment advisor with respect to the investment portfolio maintained by Client in connection with Client's business as an insurer; and WHEREAS, Advisor hereby represents and warrants that it is duly registered as an investment advisor under the Investment Advisers Act of 1940 and experienced in the management of insurance portfolios; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties covenant and agree as follows. 1. Appointment of Investment Advisor. Client hereby appoints Advisor as --------------------------------- investment advisor with respect to its general account (herein referred to as "the Account," as constituted on the date hereof and as it may be changed, accreted, or diminished pursuant hereto). The Account is to be invested so as to accommodate Client's mix of liabilities in accordance with the investment laws for insurance companies in Missouri, Client's state of domicile. 2. Investment Authority. Client shall retain fiduciary responsibility, -------------------- authority, and control with respect to management and investment of the securities in the Account. Client shall supervise operations of Advisor with respect to the Account. Advisor shall be free to buy, sell, exchange, convert, or otherwise trade assets in the Account in the exercise of its sole discretion, provided Advisor acts in a manner consistent with general directions received from Client. 3. Assignment. Neither party to this Agreement may assign its rights or ---------- responsibilities under this Agreement without the prior written consent of the other party. 4. Client Obligations. Client agrees to give Advisor any information in ------------------ its possession which Client deems relevant to the suitability of the investment strategy implemented by Advisor, including information on Client's liabilities, whether this information becomes known before or after the adoption of the strategy. Client agrees to pay or have paid all fees and charges within thirty days of receipt of a bill stating what such fees and charges are. 2 5. Advisor Obligations. ------------------- a) Advisor does not warrant any rate of return on all or any segment of the Account. Advisor will try to select the most favorable prices and timing of asset purchases and sales. Advisor will select brokers and dealers on a basis which is favorable to Client, taking into account research services provided, ability to execute orders promptly and correctly, fees charged, and any other factors which Advisor deems relevant. Advisor will pass along to Client the cost of any and all brokers' fees, commissions, taxes, and other custodial charges related to management of the Account. b) It is understood and agreed that Advisor does not provide its services exclusively for Client. Advisor shall remain free to provide services to other clients or for its own account, pursuant to objectives which may or may not be similar to the strategy adopted for Client. c) Advisor shall make reports to Client as requested, including, but not limited to: i) delivery on the sixth working day of each month of all investment accounting data for the previous month, in an electronic format suitable for use in updating Client's computerized accounting records; ii) delivery by January 30 of each year of all investment-related exhibits and schedules for Client's statutory annual statement, in a printed format suitable for inclusion in Client's statutory annual statement without modification; 6. Custodian. The Advisor shall not have custody of any of the assets in --------- the Account. Custody of assets of the Account shall at all times be maintained by one or more custodians selected by the Client. All transactions authorized by this Agreement shall be carried out through such custodians. The Advisor shall not be responsible for any act or omission of such custodians. 7. Fees. ---- a) Fees are payable quarterly in arrears and are based on the market value of the Account as determined by Advisor on the last day of the quarter. The fee schedule is attached as Appendix A. Payments for less than a full calendar quarter shall be pro-rated. Client agrees that Advisor may direct custodians of the Account to make direct payment of fees due hereunder. 2 3 b) Calculation of fees shall be in accordance with the requirements of regulation 275.205-3 issued under the Investment Advisor Act of 1940 by the Securities and Exchange Commission, which requires among other things that Client be notified that it is theoretically possible that a fee based in part on the growth of a Client's funds could create an incentive for an advisor to make investments that are riskier or more speculative than it would make without a performance-based fee. c) Client shall have the right to audit the Account during normal business hours with or without notice. c) The fee may be modified from time to time with the written assent of both parties. 8. Confidentiality. Advisor shall keep any information it obtains about --------------- Client's business or investment objectives and results in confidence. 9. Term. This Agreement shall remain in effect until 1 May 1998 unless ---- Client, in its sole discretion, elects to end this Agreement at an earlier time by giving ninety (90) days written notice to Advisor. After the initial three-year term this Agreement shall renew automatically for successive one-year terms unless the Parties amend it in writing to provide otherwise. Ninety days written notice of termination shall be required of either party, but Advisor agrees not to terminate during the initial three-year term. 10. Governing Law. This agreement shall be governed by and construed and ------------- enforced in accordance with the laws of Missouri. 11. Notice. All notices provided for in this Agreement shall be deemed to ------ have been duly given when delivered by hand to an office of the other party or when deposited with the U.S. Postal Service as first class certified or registered mail, postage prepaid, or when delivered to an overnight courier, a telex, or a telecopy machine addressed as follows: a) To Client: General American Life Insurance Company 700 Market Street St. Louis, Missour 63101 Attn: John W. Barber b) To Advisor: General American Investment Management Company 700 Market Street St. Louis, MO 63101 Attn: J. Terri Tanaka 3 4 or to such other persons or places as each party may from time to time designate by written notice such as specified. GENERAL AMERICAN INVESTMENT GENERAL AMERICAN LIFE MANAGEMENT COMPANY INSURANCE COMPANY By: /s/ Leonard M. Rubenstein By: /s/ Richard A. Liddy ---------------------------- -------------------------- Leonard M. Rubenstein Richard A. Liddy President President 4 5 Appendix A to Investment Advisory Agreement by and between General American Life Insurance Company and General American Investment Management Company and dated 1 May 1995 For Investment Advice: An annual fee based on the market value of the amount under management, payable quarterly as per the following schedule: Commercial Mortgages 0.22% Securities 0.10% Real Estate 0.78% 5 EX-10.2 7 INVESTMENT ADVISORY AGREEMENT 1 INVESTMENT ADVISORY AGREEMENT ----------------------------- THIS AGREEMENT, made and entered into as of 2 July, 1990, by and between General American Life Insurance Company ("Client") and General American Investment Management Company ("Advisor"); WITNESSETH THAT: WHEREAS, Client desires that Advisor serve as investment advisor with respect to separate accounts established by Client to hold funds deposited by variable life customers; and WHEREAS, Advisor hereby represents and warrants that it is duly registered as an investment advisor under the Investment Advisers Act of 1940. NOW, THEREFORE, in consideration of the mutual agreements herein contained, it is covenanted and agreed as follows: 1. APPOINTMENT OF INVESTMENT ADVISOR. Client hereby appoints Advisor --------------------------------- as investment advisor with respect to those assets identified by Client as subject to this Agreement (herein collectively referred to as "the Accounts", as constituted on the date hereof and as they may be changed, accreted, or diminished pursuant hereto), to be invested in accordance with investment objectives given to Advisor by Client. 2. INVESTMENT AUTHORITY. Client shall retain fiduciary -------------------- responsibility, authority, and control with respect to management and investment of the securities in each Account. Client shall supervise operations of Advisor with respect to the Fund. Advisor shall be free to buy, sell, exchange, convert, or otherwise trade assets in an Account in the exercise of its sole discretion and in a manner consistent with general directions received from Client. 2 3. ASSIGNMENT. Neither party to this Agreement may assign its rights ---------- or responsibilities under this Agreement without the prior written consent of the other party. 4. CLIENT OBLIGATIONS. Client agrees to give Advisor any information ------------------ in its possession which would have an effect on the strategy agreed upon, whether this information becomes known before or after the adoption of the strategy. Client agrees to pay or have paid all fees and charges within thirty days of receipt. 5. ADVISOR OBLIGATIONS. ------------------- a. Advisor shall not warrant any rate of return on all or any segment of an Account, but will manage each Account in a manner consistent with the objectives agreed upon with Client. Advisor will try to select the most favorable prices and timing of asset purchases and sales. Advisor will select brokers and dealers on a basis which is favorable to client, taking into account research services provided, ability to execute orders promptly and correctly, fees charged, and any other factors which Advisor deems relevant. Advisor will pass along to Client the cost any and all brokers' fees, commissions, taxes, and other custodial charges related to management of each Account. b. It is understood and agreed that Advisor's services are not exclusively for Client or for any Account. Advisor shall remain free to provide services to other Accounts or for its own account, pursuant to objectives which may or may not be similar to the strategy agreed to by Client with respect to any particular account. 3 c. Advisor shall make reports to Client as requested. 6. CANCELLATION. This Agreement may be ended by either party on ------------ thirty days written notice. 7. FEES. Client will pay the Advisor a fee for its services under ---- this agreement calculated in accordance with the Fee Schedule attached hereto. The schedule may be modified from time to time with the written assent of both parties. In witness of this Agreement the parties have caused it to be executed by their duly authorized officers as of the day and year first above written. GENERAL AMERICAN INVESTMENT GENERAL AMERICAN LIFE MANAGEMENT COMPANY INSURANCE COMPANY ("Advisor") ("Client") By: /s/ Douglas R. Koester By: /s/ Leonard M. Rubenstein ------------------------------- ------------------------------------- Douglas Koester, Vice President Leonard M. Rubenstein, Vice President Attest: /s/ Helen Couranz Attest: /s/ Helen Couranz --------------------------- ----------------------------- Secretary Secretary 3 4 FEE SCHEDULE l. The annual fees charged under the Investment Advising Agreement between General American Life Insurance Company and General American Investment Management Company dated July 2, l990 will be as follows, until changed by mutual agreement of the parties (A) PRINCIPAL FEE, stated as an annual percentage of the average daily value of the net assets in an account: for a stock index account .25% for a money market account .l25% for a bond account .375% for a managed stock account .50% (B) NO ACCEPTANCE CHARGE (C) NO TERMINATION CHARGE All fees are payable quarterly in arrears and shall be based upon the size of the Separate Account valued at fair market value on the last day of the quarter. Payments for less than a full calendar quarter shall be pro-rated. Client agrees that Advisor may direct custodians of an Account to make direct payment of fees due hereunder. 2. Calculation of fees shall be in accordance with the requirements of regulation 275.205-3 issued under the Investment Advisers Act of l940 by the Securities and Exchange Commission, which requires among other things that Client be notified that it is theoretically possible that a fee based in part on the growth of a Client's funds could create an incentive for an advisor to make investments that are riskier or more speculative than it would make without a performance-based fee. 4 5 3. DEFINITIONS ----------- GROSS INCOME: Includes dividends, interest, and realized and ------------ unrealized capital gains or losses computed as required by the Investment Adviser's Act of l940. PRINCIPAL VALUATION: The value of an Account will be determined ------------------- for assets which are listed on a stock exchange at the closing sale price on the exchange on which such security is principally traded. If no sale took place, the latest available bid price on the exchange is used. A security not listed on a stock exchange for which a closing sale price is available is valued at such price. Securities traded in over-the-counter market for which closing sale prices are not available are valued at the latest available bid price. Debt instruments with maturities of 60 days or less are valued on an amortized cost basis. This procedure values a purchased instrument at cost on the date of purchase or, in the case of securities purchased more than 60 days prior to maturity, the market value on the 6lst day before maturity. It thereafter assumes a constant rate of amortization of any discount or premium and of accrual of interest income, regardless of any intervening change in general interest rates or the market value of the instrument. Other debt instruments are valued at market value, provided market quotations are readily available. All other assets are valued at their fair value as determined by Advisor in good faith, unless a special agreement for some other procedure has been made with Client. 5 EX-10.3 8 INVESTMENT ADVISORY AGREEMENT 1 INVESTMENT ADVISORY AGREEMENT ----------------------------- INVESTMENT ADVISORY AGREEMENT made as of the twenty-third day of July, 1997, by and between GENERAL AMERICAN CAPITAL COMPANY ("Company"), a Maryland corporation, and CONNING ASSET MANAGEMENT COMPANY ("Adviser"), a Missouri corporation which is registered as an investment adviser under the Investment Advisers Act of 1940, whereby the Adviser will act as investment adviser to the Company as follows: ARTICLE I Advisory Services ----------------- The Company is an open-end, diversified management investment company, incorporated under the laws of the State of Maryland on November 15, 1985. The Company hereby employs the Adviser to act as the investment adviser to and manager of the Company, and, subject to the supervision of the Board of Directors of the Company ("Board"), to manage the investment and reinvestment of the assets of the funds currently offered for sale by the Company ("Funds") for the period and on the terms and conditions set forth in this Agreement. The Adviser hereby accepts such employment and agrees during such period, at its own expense, to render the services and to assume the obligations herein set forth for the compensation provided for herein. The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, unless otherwise expressly provided or authorized herein, have no authority to act for or represent the Company in any way or otherwise be deemed an agent of the 2 Company. The Adviser shall, for purposes of this Agreement, have and exercise full investment discretion and authority to act as agent for the Company in buying, selling or otherwise disposing or managing the Company's investments, subject to the supervision of the Board. A. Duties of Adviser. In carrying out its obligations to ----------------- manage the investment and reinvestment of the assets of the Company, the Adviser shall, as appropriate and consistent with the limitations set forth in Section C hereof: (a) perform research and obtain and evaluate pertinent economic, statistical, and financial data relevant to the investment policies of each Fund of the Company as set forth in the prospectus for the Company, as amended from time to time; (b) consult with the Board and furnish to the Board recommendations with respect to an overall investment strategy for each Fund of the Company for approval, modification, or rejection by the Board; (c) seek out specific investment opportunities and take such steps as are necessary to implement any overall investment strategies approved by the Board, including making and carrying out day-to-day decisions to acquire or dispose of permissible investments, management of investments and any other property of the Company, and providing or obtaining such services as may be necessary in managing, acquiring or disposing of investments; (d) regularly report to the Board with respect to the implementation of any approved overall investment strategy and any other activities in connection with management of the assets of the Company; and 2 3 (e) furnish to regulatory authorities having jurisdiction such information as may be requested in order for such authorities to ascertain that variable insurance operations are being conducted in accordance with applicable laws and regulations. B. Employment of Sub-Adviser(s). The Adviser shall have the ---------------------------- authority to employ, at its expense, one or more sub-advisers. Where applicable, reference herein to the Adviser shall include any sub-advisers employed by the Adviser. Any agreement between the Adviser and any sub-adviser shall be subject to the terms for approval, renewal, termination and amendment as provided herein with respect to the Adviser, and such sub-adviser shall at all times be subject to the direction of the Adviser and the Board, and any duly constituted committee thereof, or any officer of the Company acting pursuant to like authority. C. Limitations on Advisory Services. The Adviser shall -------------------------------- perform the services under this Agreement subject to the supervision and review of the Board and in a manner consistent with the investment objectives, policies, and restrictions of each Fund of the Company as stated in its Registration Statement, as amended from time to time, filed with the Securities and Exchange Commission, its Articles of Incorporation and By-Laws, as amended from time to time, the provisions of the Investment Company Act of 1940, as amended (the "Investment Company Act") and the applicable requirements of the Internal Revenue Code of 1986, as amended. The Company has furnished or will furnish the Adviser with copies of the Company's Prospectus, Articles of Incorporation, and By-Laws as currently in effect and agrees during the continuance of the Agreement to furnish the Adviser with copies of 3 4 any amendments or supplements thereto before or at the time the amendments or supplements become effective. The Adviser will be entitled to rely on all documents furnished by the Company. ARTICLE II Compensation of the Adviser --------------------------- A. Investment Advisory Fee. As compensation for its services ----------------------- to the Company, the Adviser shall receive monthly compensation based on an annual percentage of the average daily value of the net assets of the Funds of the Company as shown below: S&P 500 Index Fund .25 Percent Money Market Fund .125 Percent Bond Index Fund .25 Percent Asset Allocation Fund .50 Percent Small-Cap Equity Fund .25 Percent Managed Equity Fund Assets -------------------------- First $10 million .40% Next $20 million .30% Balance over $30 million .25% International Index Fund Assets ------------------------------------- First $10 million .50% Next $10 million .40% Balance over $30 million .30% Mid-Cap Equity Fund Assets --------------------------------- First $10 million .55% Next $10 million .45% Balance over $30 million .40%
4 5 B. Allocation of Expenses. The Adviser shall be responsible ---------------------- for payment of all expenses it may incur in performing the services set forth in Article I hereunder. Except for expenses specifically assumed by the Adviser as stated above, the Company shall be responsible for all expenses associated with the operations of the Company. The Board shall determine the manner in which expenses are allocated to the Funds of the Company, and the determination of the Board shall be final and binding. ARTICLE III Fund Transactions and Brokerage ------------------------------- The Adviser agrees to determine the securities to be purchased or sold by each Fund of the Company, subject to the provisions of Article I, and to place orders pursuant to its determinations either directly with the issuer, with any broker-dealer or underwriter that specializes in the securities for which the order is made, or with any other broker or dealer selected by the Adviser, subject to the following limitations. The Adviser is authorized to select the brokers or dealers that will execute the purchases and sales of portfolio securities for each Fund of the Company and will use its best efforts to obtain the most favorable price and efficient execution of the Company's orders, taking into account all appropriate factors, including: price; dealer spread or commission, if any; size and difficulty of the transaction; the nature of the market for the security; the reliability, financial condition and general execution and 5 6 operational capabilities of the broker-dealer; and the research, statistical, and economic data furnished by the broker-dealer to the Company. Subject to the above requirements, nothing shall prohibit the Adviser from selecting brokers or dealers with which it or the Company are affiliated and from selecting brokers or dealers by virtue of sales of insurance policies of General American Life Insurance Company or its affiliates by such broker-dealers or their affiliates. ARTICLE IV Activities of the Adviser ------------------------- The services of the Adviser to the Company under this Agreement are not to be deemed exclusive and the Adviser will be free to render similar services to others so long as its services under this Agreement are not impaired. It is understood that directors, officers, employees and shareholders of the Company are or may become interested in the Adviser, as directors, officers, employees or shareholders or otherwise, and that directors, officers, employees or shareholders of the Adviser are or may become similarly interested in the Company. It is agreed that the Adviser may use any supplemental investment research obtained for the benefit of the Company in providing investment advice to its other investment advisory accounts. The Adviser or its subsidiaries may use such information in managing their own accounts. Conversely, such supplemental information obtained by the placement of business for the Adviser or other entities advised by the Adviser will be considered by and may be useful to the Adviser in carrying out its obligations to the Company. 6 7 Securities held by a Fund may also be held by separate investment accounts or other investment companies for which the Adviser may act as an adviser or by the Adviser or its affiliates. Because of different investment objectives or other factors, a particular security may be bought by the Adviser or its affiliates or for one or more clients when one or more clients are selling the same security. If purchases or sales of securities for the Company or other entities for which the Adviser or its affiliates act as investment adviser or for their advisory clients arise for consideration at or about the same time, the Company agrees that the Adviser may make transactions in such securities, insofar as feasible, for the respective entities and clients in a manner deemed equitable to all. To the extent that transactions on behalf of more than one client of the Adviser during the same period may increase the demand for securities being purchased or the supply of securities being sold, the Company recognizes that there may be an adverse effect on price. It is agreed that, on occasions when the Adviser deems the purchase or sale of a security to be in the best interests of the Company as well as other accounts or companies, it may, to the extent permitted by applicable laws and regulations, but will not be obligated to, aggregate the securities to be so sold or purchased for the Company with those to be sold or purchased for other accounts or companies in order to obtain favorable execution and lower brokerage commissions. In that event, allocation of the securities purchased or sold, as well as the expenses incurred in the transaction, will be made by the Adviser in the manner it considers to be most equitable and consistent with its fiduciary obligations to the Company and to such other accounts 7 8 or companies. The Company recognizes that in some cases this procedure may adversely affect the size of the position obtainable for a Fund of the Company. ARTICLE V Effectiveness of the Agreement ------------------------------ This Agreement shall not become effective unless and until it is approved by the Company's Board (including a majority of directors who are not parties to this Agreement or interested persons of any such party to this Agreement), and by the Company's shareholders, and this Agreement shall come into full force and effect on the date on which it is so approved, provided that it shall not become effective as to any subsequently created Fund until it has been approved by the Board specifically for such Fund, and that implementation of any changes from prior Agreements may be delayed until the start of the next month after a change is approved by the shareholders. ARTICLE VI Term of the Agreement --------------------- As to each Fund of the Company, this Agreement shall continue in effect from year to year so long as its continuance is approved annually by a majority of the votes cast by those persons having voting rights in respect of the Fund or by a vote by a majority of the members of the Board, but in either event by the vote of a majority of the Board who are not "interested persons" (as defined in the Investment Company Act) of any party to this Agreement, cast in person at a meeting called for the purpose of voting such approval. 8 9 As to each Fund of the Company, this Agreement: (1) may be terminated without the payment of any penalty upon 60 days' written notice to the Adviser either by the Board or by a majority vote of those persons having voting rights in respect of the affected Fund(s) of the Company: (2) shall automatically terminate if it is assigned (within the meaning of the Investment Company Act) by the Adviser; (3) may be terminated by the Adviser without payment of any penalty upon 60 days' written notice to the Secretary of the Board of the Company; and (4) may be amended, changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. An amendment of this Agreement shall not be effective until approved by (a) vote of the holders of a majority of the outstanding voting securities of the Fund or Funds affected; and (b) a majority of those directors of the Company who are not parties to this Agreement or interested persons of such a party, cast in person at a meeting called for the purpose of voting on such approval. ARTICLE VII Recordkeeping ------------- The Adviser agrees to preserve for the period prescribed by the rules and regulations of the Securities and Exchange Commission all records the Adviser maintains for the Company as are required to be maintained pursuant to said rules. The Adviser agrees that all such records shall be the property of the Company and shall be made available, within five (5) business days of the request, to the Company's 9 10 accountants or auditors during regular business hours at the Adviser's offices upon such prior written notice. In the event of termination for any reason, all such records shall be returned promptly to the Company, free from any claim or retention of rights by the Adviser. In addition, the Adviser will provide any materials, reasonably related to the investment advisory services provided hereunder, as may be reasonably requested in writing by the directors or officers of the Company or as may be required by any governmental agency having jurisdiction. Adviser will keep any information obtained in the course of performing under this Agreement in confidence, and will not use such information for its own benefit nor disclose it except as authorized by Company or as required by regulatory authorities having jurisdiction. 10 11 ARTICLE VIII Liability of the Adviser ------------------------ In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties on the part of the Adviser (or its officers, directors, agents, employees, controlling persons, shareholders, and any other person or entity affiliated with the Adviser or retained by it to perform or assist in the performance of its obligations under this Agreement), neither the Adviser nor any of its officers, directors, employees or agents shall be subject to liability to the Company or to any shareholder or to any other person with a beneficial interest in the Company for any act or omission in the course of, or connected with, rendering advisory services hereunder, including without limitation any error or judgment or mistake of law or for any loss suffered by the Company or any shareholder or other person in connection with the matters to which this Agreement relates, except to the extent specified in Section 36(b) of the Investment Company Act concerning loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services. The provisions of this Article VIII shall not apply to services other than those relating solely to the provision of investment advice rendered by the Adviser pursuant to this Agreement. ARTICLE IX Governing Law ------------- While this Agreement is intended by the parties to be governed by Missouri law as to matters of state law, this Investment Advisory Agreement is also subject to the provisions of the Investment Company Act, as amended, and the rules and regulations 11 12 of the Securities and Exchange Commission thereunder, including such exemptions therefrom as the Securities and Exchange Commission may grant. Words and phrases used herein shall be interpreted in accordance with that Act and those rules and regulations. As used with respect to the Company and the holders of voting shares of any class of the Company's Capital Stock, the term "majority of the outstanding voting shares" means the lesser of (i) 67% or more of the voting shares represented at a meeting at which the holders of more than 50% of the outstanding voting shares are represented or (ii) more than 50% of the outstanding voting shares. IN WITNESS WHEREOF, the parties have caused this Investment Advisory Agreement to be signed by their respective officials duly authorized, as of the day and year first above written. Attest: GENERAL AMERICAN CAPITAL COMPANY /s/ Matthew P. McCauley By: /s/ Richard A. Liddy - ------------------------------ -------------------------------------- Matthew P. McCauley, Secretary Richard A. Liddy, President CONNING ASSET MANAGEMENT Attest: COMPANY /s/ Fred M. Schpero By: /s/ Leonard M. Rubenstein - ------------------------------ -------------------------------------- Fred M. Schpero, Secretary Leonard M. Rubenstein, Chief Executive Officer and Chief Investment Officer 12 EX-10.8 9 AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT 1 AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT THIS AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT is made effective as of the 22nd day of November, 1996, by and among Conning Corporation, a Missouri corporation formerly known as Conning Asset Management Company (the "Corporation"), General American Life Insurance Company, a Missouri corporation ("General American"), General American Holding Company, a Missouri corporation which is a wholly owned subsidiary of General American ("GAHC"), and the other persons who are parties to this Agreement or may become parties to this Agreement, as indicated by their signatures below or on an additional signature page hereto (the "Other Parties"). GAHC and the Other Parties are hereinafter sometimes referred to collectively as "Shareholders" or individually as a "Shareholder." RECITALS -------- A. The capital stock of the Corporation consists of (i) Class A Voting Common Stock, par value $.01 per share (the "Voting Common Stock"), (ii) Class B Non-Voting Common Stock, par value $.01 per share (the "Non-Voting Common Stock"), (iii) Series A Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"); and (iv) Series B Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"). In addition, the Corporation has outstanding options to purchase shares of Non-Voting Common Stock which were granted pursuant to the Corporation's 1995 Flexible Stock Plan (the "1995 Options") and pursuant to the Corporation's 1996 Flexible Stock Plan (the "1996 Options"). The Series A Preferred Stock, the shares of Non-Voting Common Stock issued upon conversion of the Series A Preferred Stock and the shares of Voting Common Stock issued upon conversion of such Non-Voting Common Stock are referred to collectively as the "Series A Shares". The Series B Preferred Stock, the shares of Non-Voting Common Stock issued upon conversion of the Series B Preferred Stock and the shares of Voting Common Stock issued upon conversion of such Non-Voting Common Stock are referred to collectively as the "Series B Shares." The Series A Preferred Stock and the Series B Preferred Stock are referred to collectively as the "Preferred Stock." The shares of Non-Voting Common Stock issuable upon exercise of the 1995 Options and the 1996 Options are referred to as the "1995 Option Shares" and the "1996 Option Shares," respectively, and the "Option Shares," collectively. The 1995 Options and the 1996 Options are referred to collectively as the "Options". B. The parties hereto desire to amend and restate the provisions of this Agreement as set forth herein. C. The Shareholders own all of the outstanding shares of the capital stock (the "Shares") of the Corporation and/or hold all of the outstanding Options. D. The parties hereto desire to insure that the Shares remain closely held by persons knowledgeable about the Corporation's business and to provide for continuity and harmony in the management of the Corporation. 1 2 E. The parties hereto desire to provide for the orderly disposition of the Shares in certain events, including the death or disability of any of the Shareholders or the termination of a Shareholder's employment with the Corporation. AGREEMENTS ---------- 1. General Restrictions on Transfer. -------------------------------- (a) From and after the date hereof until the termination of this Agreement, no Shareholder will in any manner, whether directly or indirectly, voluntarily, involuntarily or by operation of law, sell, assign, convey, pledge, give, mortgage, hypothecate, create any security interest in, or otherwise encumber, dispose of or otherwise transfer, any interest in any Shares of Non-Voting Common Stock or Preferred Stock (together with any securities issued upon exchange or conversion of Shares of Non-Voting Common Stock or Preferred Stock or upon any reclassification, recapitalization or exchange thereof, the "Restricted Shares") except pursuant to the provisions of this Agreement. This Agreement shall apply to all transfers of Restricted Shares (now owned or hereafter acquired) by the Shareholders, whether voluntary, involuntary or by operation of law, resulting from death or otherwise. (b) Notwithstanding the foregoing, a Shareholder may transfer Restricted Shares pursuant to applicable laws of descent and distribution (excluding community property laws) or to such Shareholder's spouse and descendants (whether natural or adopted) or to any trust solely for the benefit of either that Shareholder and/or his or her spouse and/or descendants, provided that: (i) the restrictions and rights contained in this Agreement will continue to be applicable to the Restricted Shares after any such transfer, and (ii) the transferee(s) of such Restricted Shares agrees in writing to be bound by the provisions of this Agreement. 2. Put Option/Purchase Obligation Upon Death, Total Disability or ------------------------------------------------------------- Termination of Employee Shareholders. - ------------------------------------ (a) Upon the death, Total Disability (as hereinafter defined) or termination of employment for any reason prior to August 11, 1998 of a Shareholder who, at such time, is an employee of the Corporation or a subsidiary of the Corporation or General American (an "Employer") and provided that there has not been a Qualified IPO (as defined in Section 16.3) by such time, such Shareholder's estate or such disabled or terminated Shareholder shall have an option to sell all, but not less than all, of the Series A Shares which the deceased, disabled or terminated Shareholder owned at his death, disability or termination to General American, or at General American's sole election to any affiliate other than the Corporation, for the price established in Section 11.2. (b) Upon the death, Total Disability or termination of employment for any reason prior to November 22, 2001 of a Shareholder who, at such time, is an employee of an Employer or a director of the Corporation and provided there has been no Qualified IPO by such time, the Corporation shall have the obligation, assignable in the Corporation's sole discretion to an affiliate of the Corporation, to purchase, and such Shareholder's estate or such disabled or terminated Shareholder shall be obligated to sell to the Corporation or its designee, all but not 2 3 less than all of the Series B Shares which the deceased, disabled or terminated Shareholder owned at his death, disability or termination for the price established in Section 11.2. With respect to any Shareholder who is both an employee of an Employer and a director of the Corporation, "termination of employment" for purposes of this paragraph shall mean the later of the termination of such employment or the termination of such directorship. (c) The option described in Section 2(a) shall be exercisable at any time after the date of death, disability or termination of the Shareholder. The option set forth in Section 2(a) shall remain exercisable, notwithstanding any transfers proposed pursuant to Section 3, and shall supersede any purchase options arising upon involuntary transfers pursuant to Section 4. (d) Total Disability means having a physical or mental condition which renders the Shareholder incapable of performing his duties and responsibilities with an Employer for a period of six months. Determination of Total Disability will be made by a physician selected by the Corporation. If the determination of such physician differs from the opinion as to disability of the Shareholder's physician, the two physicians shall select a third physician, whose determination shall be binding on both parties. 3. Purchase Option Upon Voluntary Transfer of Restricted Shares. ------------------------------------------------------------ Except as otherwise provided herein and except in conjunction with an IPO (as defined in Section 16.3) of Shares, a Shareholder may transfer Restricted Shares to another person or entity only in a bona fide sales transaction and only in accordance with the following procedure: 3.1 Notice of Transfer. If a Shareholder proposes to transfer ------------------ Restricted Shares of which he/she is either the beneficial or legal owner to any person(s) or entity, he/she shall give a written notice of transfer to the Corporation and each other Shareholder specifying: (i) the Shareholder's intention to transfer Restricted Shares; (ii) the number of Restricted Shares proposed to be transferred; (iii) the name, business and residence address of the proposed transferee(s); and (iv) the amount of the consideration and the other terms of sale. 3.2 General American's Option to Purchase; Purchase Price. For a ----------------------------------------------------- period of thirty (30) days from the receipt of the notice of transfer, General American (or at General American's sole election, any affiliate other than the Corporation) shall have the option to purchase some or all of the Series A Shares proposed to be sold. Any such sale shall be for such consideration and under such terms as contemplated by the notice of transfer. 3.3 Corporation's Option to Purchase; Purchase Price. For a period of ------------------------------------------------ thirty (30) days from the receipt of the notice of transfer, the Corporation (or at the Corporation's sole election, an affiliate of the Corporation) shall have the option to purchase some or all of the Series B Shares proposed to be sold, if any. Any such sale shall be for such consideration and under such terms as contemplated by the notice of transfer. 3.4 Shareholders' Option to Purchase; Purchase Price. In the event ------------------------------------------------ all of the Restricted Shares subject to the purchase options described in Sections 3.2 and 3.3 are not purchased, the non-transferring Shareholders shall each have the option to purchase up to his/her 3 4 Pro Rata Share (as hereinafter defined) of the remaining unpurchased Restricted Shares at the price and on the terms specified in the notice of transfer by delivering written notice of such election to the transferring Shareholder and the Corporation within thirty (30) days after the expiration of the purchase options described in Sections 3.2 and 3.3. A Shareholder's "Pro Rata Share" shall mean a number of Restricted Shares equal to the total number of unpurchased Restricted Shares multiplied by a fraction, the numerator of which is the number of Restricted Shares owned by that Shareholder and the denominator of which is the number of Restricted Shares owned by all non-transferring Shareholders. 4. Purchase Option Upon Involuntary Transfer. If at any time ----------------------------------------- Restricted Shares are transferred by operation of law to any person or entity (such as, but not limited to, pursuant to a will or the laws of descent and distribution, a property division in conjunction with a divorce proceeding, a Shareholder's trustee in bankruptcy, or a purchaser at any creditor's or court sale), the Corporation, within sixty (60) days of the Corporation's receipt of actual notice of the transfer, may exercise an option to purchase some or all of the Restricted Shares so transferred for the price established in Section 11.2. 5. Put Option Relating to Series A Shares. If there has been no -------------------------------------- Qualified IPO on or before August 11, 1998, each Shareholder who holds Series A Shares and who was a shareholder or option holder of Conning, Inc. (f/k/a Conning Corporation) prior to August 11, 1995 shall have an option to sell to General American (or at General American's sole election any affiliate other than the Corporation), and General American shall have the obligation to purchase, all, but not less than all, of his/her Series A Shares for the price established in Section 11.2. The option described in this Section shall be exercisable at any time after August 11, 1998. 6. Purchase Options Relating to Series A Shares. -------------------------------------------- 6.1 Purchase Option If No Qualified IPO by August 11, 2002. If there ------------------------------------------------------ has been no Qualified IPO on or before August 11, 2002, General American shall have the option, assignable in General American's discretion to any affiliate other than the Corporation, to purchase some or all of the outstanding Series A Preferred Stock for the price established in Section 11.2. The option described in this Section shall be exercisable at any time after August 11, 2002 but is subject to each Series A Preferred Stockholder's right to convert the Series A Preferred Stock to Non-Voting Common Stock. The option set forth in this Section shall remain exercisable, notwithstanding any transfers proposed or accomplished pursuant to Section 3. 6.2 Purchase Option If No Qualified IPO by August 11, 2005. If ------------------------------------------------------ there has been no Qualified IPO on or before August 11, 2005, General American shall have the option, assignable in General American's discretion to any affiliate other than the Corporation, to purchase some or all of the outstanding Series A Shares for the price established in Section 11.2. The option described in this Section shall be exercisable at any time after August 11, 2005. The option set forth in this Section shall remain exercisable, notwithstanding any transfers proposed or accomplished pursuant to Section 3. 4 5 7. Put Option Relating to Series B Shares If No Qualified IPO by ------------------------------------------------------------ November 22, 2001. If there has been no Qualified IPO on or before November - ----------------- 22, 2001, each Shareholder who holds Series B Shares and who is, at such time, an employee of Conning & Company or an affiliate thereof or a director of the Corporation, shall have an option to sell to the Corporation (or at the Corporation's sole election any affiliate of the Corporation), and the Corporation shall have the obligation to purchase, all, but not less than all, of his/her Series B Shares for the price established in Section 11.2. The option described in this Section shall be exercisable at any time after November 22, 2001. 8. Purchase Option With Respect to Conning Assets or Stock. ------------------------------------------------------- 8.1 Notice of Transfer. If at any time prior to a Qualified IPO the ------------------ Corporation proposes to sell all or substantially all of the capital stock of Conning & Company or a material portion of the assets of Conning & Company (including, without limitation, the Conning name), the Corporation shall give a written notice of transfer to all Shareholders who were employees of Conning Corporation or Conning & Company prior to August 11, 1995 and who own Series A Shares, 1995 Options and/or 1995 Option Shares specifying: (i) the Corporation's intention to make such sale, (ii) the name and business address of the proposed transferee(s); and (iii) the amount of the consideration and the other material terms of sale. 8.2 Shareholders' Option to Purchase; Purchase Price. For a period of ------------------------------------------------ sixty (60) days from the receipt of the notice of transfer set forth in Section 8.1, Shareholders who were employees of Conning Corporation or Conning & Company prior to August 11, 1995 and who own Series A Shares, 1995 Options and/or 1995 Option Shares, shall have the option to purchase all, but not less than all, of the capital stock or assets proposed to be sold pursuant to the notice of transfer. For purposes of this Section 8, all eligible Shareholders who deliver notice to the Corporation during such sixty day period stating his or her desire to exercise the option granted in this Section 8 shall be deemed to have exercised the option granted in this Section 8 as a group and shall thereafter appoint an authorized representative to act on such group's behalf. Any sale to such group of Shareholders shall be for such consideration and under such terms as contemplated by the notice of transfer, provided that the Corporation shall not be required to allocate the stock or assets proposed to be sold among the Shareholders comprising the group that has exercised the option granted in this Section 8 and shall only be obligated to sell such stock or assets to the group comprised of such Shareholders as a single entity. 9. Purchase Options. ---------------- 9.1 General American's Purchase Option. General American (or at ---------------------------------- General American's sole election, any of its affiliates, other than the Corporation) shall have the option to purchase 50% of the Series A Shares (excluding fractional shares) and the Shareholders shall have the obligation to sell such stock for the price established in Section 11.1. The option described in this Section 9.1 shall be exercisable concurrently with the proposals to amend this Agreement by adding this Section 9.1. All Shareholders required to participate in said purchase option shall participate on a basis which is pro rata among them based upon the percentage of 5 6 Series A Shares then held by such Shareholder divided by the aggregate of the number of all Series A Shares held by all such Shareholders. 9.2 Corporation's Purchase Option. If at any time there is a ----------------------------- Qualified IPO on or after March 31, 1998, the Corporation (or at the Corporation's sole election, any affiliate of the Corporation) shall have the option to purchase and each Shareholder shall have the obligation to sell to the Corporation all, but not less than all, of his/her Series B Preferred Stock for the price established in Section 11.1, subject to the right of such Shareholder to convert such Series B Preferred Stock. The option described in this Section 9.2 shall be exercisable during the thirty day period preceding closing of the Qualified IPO, subject to the occurrence of such closing. In the Shareholder's discretion, the conversion of the Series B Preferred Stock may be made contingent upon the consummation of the IPO. 10. Exercise of Options and Effect of Non-Exercise of Options. --------------------------------------------------------- 10.1 Exercise of Options. In order to exercise any option(s) granted ------------------- pursuant to this Agreement, a party shall do so by delivering written notice of exercise of the option within the time provided in the applicable Section hereof to the transferring Shareholder, the Corporation or the transferee, as the case may be. Copies of all such documents shall be delivered to the Corporation. 10.2 Forfeiture, Waiver or Noncompliance. ----------------------------------- (a) If an option granted hereunder is forfeited, waived or not exercised in compliance with Section 3, the Restricted Shares may be transferred, within thirty (30) days after the expiration of the option period granted to the other Shareholders, to the transferee named in the notice required by Section 3, for such consideration and upon such terms therein stated, which Restricted Shares when so transferred shall be subject to the terms of this Agreement. No Section 3 transfer shall be valid if the transfer is not made within the aforesaid thirty (30) day period or is not for the consideration and upon the terms or to the transferee stated in the notice required of the transferring Shareholder by Section 3. (b) If an option is forfeited, waived or not exercised in compliance with Section 4, the Restricted Shares shall, in the hands of the transferee, be subject to the terms, conditions and restrictions of this Agreement. (c) If an option is forfeited, waived or not exercised in compliance with Section 8, the capital stock or assets may be transferred, within one hundred twenty (120) days after the expiration of the option period granted to the Shareholders, to the transferee named in the notice required by Section 8, for such consideration and upon such terms therein stated. No Section 8 transfer shall be valid if the transfer is not made within the aforesaid one hundred twenty (120) day period or is not for the consideration and upon the terms or to the transferee stated in the notice required of the Corporation by Section 8. 11. Purchase Price. -------------- 6 7 11.1 Purchase Price on Put/Purchase Option Pursuant to Purchase Options. ------------------------------------------------------------------ The price for each Series A Share to be purchased pursuant to the option granted in Section 9.1 shall be $11.25. The price for each Share of Series B Preferred Stock to be purchased pursuant to the option granted in Section 9.2 shall be $5.33, plus accrued but unpaid dividends. 11.2 Purchase Price on Other Events. The price of each Share to be ------------------------------- purchased pursuant to Section 2, 4, 5, 6 or 7 shall be equal to: (a) in the case of Shares of Series A Preferred Stock, a price per share equal to the Fair Market Value (as defined in Section 16.3) of each share of Non-Voting Common Stock into which such Preferred Stock is then convertible; (b) in the case of Shares of Series B Preferred Stock, a price per share equal to the Fair Market Value of each share of Non-Voting Common Stock into which such Preferred Stock is then convertible, less the per share amount required to be paid on conversion of such Preferred Stock; and (c) in the case of Shares of Non-Voting Common Stock, the Fair Market Value of each such Share. 11.3 Payment of the Purchase Price. The purchase price for Shares ----------------------------- purchased pursuant to this Agreement shall be paid in full by check at the closing of such purchase. 11.4 Obligations of General American Unconditional. General American --------------------------------------------- hereby absolutely and unconditionally agrees to purchase all Shares which any Shareholder elects to sell pursuant to Section 2(a) or Section 5 hereof at the price established in Section 11.2. The purchase obligations of General American under this Agreement shall be absolute and unconditional and shall remain in full force and effect until all payments and obligations of General American under this Agreement shall have been fully and finally paid and performed. Notwithstanding any assignment by General American to any affiliate of any of its obligations hereunder, the Shareholders shall have the right to proceed first and directly against General American under this Agreement without proceeding against any other party or exhausting any other remedies which such Shareholder may have. 12. The Closing. ----------- 12.1 Time of Closing. (a) In the case of the purchase of Shares under --------------- Section 2, the closing shall occur on the date which is no later than the earlier of thirty (30) days after the exercise of the option or the triggering of the purchase obligation provided therein or one hundred twenty (120) days after the deceased Shareholder's death or the date of the determination of disability or termination, as the case may be. (b) In the case of a purchase of Shares or assets, as the case may be, under Section 3, Section 8 or Section 9.1, the closing shall be on the date which is set forth in the notice provided for in such Sections. 7 8 (c) In the case of a purchase of Shares under Section 4, 5, 6 or 7, the closing shall occur on the thirtieth day after the exercise of the option provided therein. (d) In the case of a purchase of Shares under Section 9.2, the closing shall be effective concurrently with or, in the purchaser's discretion, immediately after the closing of the Qualified IPO. (e) The parties agree to promptly take such further actions and to execute and deliver such documents, instruments or agreements as may be reasonably required to effect the transfer of title to the Shares pursuant to this Agreement. 12.2 Absence of Liens. All Shares (or other property transferred ---------------- pursuant to Section 8) shall be delivered to the Corporation or purchasing Shareholder(s) free and clear of all liens, claims and encumbrances excepting only those for which provision is expressly made in this Agreement or the terms of such sale, and said Shares shall be transferred on the books of the Corporation to the purchaser. 13. Legend on Certificates. ---------------------- (a) All Shares now or hereafter owned by the Shareholders of the Corporation shall be subject to the provisions of this Agreement and the certificates representing Shares, including Shares in the hands of permitted transferees, shall bear the following legend: "The sale, transfer or encumbrance of this certificate is subject to an Agreement between the Corporation and all of its Shareholders. A copy of this Agreement is on file in the office of the Secretary of the Corporation. The Agreement provides, among other things, for certain obligations to sell and to purchase the Shares evidenced by this certificate, for a designated purchase price. By accepting the Shares evidenced by this certificate, the holder agrees to be bound by said Agreement." (b) Each Shareholder understands that the certificates representing Shares, including Shares in the hands of permitted transferees, shall also bear the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933 or any applicable state law. They may not be offered for sale, sold, transferred or pledged without (1) registration under the Securities Act of 1933 and any applicable state law, or (2) at holder's expense, an opinion (satisfactory to the Company) that registration is not required." 14. Termination. ----------- 14.1 Complete Termination. This Agreement and all restrictions on the -------------------- Restricted Shares created hereby shall terminate on the occurrence of any of the following events: 8 9 (a) A single Shareholder becoming the owner of all of the Shares of the Corporation which are then subject to this Agreement. (b) The execution of a written instrument by the Corporation and all of the Shareholders who then own Shares or Options subject to this Agreement which terminates the same. (c) The occurrence of a Qualified IPO. 14.2 Effect. The termination of this Agreement for any reason (i) ------ shall not affect any right or remedy existing hereunder prior to the effective date of its termination, and (ii) shall not terminate the provisions of Section 15, which shall survive such termination according to its terms. 15. Management and Board of the Corporation. --------------------------------------- 15.1 Compensation. For the three years after August 11, 1995, the ------------- Corporation will maintain the general approach and methodology to cash compensation (bonus and salary) of employees and venture capital carried interest allocations as are currently in effect at Conning, Inc. (f/k/a Conning Corporation). Prior to the end of 1996, the Corporation will complete a compensation study with the goal of creating comparable compensation plans for the operating subsidiaries of the Corporation characterized by market pricing and performance incentives. 15.2 Composition of the Board. The Corporation shall have a Board of ------------------------- Directors comprised of not more than seven members. There will be a minimum of 2 members of the management of Conning, Inc. (f/k/a Conning Corporation) (including Maurice W. Slayton or his successor) on the Board of Directors of the Corporation during the period ending upon the earlier of: (i) August 11, 2000 or (ii) the occurrence of a Qualified IPO. The president of Conning, Inc. (f/k/a Conning Corporation) will serve on the Compensation Committee of the Board of Directors of the Corporation, and will participate in the compensation study referred to in Section 15.1 above and in formulating recommendations regarding compensation. This Section 15.2 shall terminate upon the earlier to occur of August 11, 2000 or a Qualified IPO. 15.3 Management of the Corporation. (a) Maurice W. Slayton shall serve ------------------------------ as President of the Corporation, President of Conning Asset Management Company (f/k/a GAIMCO) and as President and CEO of Conning, Inc. (f/k/a Conning Corporation), which will survive as an operating subsidiary of the Corporation. Leonard Rubenstein will serve as Chairman and CEO of the Corporation and as Chairman and CEO of Conning Asset Management Company, which will survive as an operating subsidiary of the Corporation. (b) Maurice W. Slayton will serve as a senior member of management of the Corporation with responsibility for (i) marketing for the Corporation and its subsidiaries, (ii) manager of the Corporation's Hartford office, (iii) participation in identifying and negotiating acquisitions, and (iv) participation in the development and execution of an initial public offering of the Shares of the Corporation. 9 10 (c) Maurice W. Slayton will be consulted on the following: (i) business plan development for combining subsidiary operations and (ii) titles and roles for senior management of Conning, Inc. (d) In the event Maurice W. Slayton ceases to be President of the Corporation and President and CEO of Conning, Inc., General American shall select a senior member of the Corporation's or Conning, Inc.'s management who is a former shareholder of Conning, Inc. to assume the responsibilities prescribed for Mr. Slayton in clauses 15.3(b)(iv) and 15.3(c)(i) above. This Section 15.3 shall terminate upon the earlier to occur of August 11, 1998 or a Qualified IPO. 16. General Provisions. ------------------ 16.1 Governing Law. This Agreement shall in all respects be construed ------------- in accordance with and governed by the substantive laws of the State of Missouri, without reference to its choice of law rules. 16.2 Conflict with Articles or Bylaws. It is expressly agreed that -------------------------------- whether or not the Articles or Bylaws of the Corporation fully incorporate the provisions hereof, or any of them, the parties' rights and obligations shall be governed by this Agreement which shall prevail in the event of any ambiguity or any inconsistency between this Agreement and the Articles and Bylaws. 16.3 Definitions. (a) Unless the context otherwise requires, the words ----------- "Shareholder" and "Shareholders" shall for all purposes of this Agreement mean and include: (1) all of the individual parties hereto; (2) all persons to whom any Shares may hereafter be transferred; and (3) all employees and directors who may acquire any Shares of the Corporation which may hereafter be issued. Similarly, the term "Shares" applies to any class of Shares which the Corporation now or hereafter is authorized to issue. (b) The words "IPO," "Qualified IPO" and "Conversion Rate" shall for all purposes of this Agreement have the meanings ascribed thereto in the Corporation's Articles of Incorporation as in effect on the date of execution hereof. (c) The term "Fair Market Value" shall mean: On any date specified herein, the amount per share of the Voting Common Stock (as if the Non-Voting Common Stock had been converted to Voting Common Stock), equal to the fair value thereof determined by an Independent Financial Expert. The following procedures shall be utilized in determining fair value. (i) The value of the Voting Common Stock shall be determined by an Independent Financial Expert (to be selected as provided in Section 16.3(d) below) using one or more valuation methods that the Independent Financial Expert in its professional judgment determines to be most appropriate but without giving effect to the discount for any lack of liquidity of the Voting Common Stock or to the fact that the Corporation may have no class of securities registered under the Securities Exchange Act of 1934. In 10 11 performing its analysis, the Independent Financial Expert shall, among other things, consider public market valuations of companies which it deems comparable to the Corporation. The Independent Financial Expert shall deliver, promptly upon completion, to the Corporation and to each of the parties who will be a party to any transaction resulting from the exercise of an option pursuant to the notice referred to in Section 10.1 (the "Interested Parties"), a report stating the method of valuation considered or used and the fair value of said Voting Common Stock as of the date of the exercise notice referred to in Section 10.1 and containing a statement as to the nature and scope of the examination or investigation upon which the determination of value was made (the "Value Report"). The Independent Financial Expert shall consult with management of the Corporation in order to allow management to provide information and data relevant to, and comment on the proposed value of, such Independent Financial Expert's Value Report. (ii) Within five business days of delivery of any notice by a party of the exercise of an option which requires a determination of Fair Market Value, the Corporation shall give written notice to each Shareholder who will be a party to the transactions resulting from the exercise of such options (the "Holders") of the Corporation's choice of an Independent Financial Expert to prepare the Value Report. Within five business days after the date of this notice, Holders owning a majority of the shares identified in any notice of option exercise or in any series of notices delivered within the same 10 business day period shall notify the Corporation in writing (the "Holders' IFE Notice") of their approval or disapproval of the Corporation's initial choice of Independent Financial Expert and, in the event of disapproval, such Holders shall propose an alternative firm as Independent Financial Expert. Failure to deliver written notice of approval or disapproval within such 10 business day period shall be deemed approval of such initial choice of the Corporation. Within two business days after its receipt of the Holders' IFE Notice, the Corporation shall notify the Holders of its approval or disapproval of their selection. If the Corporation does not accept the Independent Financial Expert chosen by the Holders, then the two Independent Financial Experts previously selected pursuant to this section shall promptly be requested by the Corporation and Holders to jointly select a firm to act as Independent Financial Expert to prepare the Value Report. Their joint selection, which shall be made within five business days, shall be final and binding upon the Interested Parties. (iii) The Corporation shall consult and cooperate with the selected Independent Financial Expert to facilitate the final delivery of its Value Report no later than forty-five (45) calendar days after the date of the notice of option exercise, unless the parties to such transaction agree to a different time or delivery. The Value Report shall be final and binding upon the Interested Parties. (d) The term "Independent Financial Expert" means a nationally recognized investment banking firm, ranking in the top twenty (as determined by the Securities Industry 11 12 Association, Inc. or a similar securities information data company) lead managers for primary common stock offerings in the year prior to the year in which it is called upon to give independent financial advice to the Corporation as described herein and that does not (and whose directors, officers and Affiliates do not) have a material direct or indirect financial interest in the Corporation or any of its Affiliates and that does not provide any advice or opinions to the Corporation or any of its Affiliates except as an Independent Financial Expert. The Corporation will bear the expense of compensation of the Independent Financial Expert for services or opinions it may provide in that capacity. 16.4 Remedies for Breach. The Shares are unique chattels and each ------------------- party to this Agreement shall have the remedies which are available to him or it for the violation of any of the terms of this Agreement, including, but not limited to, the equitable remedies for specific performance and injunctive relief. 16.5 Notices. All notices provided for by this Agreement shall be made ------- in writing (1) either by actual delivery or (2) by the mailing of the notice in the United States mail to the last known address of the party entitled thereto, registered or certified mail, return receipt requested. Copies of such notices shall be mailed to: James L. Nouss, Jr., Esq. Bryan Cave LLP One Metropolitan Square 211 North Broadway, Suite 3600 St. Louis, MO 63102-2750 Matthew P. McCauley Vice President and Assistant General Counsel General American Life Insurance Company 700 Market Street St. Louis, MO 63101 Thomas L. Fairfield, Esq. LeBoeuf, Lamb, Greene & MacRae, LLP Goodwin Square 225 Asylum Street Hartford, CT 06103 16.6 Amendment. This Agreement may be amended or altered at any time --------- if the amendment or alteration is both ratified by the Board of Directors of the Corporation and consented to in writing by all other parties hereto. 16.7 Descriptive Headings. Titles to Sections are for information -------------------- purposes only. 12 13 16.8 Binding Effect. This Agreement is binding upon and inures to the -------------- benefit of the Corporation, its successors, assigns, and transferees, and to the Shareholders and their respective heirs, personal representatives, successors and permitted assigns and transferees. 17. Second Flight of Options. The Corporation hereby acknowledges and ------------------------ agrees that coincident with an IPO, at least 100,000 employee or director stock options with a strike price equal to the Common Stock equivalent per share price of stock sold by the Corporation in said IPO will be granted to certain directors or key employees of the Corporation and its subsidiaries, subject to concurrence by the managing underwriter of the Corporation's IPO; provided, that the Corporation shall retain discretion with respect to the allocation of options among directors and employees. 18. Inapplicability of Restrictions to General American. None of --------------------------------------------------- Sections 1, 2, 3, 4, 5 or 6 hereof, including, without limitation, the restriction on transfer and other provisions thereof, shall apply to any Shares of Non-Voting Common Stock or Preferred Stock (or Restricted Shares issued upon conversion or exchange of Shares of Non-Voting Common Stock or Preferred Stock or upon any reclassification, recapitalization or exchange thereof) held by General American, any parent of General American, any subsidiary of General American, or any subsidiary of any parent of General American (collectively, the "General American Entities") or any assignee or transferee of any of the General American Entities. 13 14 IN WITNESS WHEREOF, the parties have executed this Agreement June 11, 1997. CONNING CORPORATION By: /s/ Leonard M. Rubenstein ----------------------------------------- Name: Leonard M. Rubenstein Title: Chairman and Chief Executive GENERAL AMERICAN LIFE INSURANCE COMPANY By: /s/ Richard A. Liddy ----------------------------------------- Name: Richard A. Liddy Title: Chairman, President and Chief Executive Officer GENERAL AMERICAN HOLDING COMPANY By: /s/ Richard A. Liddy ----------------------------------------- Name: Richard A. Liddy Title: President [Signature Page Continued On Following Two Pages] 15 COUNTERPART SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT -------------------------------------------------------------------------- /s/ Maurice W. Slayton - --------------------------------- Maurice W. Slayton Dated: 5/28/97 /s/ Thomas A. Byrne - ---------------------------------- Thomas A. Byrne Dated: May 17, 1997 /s/ Mark E. Hansen - ---------------------------------- Mark E. Hansen Dated: 6/3/97 /s/ Scott E. Daniels - ---------------------------------- Scott E. Daniels Dated: 5/24/97 /s/ Paul J. Sellier - ---------------------------------- Paul J. Sellier Dated: 6/11/97 /s/ Gerard Vecchio - ---------------------------------- Gerard Vecchio Dated: June 3, 1997 /s/ Seth C. Miller - ---------------------------------- Seth C. Miller Dated: 5-19-97 /s/ Fred M. Schpero - ---------------------------------- Fred M. Schpero Dated: 5/14/97 /s/ Gary K. Ransom - ---------------------------------- Gary K. Ransom Dated: 5/27/97 /s/ John A. Corroon - ---------------------------------- John A. Corroon Dated: June 11, 1997 /s/ David N. Reid - ---------------------------------- David N. Reid Dated: 6-5-97 /s/ Thomas D. Sargent - ---------------------------------- Thomas D. Sargent Dated: 6-5-97 /s/ Daniel J. Mainolfi - ---------------------------------- Daniel J. Mainolfi Dated: 6/5/97 /s/ John B. Clinton - ---------------------------------- John B. Clinton Dated: 5/30/97 /s/ Steven F. Piaker - ---------------------------------- Steven F. Piaker Dated: 6/1/97 /s/ Gordon G. Pratt - ---------------------------------- Gordon G. Pratt Dated: June 5, 1997 /s/ William C. Shenton - ---------------------------------- William C. Shenton Dated: 6-5-97 /s/ Donald L. McDonald - ---------------------------------- Donald L. McDonald Dated: 6/1/97 /s/ John B. Kleiman - ---------------------------------- John B. Kleiman Dated: June 5, 1997 /s/ Leonard M. Rubenstein - ---------------------------------- Leonard M. Rubenstein Dated: 5/27/97 /s/ Stephan L. Christiansen - ---------------------------------- Stephan L. Christiansen Dated: 6/6/97 /s/ Laura R. Caro - ---------------------------------- Laura R. Caro Dated: 5/23/97 16 COUNTERPART SIGNATURE PAGE (Continued) - -------------------------- /s/ Stephen R. Pivacek - ---------------------------------- Stephen R. Pivacek Dated: 6-3-97 /s/ David A. Kaslow - ---------------------------------- David A. Kaslow Dated: 5/19/97 /s/ Michael D. McLellan - ---------------------------------- Michael D. McLellan Dated: 5-29-97 /s/ Joann T. Tanaka - ---------------------------------- Joann T. Tanaka Dated: 5/27/97 /s/ William Bennett - ---------------------------------- William Bennett Dated: 5/20/97 /s/ John W. Marske - ---------------------------------- John W. Marske Dated: 5/21/97 /s/ William L. Frields - ---------------------------------- William L. Frields Dated: May 20, 1997 /s/ Mark A. Blassie - ---------------------------------- Mark A. Blassie Dated: 5-20-97 /s/ David B. Vignolo - ---------------------------------- David B. Vignolo Dated: 5/20/97 /s/ Douglas R. Koester - ---------------------------------- Douglas R. Koester Dated: 5/21/97 /s/ Scott Sparks - ---------------------------------- Scott Sparks Dated: May 19, 1997 /s/ Robert St. Cyr - ---------------------------------- Robert St. Cyr Dated: 5-16-97 /s/ W. Michael Cody - ---------------------------------- W. Michael Cody Dated: 5/13/97 /s/ William E. Rotatori - ---------------------------------- William E. Rotatori Dated: June 4, 1997 /s/ Claude A. Fongemie - ---------------------------------- Claude A. Fongemie Dated: 6-4-97 /s/ Sabra R. Brinkmann - ---------------------------------- Sabra R. Brinkmann Dated: 6/3/97 /s/ Frank D. Campbell - ---------------------------------- Frank D. Campbell Dated: 5/27/97 /s/ Allen A. Mossien - --------------------------------- Allen A. Mossien Dated: 5/19/97 /s/ Paul Goulekas - ---------------------------------- Paul S. Goulekas Dated: 6/5/97 /s/ Richard A. Liddy - ---------------------------------- Richard A. Liddy Dated: June 11, 1997 /s/ Bruce B. Brodie - ---------------------------------- Bruce B. Brodie Dated: 6-3-97 EX-10.11 10 FORM OF EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT is made and entered into as of August 11, 1995 by and between Conning & Company, a Connecticut corporation (the "Company"), Conning Asset Management Company, a Missouri corporation ("CAM"), and <> ("Employee"). WHEREAS, the Company and Employee are parties to that certain Contribution Agreement (the "Contribution Agreement"), made and entered into as of July 24, 1995, by and among Conning Asset Management Company, a Missouri corporation, General American Life Insurance Company, a Missouri corporation, General American Holding Company, a Missouri corporation which is a wholly owned subsidiary of General American, General American Investment Management Company, a Missouri corporation, the Company, Conning Corporation, a Delaware corporation, and the shareholders and option holders of Conning Corporation, including Employee. WHEREAS, Employee possesses skills and experience which Company believes are of value to the success of Company's business operations; WHEREAS, Company wishes to employ Employee subject to the terms and conditions of this Agreement, and Employee wishes to accept such employment subject to the terms and conditions of this Agreement; WHEREAS, the Company and its Affiliates are in the business of rendering investment advice, with a special expertise in advising insurance companies in the United States, and have accumulated valuable, confidential information including trade secrets and know-how relating to portfolio construction and management, technology, formulas, marketing plans, business strategies, and other business records; and WHEREAS, the giving of the covenants contained herein is a condition precedent to the employment of Employee, and Employee acknowledges that the execution of this Agreement and the entering into of these covenants is an express condition of his or her employment and that said covenants are given in consideration for such employment and the other benefits conferred upon him by this Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants, and agreements herein set forth, the parties hereto agree as follows: 1. Employment and Duties. Company hereby agrees to --------------------- -1- 2 employ Employee, and Employee agrees to enter the employ of Company for the Term herein specified. During the Term, Employee shall perform such duties as the Board of Directors or officers of Company may reasonably assign to Employee, and shall devote his or her full time, attention, and effort to the business and affairs of Company. 2. Term. The term of this Agreement shall be for the ---- period commencing on date hereof and ending three years after the date hereof (the "Term"), unless terminated prior thereto as provided in Section 4. 3. Compensation and Benefits. ------------------------- a. In consideration of his or her services, Employee shall receive during the Term hereof a base salary at the rate of not less than $<> per year ("Annual Base Salary"), payable in substantially equal installments in accordance with Company's usual paying practices, but not less frequently than monthly. Employee shall be eligible to receive increases in Employee's Annual Base Salary pursuant to periodic salary reviews consistent with the Company's corporate policies; it being understood such increases are not guaranteed, but are subject to evaluation of Employee's job performance. In addition to the foregoing compensation, Employee will be eligible, in the sole discretion of the Board of Directors of the Company, to participate as a limited partner in Conning Investment Partners LP III or in the Company's Venture Capital Carried Interest Allocation Plan and the Company's Bonus Plan as modified to reflect the combination of the Company with GAIMCO. b. As further consideration for the covenants contained herein, the Company will provide Employee with such insurance, welfare, sick leave, and other benefits as may be established by the Company from time to time with respect to its employees and will reimburse Employee for authorized business expenses in accordance with policies established by the Company from time to time. Employee shall be entitled to vacation in an amount equal to the amount of vacation to which such Employee would have been entitled under the Company's vacation policy in effect as of June 30, 1995 for employees with service and position equal to the length of Employee's service and position with the Company. c. Upon execution of this Agreement, Employee shall be paid a signing bonus in cash equal to $<> (the "Signing Bonus"), subject to the forfeiture provisions provided in Section 4(d)(3) hereof. In order to secure such forfeiture provisions, Employee agrees that a certificate (the "Certificate") evidencing <> shares of the Series A Convertible Preferred Stock, par value $.01 per share ("Preferred Stock"), of the Company issued to Employee in connection with the -2- 3 cancellation of certain stock options held by Employee shall be pledged to the Company, which encumbrance shall be evidenced by a legend on such Certificate until such time as such risk of forfeiture shall have expired. 4. Termination ----------- a. Termination Without Cause. Employee's ------------------------- employment may be terminated without cause: (1) At any time upon the mutual written agreement of the parties hereto; (2) Immediately upon Employee's death; (3) Immediately upon Employee's Total Disability (as defined in Section 4(f)); (4) Upon not less than 30 days' advance written notice from Employee of Employee's desire to terminate this Agreement, provided, however, that, following such notice, the Company shall have the right to terminate Employee's employment immediately, provided that the Company pays Employee the compensation due him or her as if the Termination Date occurred 30 days from the date of such notice; or (5) Upon not less than 30 days' advance written notice from the Company of the Company's desire to terminate this Agreement. b. Termination For Cause. Employee's employment --------------------- may be terminated by the Company upon written notice to Employee at any time for any of the following reasons, each of which shall constitute "termination for cause": (1) Any material breach of this Agreement by Employee which is not cured within 20 days after written notice by the Company; (2) Employee's fraud, embezzlement, dishonesty or unlawful acts in connection with the business of the Company or its Affiliates; (3) Employee's conviction for any felony; or (4) Employee's substantial and continuing willful failure to perform, or grossly negligent performance of, the duties of Employee's position. c. Termination Date Employee's last day of ---------------- -3- 4 employment with the Company (if such date occurs prior to the third anniversary of this Agreement) shall be referred to in this Agreement as the "Termination Date" and shall constitute the end of the Term of this Agreement. d. Effect of Termination. --------------------- (1) Upon any termination of the employment pursuant to this Section 4, this Agreement shall terminate and the Company shall have no obligation of any kind whatsoever to Employee except to pay Employee the compensation due him or her through the Termination Date, the amount of such compensation due Employee under Section 3(a) hereof being apportioned for the portion of the fiscal period Employee was actually employed, and any deferred compensation then due to Employee hereunder. The obligations under Section 6 and 7 shall survive the end of the Term of this Agreement according to their terms. (2) In addition, upon termination pursuant to Section 4(a)(5), the Company shall (i) pay Employee an amount equal to 150% of the Annual Base Salary for each year (or portion thereof, pro rated) through the balance of the Term and (ii) provide all benefits described in Section 3(b) through the balance of the Term. Payment pursuant to this Section 4(d)(2) shall not apply to any termination other than one pursuant to Section 4(a)(5). (3) Upon termination of this Agreement pursuant to Section 4(a)(4) or Section 4(b), Employee agrees to repay to the Company the percentage of the Signing Bonus indicated below, depending upon the year in which such termination occurs.
During Year Percentage Forfeited ----------- -------------------- 1 100% 2 66.6% 3 33.3%
Immediately upon such termination, Employee shall either pay the Company the forfeited portion of the Signing Bonus in cash or tender to the Company the Certificate, which the Company shall cancel and reissue to the Employee for a number of shares of Preferred Stock equal to the original number of shares evidenced by the Certificate less a number of shares, valued in accordance with Section 11.3 of the Company's Shareholders Agreement, equal to the forfeited portion of the Signing Bonus. If Employee neither pays cash nor tenders the Certificate, the Company shall be entitled to unilaterally cancel the Certificate on its stock books and reissue Employee a new certificate as provided in the preceding sentence. -4- 5 e. Release. In the event Employee becomes ------- entitled to payments pursuant to Section 4(d)(2) hereof, Employee shall, as a condition to such payments being made, execute and deliver to the Company, and any Affiliates of the Company designated by the Company, a release of all Employee's claims for employment, employment-related compensation or employee benefits or any form of damages as a result of termination of employment in such form as is reasonably satisfactory to the Company, which document shall include a covenant not to bring any claim, action or suit with respect to the matters which are the subject of such release. f. Definition of Total Disability. "Total ------------------------------ Disability" means having a physical or mental condition which renders Employee incapable of performing his duties and responsibilities with the Company for a period of six months. Determination of Total Disability will be made by a physician selected by the Company. If the determination of such physician differs from the opinion as to disability of the Employee's physician, the two physicians shall select a third physician, whose determination shall be binding on both parties. 5. Company Policies. Employee agrees to abide by the ---------------- policies, rules, regulations, and usages applicable to Employee as they are established by the Company from time to time ("Company Policies"), and to perform the duties assigned to him faithfully and loyally. 6. Non-Disclosure. Employee agrees that he will -------------- never disclose, directly or indirectly, to any other firm or person any of Company's or Company's Affiliates' confidential or proprietary information including customer lists, trade secrets, and know-how relating to its or their business. Confidential or proprietary information shall not include any information which is or hereafter comes in the public domain or is or becomes generally known or available in the industry through no act of Employee prohibited by this Agreement. 7. Non-Compete Agreement. --------------------- a. Covenant. Employee recognizes that (i) CAM -------- and the subsidiaries of which it controls a majority of the voting stock ("Controlled Subsidiaries") have spent substantial money, time and effort over the years in developing and solidifying their relationships with their customers and in developing their confidential information; (ii) long-term customer relationships often can be difficult to develop and require a significant investment of time, effort, and expense; (iii) the Company pays its employees to, among other things, develop and preserve business information, customer goodwill and customer loyalty for and on behalf of the Company; and (iv) the -5- 6 Company is hereby agreeing to employ and pay Employee based upon Employee's assurances and promises contained herein not to divert the Company's customers' goodwill and not to put himself or herself in a position during or following Employee's employment with the Company in which the confidentiality of the Company's proprietary information might somehow be compromised. Accordingly, Employee covenants and agrees that for a period of three years following the date hereof, regardless of whether Employee remains employed by the Company and regardless of whether Employee's termination, if any, is with or without cause, neither Employee nor any entity controlling, controlled by or under common control with Employee shall (i) engage in, or have any direct or indirect interest in any other person, firm, corporation, or other entity engaged in any business activities competitive with the business activities of CAM and the Controlled Subsidiaries, or (ii) become an employee, director, advisor, consultant, independent contractor, or agent of any such person, firm, corporation, or other entity, except with CAM's prior written consent. b. Acknowledgement Regarding Restrictions. -------------------------------------- Employee recognizes and agrees that the restraints contained in Section 7(a) are reasonable and enforceable in view of the legitimate interests of CAM and the Controlled Subsidiaries in protecting their confidential information and customer goodwill, and that the limitations contained therein on the duration and geographic scope of, and activities prohibited by, such restraints are reasonable and binding upon Employee. c. Enforceability. -------------- (1) The covenants contained in this Section 7 shall be deemed to be a series of separate covenants, one for each aspect of CAM's or the Controlled Subsidiaries' businesses and locations. Each separate covenant shall hereinafter be referred to as a "Separate Covenant." (2) If any court or tribunal of competent jurisdiction shall refuse to enforce one or more of the Separate Covenants because the time limit applicable thereto is deemed unreasonable, it is expressly understood and agreed that such Separate Covenant or Separate Covenants shall not be void but that for the purpose of such proceedings such time limitation shall be deemed to be reduced to the extent necessary to permit the enforcement of such Separate Covenant or Separate Covenants. (3) If any court or tribunal of competent jurisdiction shall refuse to enforce any or all of the Separate Covenants because, taken together, they are more extensive (whether as to geographic area, scope of business, or otherwise) than is deemed to be reasonable, it is expressly understood and agreed between the parties that such Separate Covenant or -6- 7 Separate Covenants shall not be void but that for the purpose of such proceedings the restrictions contained therein (whether as to geographic area, scope of business, or otherwise) shall be deemed to be reduced to the extent necessary to permit the enforcement of such Separate Covenant or Separate Covenants. d. Ownership of Securities. Nothing contained ----------------------- herein shall restrict Employee from owning 2% or less of the corporate securities of any entity in competition with CAM's or the Controlled Subsidiaries' businesses, which securities are listed on any national securities exchange or authorized for listing on the Nasdaq National Market, if Employee has no other connection or relationship, direct or indirect, with the issuer of such securities. 8. Non-Waiver of Rights. The Company's failure to -------------------- enforce at any time any of the provisions of this Agreement or to require at any time performance by Employee of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement, or any part hereof, or the right of Company thereafter to enforce each and every provision in accordance with the terms of this Agreement. 9. The Company's Right to Injunctive Relief. In the ---------------------------------------- event of a breach or threatened breach of any of Employee's duties and obligations under the terms and provisions of Sections 6 or 7 hereof, the Company shall be entitled, in addition to any other legal or equitable remedies it may have (including any right to damages that it may suffer), to temporary, preliminary, and permanent injunctive relief restraining such breach or threatened breach. Employee hereby expressly acknowledges that the harm which might result to the Company's business as a result of any noncompliance by Employee with any of the provisions of Sections 6 or 7 would be largely irreparable. Employee specifically agrees that if there is a question as to the enforceability of any of the provisions of Sections 6 or 7 hereof, Employee will not engage in any conduct inconsistent with or contrary to such Sections until after the question has been resolved by a final judgment of a court of competent jurisdiction. 10. Employee Representations. Employee represents ------------------------ that the execution and delivery of this Agreement and Employee's employment with the Company do not violate any previous employment agreement or other contractual obligation of Employee. Employee also represents and agrees that Employee has not disclosed, and will not disclose, to the Company any information, whether confidential, proprietary, or otherwise, which Employee has in Employee's possession and which Employee is not legally free to disclose. -7- 8 11. The Company's Right to Recover Costs and Fees. --------------------------------------------- Employee and the Company each undertakes and agrees that if such party breaches this Agreement, such party shall be liable for any attorneys' fees and costs incurred by the other party in enforcing its rights hereunder. 12. Definition of Affiliate. "Affiliate" shall for ----------------------- purposes of this Agreement mean any person or entity (the "Specified Person") (a) who directly or indirectly controls, is controlled by, or is under common control with the Company, (b) who owns or controls thirty percent (30%) or more of the Company's outstanding voting securities or percentage interests; (c) in whom the Company owns or controls thirty percent (30%) or more of the outstanding voting securities or percentage interests; (d) who is a director, partner, manager, executive officer or trustee of the Company; (e) in whom the Company is a partner; or (f) who has any relationship with the Specified Person by blood, marriage or adoption, not more remote than first cousin, and shall include, without limitation, Conning Asset Management Company, General American Life Insurance Company, General American Holding Company, General American Investment Management Company, and Conning Corporation. 13. Miscellaneous. Neither this Agreement nor any ------------- rights hereunder shall be assignable by either party hereto. This agreement contains the entire agreement between the parties with respect to the terms of Employee's employment by Company, free of any other representation, promise, or understanding. This Agreement may be modified or amended only by a written agreement executed by both parties to this Agreement. Nothing in this Agreement shall be construed as creating a joint venture or partnership between Employee and the Company or any of its affiliates. Section headings are provided in this Agreement for convenience only and shall not be deemed to alter the content of such sections. PLEASE NOTE: BY SIGNING THIS EMPLOYMENT AGREEMENT, EMPLOYEE IS - ----------- HEREBY CERTIFYING THAT EMPLOYEE (A) HAS RECEIVED A COPY OF THIS AGREEMENT FOR REVIEW AND STUDY BEFORE EXECUTING IT; (B) HAS READ THIS AGREEMENT CAREFULLY BEFORE SIGNING IT; (C) HAS HAD SUFFICIENT OPPORTUNITY BEFORE SIGNING THE AGREEMENT TO ASK ANY QUESTIONS EMPLOYEE HAS ABOUT THE AGREEMENT AND HAS RECEIVED SATISFACTORY ANSWERS TO ALL SUCH QUESTIONS; AND (D) UNDERSTANDS EMPLOYEE'S RIGHTS AND OBLIGATIONS UNDER THE AGREEMENT. This Agreement shall be construed and interpreted under the laws of Missouri. -8- 9 IN WITNESS WHEREOF, the parties have executed this agreement on the date first set out above. CONNING ASSET MANAGEMENT COMPANY By:----------------------------- Name:--------------------------- Title:-------------------------- CONNING & COMPANY By:----------------------------- Name:--------------------------- Title:-------------------------- EMPLOYEE -------------------------------- Name: <> Address:------------------------ ------------------------ -9- EX-10.13 11 EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT is made and entered into as of August 11, 1995 by and between Conning & Company, a Connecticut corporation (the "Company"), Conning Asset Management Company, a Missouri corporation ("CAM"), and Maurice W. Slayton ("Employee"). WHEREAS, the Company and Employee are parties to that certain Contribution Agreement (the "Contribution Agreement"), made and entered into as of July 24, 1995, by and among Conning Asset Management Company, a Missouri corporation, General American Life Insurance Company, a Missouri corporation, General American Holding Company, a Missouri corporation which is a wholly owned subsidiary of General American, General American Investment Management Company, a Missouri corporation, the Company, Conning Corporation, a Delaware corporation, and the shareholders and option holders of Conning Corporation, including Employee. WHEREAS, Employee possesses skills and experience which Company believes are of value to the success of Company's business operations; WHEREAS, Company wishes to employ Employee subject to the terms and conditions of this Agreement, and Employee wishes to accept such employment subject to the terms and conditions of this Agreement; WHEREAS, the Company and its Affiliates are in the business of rendering investment advice, with a special expertise in advising insurance companies in the United States, and have accumulated valuable, confidential information including trade secrets and know-how relating to portfolio construction and management, technology, formulas, marketing plans, business strategies, and other business records; and WHEREAS, the giving of the covenants contained herein is a condition precedent to the employment of Employee, and Employee acknowledges that the execution of this Agreement and the entering into of these covenants is an express condition of his or her employment and that said covenants are given in consideration for such employment and the other benefits conferred upon him by this Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants, and agreements herein set forth, the parties hereto agree as follows: 1. Employment and Duties. Company hereby agrees to --------------------- employ Employee, and Employee agrees to enter the employ of 1 2 Company for the Term herein specified. During the Term, Employee shall serve and be employed as President of CAM and as President and CEO of the Company with responsibility for (i) marketing for CAM and its subsidiaries, (ii) managing the Hartford office of CAM and its subsidiaries, (iii) participating in identifying and negotiating acquisitions, and (iv) participating in the development and execution of an initial public offering of the stock of CAM. Employee shall also perform such other duties as the Board of Directors or officers of Company may reasonably assign to Employee, and shall devote his or her full time, attention, and effort to the business and affairs of Company. 2. Term. The term of this Agreement shall be for the ---- period commencing on date hereof and ending three years after the date hereof (the "Term"), unless terminated prior thereto as provided in Section 4. 3. Compensation and Benefits. ------------------------- a. In consideration of his or her services, Employee shall receive during the Term hereof a base salary at the rate of not less than $250,000 per year ("Annual Base Salary"), payable in substantially equal installments in accordance with Company's usual paying practices, but not less frequently than monthly. Employee shall be eligible to receive increases in Employee's Annual Base Salary pursuant to periodic salary reviews consistent with the Company's corporate policies; it being understood such increases are not guaranteed, but are subject to evaluation of Employee's job performance. In addition to the foregoing compensation, Employee will be eligible, in the sole discretion of the Board of Directors of the Company, to participate as a limited partner in Conning Investment Partners LP III or in the Company's Venture Capital Carried Interest Allocation Plan and the Company's Bonus Plan as modified to reflect the combination of the Company with GAIMCO. b. As further consideration for the covenants contained herein, the Company will provide Employee with such insurance, welfare, sick leave, and other benefits as may be established by the Company from time to time with respect to its employees and will reimburse Employee for authorized business expenses in accordance with policies established by the Company from time to time. Employee shall be entitled to vacation in an amount equal to the amount of vacation to which such Employee would have been entitled under the Company's vacation policy in effect as of June 30, 1995 for employees with service and position equal to the length of Employee's service and position with the Company. c. Upon execution of this Agreement, Employee shall be paid a signing bonus in cash equal to $195,000 (the "Signing Bonus"), subject to the forfeiture provisions provided in Section 4(d)(3) hereof. In order to secure such forfeiture provisions, Employee agrees that a certificate (the "Certificate") evidencing 36,585 shares of the Series A 2 3 Convertible Preferred Stock, par value $.01 per share ("Preferred Stock"), of the Company issued to Employee in connection with the cancellation of certain stock options held by Employee shall be pledged to the Company, which encumbrance shall be evidenced by a legend on such Certificate until such time as such risk of forfeiture shall have expired. 4. Termination. ----------- a. Termination Without Cause. Employee's ------------------------- employment may be terminated without cause: (1) At any time upon the mutual written agreement of the parties hereto; (2) Immediately upon Employee's death; (3) Immediately upon Employee's Total Disability (as defined in Section 4(f)); (4) Upon not less than 30 days' advance written notice from Employee of Employee's desire to terminate this Agreement, provided, however, that, following such notice, the Company shall have the right to terminate Employee's employment immediately, provided that the Company pays Employee the compensation due him or her as if the Termination Date occurred 30 days from the date of such notice; or (5) Upon not less than 30 days' advance written notice from the Company of the Company's desire to terminate this Agreement. b. Termination For Cause. Employee's employment --------------------- may be terminated by the Company upon written notice to Employee at any time for any of the following reasons, each of which shall constitute "termination for cause": (1) Any material breach of this Agreement by Employee which is not cured within 20 days after written notice by the Company; (2) Employee's fraud, embezzlement, dishonesty or unlawful acts in connection with the business of the Company or its Affiliates; (3) Employee's conviction for any felony; or (4) Employee's substantial and continuing willful failure to perform, or grossly negligent performance of, the duties of Employee's position. 3 4 c. Termination Date. Employee's last day of ---------------- employment with the Company (if such date occurs prior to the third anniversary of this Agreement) shall be referred to in this Agreement as the "Termination Date" and shall constitute the end of the Term of this Agreement. d. Effect of Termination. --------------------- (1) Upon any termination of the employment pursuant to this Section 4, this Agreement shall terminate and the Company shall have no obligation of any kind whatsoever to Employee except to pay Employee the compensation due him or her through the Termination Date, the amount of such compensation due Employee under Section 3(a) hereof being apportioned for the portion of the fiscal period Employee was actually employed, and any deferred compensation then due to Employee hereunder. The obligations under Section 6 and 7 shall survive the end of the Term of this Agreement according to their terms. (2) In addition, upon termination pursuant to Section 4(a)(5), the Company shall (i) pay Employee an amount equal to 150% of the Annual Base Salary for each year (or portion thereof, pro rated) through the balance of the Term and (ii) provide all benefits described in Section 3(b) through the balance of the Term. Payment pursuant to this Section 4(d)(2) shall not apply to any termination other than one pursuant to Section 4(a)(5). (3) Upon termination of this Agreement pursuant to Section 4(a)(4) or Section 4(b), Employee agrees to repay to the Company the percentage of the Signing Bonus indicated below, depending upon the year in which such termination occurs.
During Year Percentage Forfeited ----------- -------------------- 1 100% 2 66.6% 3 33.3%
Immediately upon such termination, Employee shall either pay the Company the forfeited portion of the Signing Bonus in cash or tender to the Company the Certificate, which the Company shall cancel and reissue to the Employee for a number of shares of Preferred Stock equal to the original number of shares evidenced by the Certificate less a number of shares, valued in accordance with Section 11.3 of the Company's Shareholders Agreement, equal to the forfeited portion of the Signing Bonus. If Employee neither pays cash nor tenders the Certificate, the Company shall be entitled to unilaterally cancel the Certificate on its stock books and reissue Employee a new certificate as provided in the preceding sentence. 4 5 e. Release. In the event Employee becomes ------- entitled to payments pursuant to Section 4(d)(2) hereof, Employee shall, as a condition to such payments being made, execute and deliver to the Company, and any Affiliates of the Company designated by the Company, a release of all Employee's claims for employment, employment-related compensation or employee benefits or any form of damages as a result of termination of employment in such form as is reasonably satisfactory to the Company, which document shall include a covenant not to bring any claim, action or suit with respect to the matters which are the subject of such release. f. Definition of Total Disability. "Total ------------------------------ Disability" means having a physical or mental condition which renders Employee incapable of performing his duties and responsibilities with the Company for a period of six months. Determination of Total Disability will be made by a physician selected by the Company. If the determination of such physician differs from the opinion as to disability of the Employee's physician, the two physicians shall select a third physician, whose determination shall be binding on both parties. 5. Company Policies. Employee agrees to abide by the ---------------- policies, rules, regulations, and usages applicable to Employee as they are established by the Company from time to time ("Company Policies"), and to perform the duties assigned to him faithfully and loyally. 6. Non-Disclosure. Employee agrees that he will -------------- never disclose, directly or indirectly, to any other firm or person any of Company's or Company's Affiliates' confidential or proprietary information including customer lists, trade secrets, and know-how relating to its or their business. Confidential or proprietary information shall not include any information which is or hereafter comes in the public domain or is or becomes generally known or available in the industry through no act of Employee prohibited by this Agreement. 7. Non-Compete Agreement. --------------------- a. Covenant. Employee recognizes that (i) CAM -------- and the subsidiaries of which it controls a majority of the voting stock ("Controlled Subsidiaries") have spent substantial money, time and effort over the years in developing and solidifying their relationships with their customers and in developing their confidential information; (ii) long-term customer relationships often can be difficult to develop and require a significant investment of time, effort, and expense; (iii) the Company pays its employees to, among other things, develop and preserve business information, customer goodwill and customer loyalty for and on behalf of the Company; and (iv) the Company is hereby agreeing to employ and pay Employee based upon Employee's assurances and promises contained herein not to divert 5 6 the Company's customers' goodwill and not to put himself or herself in a position during or following Employee's employment with the Company in which the confidentiality of the Company's proprietary information might somehow be compromised. Accordingly, Employee covenants and agrees that for a period of three years following the date hereof, regardless of whether Employee remains employed by the Company and regardless of whether Employee's termination, if any, is with or without cause, neither Employee nor any entity controlling, controlled by or under common control with Employee shall (i) engage in, or have any direct or indirect interest in any other person, firm, corporation, or other entity engaged in any business activities competitive with the business activities of CAM and the Controlled Subsidiaries, or (ii) become an employee, director, advisor, consultant, independent contractor, or agent of any such person, firm, corporation, or other entity, except with CAM's prior written consent. b. Acknowledgement Regarding Restrictions. -------------------------------------- Employee recognizes and agrees that the restraints contained in Section 7(a) are reasonable and enforceable in view of the legitimate interests of CAM and the Controlled Subsidiaries in protecting their confidential information and customer goodwill, and that the limitations contained therein on the duration and geographic scope of, and activities prohibited by, such restraints are reasonable and binding upon Employee. c. Enforceability. -------------- (1) The covenants contained in this Section 7 shall be deemed to be a series of separate covenants, one for each aspect of CAM's or the Controlled Subsidiaries' businesses and locations. Each separate covenant shall hereinafter be referred to as a "Separate Covenant." (2) If any court or tribunal of competent jurisdiction shall refuse to enforce one or more of the Separate Covenants because the time limit applicable thereto is deemed unreasonable, it is expressly understood and agreed that such Separate Covenant or Separate Covenants shall not be void but that for the purpose of such proceedings such time limitation shall be deemed to be reduced to the extent necessary to permit the enforcement of such Separate Covenant or Separate Covenants. (3) If any court or tribunal of competent jurisdiction shall refuse to enforce any or all of the Separate Covenants because, taken together, they are more extensive (whether as to geographic area, scope of business, or otherwise) than is deemed to be reasonable, it is expressly understood and agreed between the parties that such Separate Covenant or Separate Covenants shall not be void but that for the purpose of such proceedings the restrictions contained therein (whether as to geographic area, scope of business, or otherwise) shall be 6 7 deemed to be reduced to the extent necessary to permit the enforcement of such Separate Covenant or Separate Covenants. d. Ownership of Securities. Nothing contained ----------------------- herein shall restrict Employee from owning 2% or less of the corporate securities of any entity in competition with CAM's or the Controlled Subsidiaries' businesses, which securities are listed on any national securities exchange or authorized for listing on the Nasdaq National Market, if Employee has no other connection or relationship, direct or indirect, with the issuer of such securities. 8. Non-Waiver of Rights. The Company's failure to -------------------- enforce at any time any of the provisions of this Agreement or to require at any time performance by Employee of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement, or any part hereof, or the right of Company thereafter to enforce each and every provision in accordance with the terms of this Agreement. 9. The Company's Right to Injunctive Relief. In the ---------------------------------------- event of a breach or threatened breach of any of Employee's duties and obligations under the terms and provisions of Sections 6 or 7 hereof, the Company shall be entitled, in addition to any other legal or equitable remedies it may have (including any right to damages that it may suffer), to temporary, preliminary, and permanent injunctive relief restraining such breach or threatened breach. Employee hereby expressly acknowledges that the harm which might result to the Company's business as a result of any noncompliance by Employee with any of the provisions of Sections 6 or 7 would be largely irreparable. Employee specifically agrees that if there is a question as to the enforceability of any of the provisions of Sections 6 or 7 hereof, Employee will not engage in any conduct inconsistent with or contrary to such Sections until after the question has been resolved by a final judgment of a court of competent jurisdiction. 10. Employee Representations. Employee represents ------------------------ that the execution and delivery of this Agreement and Employee's employment with the Company do not violate any previous employment agreement or other contractual obligation of Employee. Employee also represents and agrees that Employee has not disclosed, and will not disclose, to the Company any information, whether confidential, proprietary, or otherwise, which Employee has in Employee's possession and which Employee is not legally free to disclose. 11. The Company's Right to Recover Costs and Fees. --------------------------------------------- Employee and the Company each undertakes and agrees that if such party breaches this Agreement, such party shall be liable for any 7 8 attorneys' fees and costs incurred by the other party in enforcing its rights hereunder. 12. Definition of Affiliate. "Affiliate" shall for ----------------------- purposes of this Agreement mean any person or entity (the "Specified Person") (a) who directly or indirectly controls, is controlled by, or is under common control with the Company, (b) who owns or controls thirty percent (30%) or more of the Company's outstanding voting securities or percentage interests; (c) in whom the Company owns or controls thirty percent (30%) or more of the outstanding voting securities or percentage interests; (d) who is a director, partner, manager, executive officer or trustee of the Company; (e) in whom the Company is a partner; or (f) who has any relationship with the Specified Person by blood, marriage or adoption, not more remote than first cousin, and shall include, without limitation, Conning Asset Management Company, General American Life Insurance Company, General American Holding Company, General American Investment Management Company, and Conning Corporation. 13. Miscellaneous. Neither this Agreement nor any ------------- rights hereunder shall be assignable by either party hereto. This agreement contains the entire agreement between the parties with respect to the terms of Employee's employment by Company, free of any other representation, promise, or understanding. This Agreement may be modified or amended only by a written agreement executed by both parties to this Agreement. Nothing in this Agreement shall be construed as creating a joint venture or partnership between Employee and the Company or any of its affiliates. Section headings are provided in this Agreement for convenience only and shall not be deemed to alter the content of such sections. PLEASE NOTE: BY SIGNING THIS EMPLOYMENT AGREEMENT, EMPLOYEE IS - ----------- HEREBY CERTIFYING THAT EMPLOYEE (A) HAS RECEIVED A COPY OF THIS AGREEMENT FOR REVIEW AND STUDY BEFORE EXECUTING IT; (B) HAS READ THIS AGREEMENT CAREFULLY BEFORE SIGNING IT; (C) HAS HAD SUFFICIENT OPPORTUNITY BEFORE SIGNING THE AGREEMENT TO ASK ANY QUESTIONS EMPLOYEE HAS ABOUT THE AGREEMENT AND HAS RECEIVED SATISFACTORY ANSWERS TO ALL SUCH QUESTIONS; AND (D) UNDERSTANDS EMPLOYEE'S RIGHTS AND OBLIGATIONS UNDER THE AGREEMENT. This Agreement shall be construed and interpreted under the laws of Missouri. IN WITNESS WHEREOF, the parties have executed this agreement on the date first set out above. 8 9 CONNING ASSET MANAGEMENT COMPANY By: /s/ Leonard M. Rubenstein ------------------------------- Name: L.M. Rubenstein ----------------------------- Title: CEO ---------------------------- CONNING & COMPANY By: /s/ Maurice W. Slayton ------------------------------- Name: M.W. Slayton ----------------------------- Title: Chairman, President & CEO ---------------------------- EMPLOYEE /s/ Maurice W. Slayton ----------------------------------- Name: Maurice W. Slayton ------------------------------ Address: 178 Rever Knolls --------------------------- Avon, CT 06001 --------------------------- 9 EX-10.15 12 1995 FLEXIBLE STOCK PLAN 1 CONNING ASSET MANAGEMENT COMPANY 1995 FLEXIBLE STOCK PLAN 2 CONNING ASSET MANAGEMENT COMPANY 1995 FLEXIBLE STOCK PLAN TABLE OF CONTENTS
Page ---- ARTICLE 1 - NAME AND PURPOSE 1 1.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Purpose. . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II - DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION 2.1 General Definitions. . . . . . . . . . . . . . . . . . 1 (a) Affiliate . . . . . . . . . . . . . . . . . . . . 1 (b) Agreement . . . . . . . . . . . . . . . . . . . . 1 (c) Benefit . . . . . . . . . . . . . . . . . . . . . 1 (d) Board . . . . . . . . . . . . . . . . . . . . . . 1 (e) Cash Award. . . . . . . . . . . . . . . . . . . . 1 (f) Change of Control . . . . . . . . . . . . . . . . 1 (g) Code. . . . . . . . . . . . . . . . . . . . . . . 1 (h) Company . . . . . . . . . . . . . . . . . . . . . 2 (i) Committee . . . . . . . . . . . . . . . . . . . . 2 (j) Common Stock. . . . . . . . . . . . . . . . . . . 2 (k) Effective Date. . . . . . . . . . . . . . . . . . 2 (l) Employee. . . . . . . . . . . . . . . . . . . . . 2 (m) Employer. . . . . . . . . . . . . . . . . . . . . 2 (n) Exchange Act. . . . . . . . . . . . . . . . . . . 2 (o) Fair Market Value . . . . . . . . . . . . . . . . 2 (p) Fiscal Year . . . . . . . . . . . . . . . . . . . 2 (q) ISO . . . . . . . . . . . . . . . . . . . . . . . 2 (r) NQSO. . . . . . . . . . . . . . . . . . . . . . . 2 (s) Option. . . . . . . . . . . . . . . . . . . . . . 2 (t) Other Stock Based Award . . . . . . . . . . . . . 2 (u) Parent. . . . . . . . . . . . . . . . . . . . . . 2 (v) Participant . . . . . . . . . . . . . . . . . . . 2 (w) Performance Share . . . . . . . . . . . . . . . . 3 (x) Plan. . . . . . . . . . . . . . . . . . . . . . . 3 (y) Restricted Stock. . . . . . . . . . . . . . . . . 3 (z) Rule 16b-3. . . . . . . . . . . . . . . . . . . . 3 (aa) SEC . . . . . . . . . . . . . . . . . . . . . . . 3 (bb) Share . . . . . . . . . . . . . . . . . . . . . . 3 (cc) SAR . . . . . . . . . . . . . . . . . . . . . . . 3 (dd) Subsidiary. . . . . . . . . . . . . . . . . . . . 3 2.2 Other Definitions. . . . . . . . . . . . . . . . . . . 3 2.3 Conflicts in Plan. . . . . . . . . . . . . . . . . . . 3 ARTICLE III - COMMON STOCK 3.1 Number of Shares . . . . . . . . . . . . . . . . . . . 3 3.2 Reusage. . . . . . . . . . . . . . . . . . . . . . . . 3 -i- 3 3.3 Adjustments. . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE IV - ELIGIBILITY 4.1 Determined By Committee. . . . . . . . . . . . . . . . 4 ARTICLE V - ADMINISTRATION 5.1 Committee. . . . . . . . . . . . . . . . . . . . . . . 4 5.2 Authority. . . . . . . . . . . . . . . . . . . . . . . 4 5.3 Delegation . . . . . . . . . . . . . . . . . . . . . . 5 5.4 Adjudication of Claims . . . . . . . . . . . . . . . . 5 ARTICLE VI - AMENDMENT 6.1 Power of Board . . . . . . . . . . . . . . . . . . . . 5 6.2 Limitation . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE VII - TERM AND TERMINATION 7.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.2 Termination. . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE VIII - MODIFICATION OR TERMINATION OF BENEFITS 8.1 General. . . . . . . . . . . . . . . . . . . . . . . . 6 8.2 Committee's Right. . . . . . . . . . . . . . . . . . . 6 ARTICLE IX - CHANGE OF CONTROL 9.1 Right of Committee . . . . . . . . . . . . . . . . . . 6 ARTICLE X - AGREEMENTS AND CERTAIN BENEFITS 10.1 Grant Evidenced by Agreement . . . . . . . . . . . . . 7 10.2 Provisions of Agreement. . . . . . . . . . . . . . . . 7 10.3 Certain Benefits . . . . . . . . . . . . . . . . . . . 7 ARTICLE XI - REPLACEMENT AND TANDEM AWARDS 11.1 Replacement. . . . . . . . . . . . . . . . . . . . . . 7 11.2 Tandem Awards. . . . . . . . . . . . . . . . . . . . . 7 ARTICLE XII - PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING 12.1 Payment. . . . . . . . . . . . . . . . . . . . . . . . 7 12.2 Dividend Equivalents . . . . . . . . . . . . . . . . 8 12.3 Deferral . . . . . . . . . . . . . . . . . . . . . . 8 12.4 Withholding. . . . . . . . . . . . . . . . . . . . . 8 -ii- 4 ARTICLE XIII - OPTIONS 13.1 Types of Options . . . . . . . . . . . . . . . . . . 8 13.2 Shares for ISOs. . . . . . . . . . . . . . . . . . . 8 13.3 Grant of ISOs and Option Price . . . . . . . . . . . 8 13.4 Other Requirements for ISOs. . . . . . . . . . . . . 9 13.5 NQSOs. . . . . . . . . . . . . . . . . . . . . . . . 9 13.6 Limitation Shares Covered by Options . . . . . . . . 9 13.7 Determination by Committee . . . . . . . . . . . . . 9 ARTICLE XIV - SARS 14.1 Grant and Payment. . . . . . . . . . . . . . . . . . 9 14.2 Grant of Tandem Award. . . . . . . . . . . . . . . . 9 14.3 ISO Tandem Award . . . . . . . . . . . . . . . . . . 9 14.4 Payment of Award . . . . . . . . . . . . . . . . . . 9 14.5 Limitation on SARs . . . . . . . . . . . . . . . . . 9 ARTICLE XV - RESTRICTED STOCK 15.1 Description. . . . . . . . . . . . . . . . . . . . . 10 15.2 Cost of Restricted Stock . . . . . . . . . . . . . . 10 15.3 Non-Transferability. . . . . . . . . . . . . . . . . 10 ARTICLE XVI - PERFORMANCE SHARES 16.1 Description. . . . . . . . . . . . . . . . . . . . . 10 16.2 Grant. . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE XVII - CASH AWARDS 17.1 Grant. . . . . . . . . . . . . . . . . . . . . . . . 10 17.2 Rule 16b-3 . . . . . . . . . . . . . . . . . . . . . 10 17.3 Restrictions . . . . . . . . . . . . . . . . . . . . 10 ARTICLE XVIII - OTHER STOCK BASED AWARDS AND OTHER BENEFITS 18.1 Other Stock Based Awards . . . . . . . . . . . . . . 11 18.2 Other Benefits . . . . . . . . . . . . . . . . . . . 11 ARTICLE XIX - MISCELLANEOUS PROVISIONS 19.1 Underscored References . . . . . . . . . . . . . . . 11 19.2 Number and Gender. . . . . . . . . . . . . . . . . . 11 19.3 Governing Law. . . . . . . . . . . . . . . . . . . . 11 19.4 Purchase for Investment. . . . . . . . . . . . . . . 11 19.5 No Employment Contract . . . . . . . . . . . . . . . 11 19.6 No Effect on Other Benefits. . . . . . . . . . . . . 11 19.7 Section 16 Fail-Safe Provision . . . . . . . . . . . 11 19.8 Section 162(m) Fail-Safe Provision . . . . . . . . . 12
-iii- 5 CONNING ASSET MANAGEMENT COMPANY 1995 FLEXIBLE STOCK PLAN ARTICLE I --------- NAME AND PURPOSE ---------------- 1.1 Name. The name of this Plan is the "Conning Asset ---- Management Company 1995 Flexible Stock Plan." 1.2 Purpose. The Company has established this Plan to ------- attract, retain, motivate and reward Employees and other individuals, to encourage ownership of the Company's Common Stock by Employees and other individuals, and to promote and further the best interests of the Company by granting cash and other awards. ARTICLE II ---------- DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION ---------------------------------------------- 2.1 General Definitions. The following words and phrases, ------------------- when used in the Plan, unless otherwise specifically defined or unless the context clearly otherwise requires, shall have the following respective meanings: (a) Affiliate. A Parent or Subsidiary of the Company. --------- (b) Agreement. The document which evidences the --------- grant of any Benefit under the Plan and which sets forth the Benefit and the terms, conditions and provisions of, and restrictions relating to, such Benefit. (c) Benefit. Any benefit granted to a Participant ------- under the Plan. (d) Board. The Board of Directors of the Company. ----- (e) Cash Award. A Benefit payable in the form of cash. ---------- (f) Change of Control. The acquisition, without the ----------------- approval of the Board, by any person or entity, other than the Company or a Related Entity, of more than 20% of the outstanding shares of the Company's voting common stock through a tender offer, exchange offer or otherwise; the liquidation or dissolution of the Company following a sale or other disposition of all or substantially all of its assets; a merger or consolidation involving the Company which results in the Company not being the surviving parent corporation; or any time during any two-year period in which individuals who constituted the Board at the start of such period (or whose election was approved by at least two-thirds of the then members of the Board who were members at the start of the two-year period) do not constitute at least 50% of the Board for any reason. A Related Entity is the Parent, a Subsidiary or any employee benefit plan (including a trust forming a part of such a plan) maintained by the Parent, the Company or a Subsidiary. (g) Code. The Internal Revenue Code of 1986, as ---- amended. Any reference to the Code includes the regulations promulgated pursuant to the Code. 6 (h) Company. Conning Asset Management Company. ------- (i) Committee. The Committee described in --------- Section 5.1. (j) Common Stock. The Company's Class B Non-Voting ------------ Common Stock which presently has a par value of $.01 per Share. (k) Effective Date. The date that the Plan is -------------- approved by the shareholders of the Company which must occur within one year before or after approval by the Board. Any grants of Benefits prior to the approval by the shareholders of the Company shall be void if such approval is not obtained. (l) Employee. Any person employed by the Employer. -------- (m) Employer. The Company and all Affiliates. ------- (n) Exchange Act. The Securities Exchange Act of ------------ 1934, as amended. (o) Fair Market Value. The value of a Share as ----------------- determined pursuant to Section 11.3 of the Shareholders' Agreement among the Company and its shareholders and option holders. (p) Fiscal Year. The taxable year of the Company ----------- which is the calendar year. (q) ISO. An Incentive Stock Option as defined in --- Section 422 of the Code. (r) NQSO. A Non-Qualified Stock Option, which is an ---- Option that does not qualify as an ISO. (s) Option. An option to purchase Shares granted ------ under the Plan. (t) Other Stock Based Award. An award under ARTICLE ----------------------- XVIII that is valued in whole or in part by reference to, or is otherwise based on, Common Stock. (u) Parent. Any corporation (other than the Company ------ or a Subsidiary) in an unbroken chain of corporations ending with the Company, if, at the time of the grant of an Option or other Benefit, each of the corporations (other than the Company or a Subsidiary) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (v) Participant. An individual who is granted a ----------- Benefit under the Plan. Benefits may be granted only to Employees, employees and owners of entities which are not Affiliates but which have a direct or indirect ownership interest in an Employer or in which an Employer has a direct or indirect ownership interest, individuals who, and employees and owners of entities which, are customers and suppliers of an Employer, individuals who, and employees and owners of entities which, render services to an Employer, and -2- 7 individuals who, and employees and owners of entities, which have ownership or business affiliations with any individual or entity previously described. (w) Performance Share. A Share awarded to a ----------------- Participant under ARTICLE XVI of the Plan. (x) Plan. The Conning Asset Management Company 1995 ---- Flexible Stock Plan and all amendments and supplements to it. (y) Restricted Stock. Shares issued under ARTICLE XV ---------------- of the Plan. (z) Rule 16b-3. Rule 16b-3 promulgated by the SEC, ---------- as amended, or any successor rule in effect from time to time. (aa) SEC. The Securities and Exchange Commission. --- (bb) Share. A share of Common Stock. ----- (cc) SAR. A stock appreciation right, which is the --- right to receive an amount equal to the appreciation, if any, in the Fair Market Value of a Share from the date of the grant of the right to the date of its payment. (dd) Subsidiary. Any corporation, other than the ---------- Company, in an unbroken chain of corporations beginning with the Company if, at the time of grant of an Option or other Benefit, each of the corporations, other than the last corporation in the unbroken chain, owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 2.2 Other Definitions. In addition to the above ----------------- definitions, certain words and phrases used in the Plan and any Agreement may be defined in other portions of the Plan or in such Agreement. 2.3 Conflicts in Plan. In the case of any conflict in the ----------------- terms of the Plan relating to a Benefit, the provisions in the ARTICLE of the Plan which specifically grants such Benefit shall control those in a different ARTICLE. ARTICLE III ----------- COMMON STOCK ------------ 3.1 Number of Shares. The number of Shares which may be ---------------- issued or sold or for which Options, SARs or Performance Shares may be granted under the Plan shall be 2,100,000 Shares. 3.2 Reusage. If an Option or SAR expires or is terminated, ------- surrendered, or cancelled without having been fully exercised, if Restricted Shares or Performance Shares are forfeited, or if any other grant results in any Shares not being issued, the Shares covered by such Option or SAR, grant of Restricted Shares, Performance Shares or other grant, as the case may be, shall again be available for use under the Plan. -3- 8 3.3 Adjustments. If there is any change in the Common ----------- Stock of the Company by reason of any stock dividend, spin-off, split-up, spin-out, recapitalization, merger, consolidation, reorganization, combination or exchange of shares, the number of SARs and number and class of shares available for Options and grants of Restricted Stock, Performance Shares and Other Stock Based Awards and the number of Shares subject to outstanding Options, SARs, grants of Restricted Stock and Performance Shares which are not vested, and Other Stock Based Awards, and the price thereof, as applicable, shall be appropriately adjusted by the Committee. ARTICLE IV ---------- ELIGIBILITY ----------- 4.1 Determined By Committee. The Participants and the ----------------------- Benefits they receive under the Plan shall be determined solely by the Committee. In making its determinations, the Committee shall consider past, present and expected future contributions of Participants and potential Participants to the Employer, including, without limitation, the performance of, or the refraining from the performance of, services. ARTICLE V --------- ADMINISTRATION -------------- 5.1 Committee. The Plan shall be administered by the --------- Committee. The Committee shall consist of three or more members of the Board. The members of the Committee shall be appointed by and shall serve at the pleasure of the Board, which may from time to time appoint members in substitution for members previously appointed and fill vacancies, however caused, in the Committee. The Committee may select one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. 5.2 Authority. Subject to the terms of the Plan, the --------- Committee shall have discretionary authority to: (a) determine the individuals to whom Benefits are granted, the type and amounts of Benefits to be granted and the time of all such grants; (b) determine the terms, conditions and provisions of, and restrictions relating to, each Benefit granted; (c) interpret and construe the Plan and all Agreements; (d) prescribe, amend and rescind rules and regulations relating to the Plan; (e) determine the content and form of all Agreements; (f) determine all questions relating to Benefits under the Plan; -4- 9 (g) maintain accounts, records and ledgers relating to Benefits; (h) maintain records concerning its decisions and proceedings; (i) employ agents, attorneys, accountants or other persons for such purposes as the Committee considers necessary or desirable; (j) take, at anytime, any action permitted by Section 9.1 irrespective of whether any Change of Control has occurred or is imminent; and (k) do and perform all acts which it may deem necessary or appropriate for the administration of the Plan and carry out the purposes of the Plan. 5.3 Delegation. Except as required by Rule 16b-3 with ---------- respect to grants of Options, Stock Appreciation Awards, Performance Shares, Other Stock Based Awards, or other Benefits to individuals who are subject to Section 16 of the Exchange Act or as otherwise required for compliance with Rule 16b-3 or other applicable law, the Committee may delegate all or any part of its authority under the Plan to any Employee, Employees or committee. 5.4 Adjudication of Claims. The Committee shall have ---------------------- discretionary authority to make all determinations as to the right to Benefits under the Plan. In the event that a Participant believes he has not received the Benefits to which he is entitled under the Plan, a claim shall be made in writing to the Committee. The claim shall be reviewed by the Committee. If the claim is approved or denied, in full or in part, the Committee shall provide a written notice of approval or denial within 90 days with, in the case of a denial, the specific reasons for the denial and specific reference to the provisions of the Plan and/or Agreement upon which the denial is based. A claim shall be deemed denied if the Committee does not take any action within the aforesaid 90 day period. If a claim is denied or deemed denied and a review is desired, the Participant shall notify the Committee in writing within 60 days of the receipt of notice of denial or the date on which the claim is deemed to be denied, as the case may be. In requesting a review, the Participant may review the Plan or any document relating to it and submit any written issues and comments he may deem appropriate. The Committee shall then review the claim and provide a written decision within 60 days. This decision, if adverse to the Participant, shall state the specific reasons for the decision and shall include reference to specific provisions of the Plan and/or Agreement on which the decision is based. The Committee's decision on review shall be final. ARTICLE VI ---------- AMENDMENT --------- 6.1 Power of Board. Except as hereinafter provided, the -------------- Board shall have the sole right and power to amend the Plan at any time and from time to time. 6.2 Limitation. The Board may not amend the Plan, without ---------- approval of the shareholders of the Company: (a) in a manner which would cause Options which are intended to qualify as ISOs to fail to qualify; -5- 10 (b) in a manner which would cause the Plan to fail to meet the requirements of Rule 16b-3; or (c) in a manner which would violate applicable law. ARTICLE VII ----------- TERM AND TERMINATION -------------------- 7.1 Term. The Plan shall commence as of the Effective Date ---- and, subject to the terms of the Plan, including those requiring approval by the shareholders of the Company and those limiting the period over which ISOs or any other Benefits may be granted, shall continue in full force and effect until terminated. 7.2 Termination. The Plan may be terminated at any time by ----------- the Board. ARTICLE VIII ------------ MODIFICATION OR TERMINATION OF BENEFITS --------------------------------------- 8.1 General. Subject to the provisions of Section 8.2, the ------- amendment or termination of the Plan shall not adversely affect a Participant's right to any Benefit granted prior to such amendment or termination. 8.2 Committee's Right. Any Benefit granted may be ----------------- converted, modified, forfeited or cancelled, in whole or in part, by the Committee if and to the extent permitted in the Plan or applicable Agreement or with the consent of the Participant to whom such Benefit was granted. ARTICLE IX ---------- CHANGE OF CONTROL ----------------- 9.1 Right of Committee. In order to maintain a ------------------ Participant's rights in the event of a Change in Control, the Committee, in its sole discretion, may, in any Agreement evidencing a Benefit, or at any time prior to, or simultaneously with or after a Change in Control, provide such protection as it may deem necessary. Without, in any way, limiting the generality of the foregoing sentence or requiring any specific protection, the Committee may: (a) provide for the acceleration of any time periods relating to the exercise or realization of such Benefit so that such Benefit may be exercised or realized in full on or before a date fixed by the Committee; (b) provide for the purchase of such Benefit, upon the Participant's request, for an amount of cash equal to the amount which could have been attained upon the exercise or realization of such Benefit had such Benefit been currently exercisable or payable; (c) make such adjustment to the Benefits then outstanding as the Committee deems appropriate to reflect such transaction or change; and/or -6- 11 (d) cause the Benefits then outstanding to be assumed, or new Benefits substituted therefor, by the surviving corporation in such change. ARTICLE X --------- AGREEMENTS AND CERTAIN BENEFITS ------------------------------- 10.1 Grant Evidenced by Agreement. The grant of any ---------------------------- Benefit under the Plan may be evidenced by an Agreement which shall describe the specific Benefit granted and the terms and conditions of the Benefit. The granting of any Benefit shall be subject to, and conditioned upon, the recipient's execution of any Agreement required by the Committee. Except as otherwise provided in an Agreement, all capitalized terms used in the Agreement shall have the same meaning as in the Plan, and the Agreement shall be subject to all of the terms of the Plan. 10.2 Provisions of Agreement. Each Agreement shall contain ----------------------- such provisions that the Committee shall determine to be necessary, desirable and appropriate for the Benefit granted which may include, but not be limited to, the following with respect to any Benefit: description of the type of Benefit; the Benefit's duration; its transferability; if an Option, the exercise price, the exercise period and the person or persons who may exercise the Option; the effect upon such Benefit of the Participant's death or termination of employment; the Benefit's conditions; when, if, and how any Benefit may be forfeited, converted into another Benefit, modified, exchanged for another Benefit, or replaced; and the restrictions on any Shares purchased or granted under the Plan. 10.3 Certain Benefits. Any Benefit granted to an ---------------- individual who is subject to Section 16 of the Exchange Act shall be not transferable other than by will or the laws of descent and distribution and shall be exercisable during his lifetime only by him, his guardian or his legal representative. ARTICLE XI ---------- REPLACEMENT AND TANDEM AWARDS ----------------------------- 11.1 Replacement. The Committee may permit a Participant to ----------- elect to surrender a Benefit in exchange for a new Benefit. 11.2 Tandem Awards. Awards may be granted by the Committee ------------- in tandem. However, no Benefit may be granted in tandem with an ISO except SARs. ARTICLE XII ----------- PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING -------------------------------------------- 12.1 Payment. Upon the exercise of an Option or in the case ------- of any other Benefit that requires a payment to the Company, the amount due the Company is to be paid: (a) in cash; -7- 12 (b) by the tender to the Company of Shares owned by the optionee and registered in his name having a Fair Market Value equal to the amount due to the Company; (c) in other property, rights and credits, including the Participant's promissory note; (d) in cash, but by means of a so-called "cashless exercise" of an Option; and/or (e) by any combination of the payment methods specified in (a), (b), (c) and (d) above. Notwithstanding, the foregoing, any method of payment other than (a) may be used only with the consent of the Committee or if and to the extent so provided in an Agreement. The proceeds of the sale of Common Stock purchased pursuant to an Option and any payment to the Company for other Benefits shall be added to the general funds of the Company or to the Shares held in treasury, as the case may be, and used for the corporate purposes of the Company as the Board shall determine. 12.2 Dividend Equivalents. Grants of Benefits in Shares or -------------------- Share equivalents may include dividend equivalent payments or dividend credit rights. 12.3 Deferral. The right to receive any Benefit under the -------- Plan may, at the request of the Participant, be deferred for such period and upon such terms as the Committee shall determine, which may include crediting of interest on deferrals of cash and crediting of dividends on deferrals denominated in Shares. 12.4 Withholding. The Company may, at the time any ----------- distribution is made under the Plan, whether in cash or in Shares, or at the time any Option is exercised, withhold from such distribution or Shares issuable upon the exercise of an Option, any amount necessary to satisfy federal, state and local income and/or other tax withholding requirements with respect to such distribution or exercise of such Options. The Committee or the Company may require a participant to tender to the Company cash in the amount necessary to comply with any such withholding requirements. ARTICLE XIII ------------ OPTIONS ------- 13.1 Types of Options. It is intended that both ISOs and ---------------- NQSOs may be granted by the Committee under the Plan. 13.2 Shares for ISOs. The number of Shares for which ISOs --------------- may be granted on or after the Effective Date shall not exceed 2,100,000 Shares. 13.3 Grant of ISOs and Option Price. Each ISO must be ------------------------------ granted to an Employee and granted within ten years from the earlier of the date of adoption by the Board or the Effective Date. -8- 13 The purchase price for Shares under any ISO shall be no less than the Fair Market Value of the Shares at the time the Option is granted. 13.4 Other Requirements for ISOs. The terms of each Option --------------------------- which is intended to qualify as an ISO shall meet all requirements of Section 422 of the Code. 13.5 NQSOs. The terms of each NQSO shall provide that such ----- Option will not be treated as an ISO. The purchase price for Shares under any NQSO shall be the Fair Market Value of the Shares at the time the Option is granted. 13.6 Limitation Shares Covered by Options. The maximum ------------------------------------ number of Shares with respect to which (a) ISOs plus (b) NQSOs where the purchase price for Shares upon exercise of the NQSO is no less than the Fair Market Value of the Shares at the time of grant which may be granted to any Participant in any one year period shall not exceed 250,000 Shares. For purposes of the preceding sentence, the Shares covered by an Option that is cancelled shall count against the maximum number of Shares, and, if the exercise price under an Option is reduced, the transaction shall be treated as a cancellation of the Option and a grant of a new Option. 13.7 Determination by Committee. Except as otherwise -------------------------- provided in Section 13.2 through Section 13.6, the terms of all Options shall be determined by the Committee. ARTICLE XIV ----------- SARS ---- 14.1 Grant and Payment. The Committee may grant SARs. Upon ----------------- electing to receive payment of a SAR, a Participant shall receive payment in cash, in Common Stock, or in any combination of cash and Common Stock, as the Committee shall determine. 14.2 Grant of Tandem Award. The Committee may grant SARs in --------------------- tandem with an Option, in which case: the exercise of the Option shall cause a correlative reduction in SARs standing to a Participant's credit which were granted in tandem with the Option; and the payment of SARs shall cause a correlative reduction of the Shares under such Option. 14.3 ISO Tandem Award. When SARs are granted in tandem with ---------------- an ISO, the SARs shall have such terms and conditions as shall be required for the ISO to qualify as an ISO. 14.4 Payment of Award. SARs shall be paid, to the extent ---------------- payment is elected by the Participant (and is otherwise due and payable), as soon as practicable after the date on which such election is made. 14.5 Limitation on SARs. The maximum number of SARs which ------------------ may be granted to any Participant in any one year period shall not exceed 250,000 SARs. For purposes of the preceding sentence, the SARs covered by a grant of SARs that is cancelled shall count against the maximum number of SARs, and, if the Fair Market Value of a Share on which the appreciation under a grant of SARs will be calculated is reduced, the transaction will be treated as a cancellation of the SARs and the grant of a new grant of SARs. -9- 14 ARTICLE XV ---------- RESTRICTED STOCK ---------------- 15.1 Description. The Committee may grant Benefits in ----------- Shares available under ARTICLE III of the Plan as Restricted Stock. Shares of Restricted Stock shall be issued and delivered at the time of the grant but shall be subject to forfeiture until provided otherwise in the applicable Agreement or the Plan. Each certificate representing Shares of Restricted Stock shall bear a legend referring to the Plan and the risk of forfeiture of the Shares and stating that such Shares are nontransferable until all restrictions have been satisfied and the legend has been removed. The grantee shall be entitled to full voting and dividend rights with respect to all shares of Restricted Stock from the date of grant. 15.2 Cost of Restricted Stock. Grants of Shares of ------------------------ Restricted Stock shall be made at a per Share cost to the Participant equal to par value. 15.3 Non-Transferability. Shares of Restricted Stock shall ------------------- not be transferable until after the removal of the legend with respect to such Shares. ARTICLE XVI ----------- PERFORMANCE SHARES ------------------ 16.1 Description. Performance Shares are the right of an ----------- individual to whom a grant of such Shares is made to receive Shares or cash equal to the Fair Market Value of such Shares at a future date in accordance with the terms of such grant. Generally, such right shall be based upon the attainment of targeted profit and/or performance objectives. 16.2 Grant. The Committee may grant an award of Performance ----- Shares. The number of Performance Shares and the terms and conditions of the grant shall be set forth in the applicable Agreement. ARTICLE XVII ------------ CASH AWARDS ----------- 17.1 Grant. The Committee may grant Cash Awards at such ----- times and (subject to Section 17.2) in such amounts as it deems appropriate. 17.2 Rule 16b-3. The Amount of any Cash Award in any Fiscal ---------- Year to any Participant who is subject to Section 16 of the Exchange Act shall not exceed the greater of $100,000 or 50% of his cash compensation (excluding any Cash Award under this ARTICLE XVII) for such Fiscal Year. 17.3 Restrictions. Cash Awards may be subject or not ------------ subject to conditions (such as an investment requirement), restricted or nonrestricted, vested or subject to forfeiture and may be payable currently or in the future or both. -10- 15 ARTICLE XVIII ------------- OTHER STOCK BASED AWARDS AND OTHER BENEFITS ------------------------------------------- 18.1 Other Stock Based Awards. The Committee shall have the ------------------------ right to grant Other Stock Based Awards which may include, without limitation, the grant of Shares based on certain conditions, the payment of cash based on the performance of the Common Stock, and the grant of securities convertible into Shares. 18.2 Other Benefits. The Committee shall have the right to -------------- provide types of Benefits under the Plan in addition to those specifically listed, if the Committee believes that such Benefits would further the purposes for which the Plan was established. ARTICLE XIX ----------- MISCELLANEOUS PROVISIONS ------------------------ 19.1 Underscored References. The underscored references ---------------------- contained in the Plan are included only for convenience, and they shall not be construed as a part of the Plan or in any respect affecting or modifying its provisions. 19.2 Number and Gender. The masculine and neuter, wherever ----------------- used in the Plan, shall refer to either the masculine, neuter or feminine; and, unless the context otherwise requires, the singular shall include the plural and the plural the singular. 19.3 Governing Law. This Plan shall be construed and ------------- administered in accordance with the laws of the State of Missouri. 19.4 Purchase for Investment. The Committee may require ----------------------- each person purchasing Shares pursuant to an Option or other award under the Plan to represent to and agree with the Company in writing that such person is acquiring the Shares for investment and without a view to distribution or resale. The certificates for such Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates for Shares delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under all applicable laws, rules and regulations, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate references to such restrictions. 19.5 No Employment Contract. The adoption of the Plan shall ---------------------- not confer upon any Employee any right to continued employment nor shall it interfere in any way with the right of the Employer to terminate the employment of any of its Employees at any time. 19.6 No Effect on Other Benefits. The receipt of Benefits --------------------------- under the Plan shall have no effect on any benefits to which a Participant may be entitled from the Employer, under another plan or otherwise, or preclude a Participant from receiving any such benefits. 19.7 Section 16 Fail-Safe Provision. With respect to ------------------------------ Participants subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions -11- 16 of Rule 16b-3. If and to the extent any provision of the Plan or action by the Board, Committee, or the Committee's designee fails to so comply, it shall be deemed null and void. 19.8 Section 162(m) Fail-Safe Provision. If Code Section ---------------------------------- 162(m) is applicable to the Company and to a Participant, ISOs, NQSOs where the exercise price is no less than fair market value at the time of grant, and SARs granted to any such Participant are intended to meet the requirements of other performance-based compensation under Section 162(m)(4)(C), so that any remuneration resulting from the grant of any such Benefit to such Participant will not be considered "applicable employee remuneration" within the meaning of Code Section 162(m)(4). If and to the extent any provision of the Plan or action by the Board, Committee, or the Committee's designee is contrary to such intention, it shall be deemed null and void. -12- EX-10.16 13 1996 FLEXIBLE STOCK PLAN 1 CONNING CORPORATION 1996 FLEXIBLE STOCK PLAN 2 CONNING CORPORATION 1996 FLEXIBLE STOCK PLAN TABLE OF CONTENTS
Page ---- ARTICLE I - NAME AND PURPOSE 1.1 Name . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Purpose. . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II - DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION 2.1 General Definitions. . . . . . . . . . . . . . . . . 1 (a) Affiliate . . . . . . . . . . . . . . . . . . . 1 (b) Agreement . . . . . . . . . . . . . . . . . . . 1 (c) Benefit . . . . . . . . . . . . . . . . . . . . 1 (d) Board . . . . . . . . . . . . . . . . . . . . . 1 (e) Cash Award. . . . . . . . . . . . . . . . . . . 1 (f) Change of Control . . . . . . . . . . . . . . . 1 (g) Code. . . . . . . . . . . . . . . . . . . . . . 2 (h) Company . . . . . . . . . . . . . . . . . . . . 2 (i) Committee . . . . . . . . . . . . . . . . . . . 2 (j) Common Stock. . . . . . . . . . . . . . . . . . 2 (k) Effective Date. . . . . . . . . . . . . . . . . 2 (l) Employee. . . . . . . . . . . . . . . . . . . . 2 (m) Employer. . . . . . . . . . . . . . . . . . . . 2 (n) Exchange Act. . . . . . . . . . . . . . . . . . 2 (o) Fair Market Value . . . . . . . . . . . . . . . 2 (p) Fiscal Year . . . . . . . . . . . . . . . . . . 2 (q) ISO . . . . . . . . . . . . . . . . . . . . . . 2 (r) NQSO. . . . . . . . . . . . . . . . . . . . . . 2 (s) Option. . . . . . . . . . . . . . . . . . . . . 2 (t) Other Stock Based Award . . . . . . . . . . . . 2 (u) Parent. . . . . . . . . . . . . . . . . . . . . 2 (v) Participant . . . . . . . . . . . . . . . . . . 3 (w) Performance Share . . . . . . . . . . . . . . . 3 (x) Plan. . . . . . . . . . . . . . . . . . . . . . 3 (y) Restricted Stock. . . . . . . . . . . . . . . . 3 (z) Rule 16b-3. . . . . . . . . . . . . . . . . . . 3 (aa) SEC . . . . . . . . . . . . . . . . . . . . . . 3 (bb) Share . . . . . . . . . . . . . . . . . . . . . 3 (cc) SAR . . . . . . . . . . . . . . . . . . . . . . 3 (dd) Subsidiary. . . . . . . . . . . . . . . . . . . 3 2.2 Other Definitions. . . . . . . . . . . . . . . . . . 3 -i- 3 2.3 Conflicts in Plan. . . . . . . . . . . . . . . . . . 3 ARTICLE III - COMMON STOCK 3.1 Number of Shares . . . . . . . . . . . . . . . . . . 4 3.2 Reusage. . . . . . . . . . . . . . . . . . . . . . . 4 3.3 Adjustments. . . . . . . . . . . . . . . . . . . . . 4 ARTICLE IV - ELIGIBILITY 4.1 Determined By Committee or Board . . . . . . . . . . 4 ARTICLE V - ADMINISTRATION 5.1 Committee or Board . . . . . . . . . . . . . . . . . 4 5.2 Authority. . . . . . . . . . . . . . . . . . . . . . 5 5.3 Delegation . . . . . . . . . . . . . . . . . . . . . 5 5.4 Adjudication of Claims . . . . . . . . . . . . . . . 5 ARTICLE VI - AMENDMENT 6.1 Power of Board . . . . . . . . . . . . . . . . . . . 6 6.2 Limitation . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE VII - TERM AND TERMINATION 7.1 Term . . . . . . . . . . . . . . . . . . . . . . . . 6 7.2 Termination. . . . . . . . . . . . . . . . . . . . . 6 ARTICLE VIII - MODIFICATION OR TERMINATION OF BENEFITS 8.1 General. . . . . . . . . . . . . . . . . . . . . . . 7 8.2 Right to Modify. . . . . . . . . . . . . . . . . . . 7 ARTICLE IX - CHANGE OF CONTROL 9.1 Right of Committee or Board. . . . . . . . . . . . . 7 ARTICLE X - AGREEMENTS AND CERTAIN BENEFITS 10.1 Grant Evidenced by Agreement . . . . . . . . . . . . 7 10.2 Provisions of Agreement. . . . . . . . . . . . . . . 8 10.3 Certain Benefits . . . . . . . . . . . . . . . . . . 8 ARTICLE XI - REPLACEMENT AND TANDEM AWARDS 11.1 Replacement. . . . . . . . . . . . . . . . . . . . . 8 11.2 Tandem Awards. . . . . . . . . . . . . . . . . . . . 8 ARTICLE XII - PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING 12.1 Payment. . . . . . . . . . . . . . . . . . . . . . . 8 12.2 Dividend Equivalents . . . . . . . . . . . . . . . . 9 -ii- 4 12.3 Deferral . . . . . . . . . . . . . . . . . . . . . . 9 12.4 Withholding. . . . . . . . . . . . . . . . . . . . . 9 ARTICLE XIII - OPTIONS 13.1 Types of Options . . . . . . . . . . . . . . . . . . 9 13.2 Shares for ISOs. . . . . . . . . . . . . . . . . . . 9 13.3 Grant of ISOs and Option Price . . . . . . . . . . . 9 13.4 Other Requirements for ISOs. . . . . . . . . . . . . 10 13.5 NQSOs. . . . . . . . . . . . . . . . . . . . . . . . 10 13.6 Limitation Shares Covered by Options . . . . . . . . 10 13.7 Determination by Committee . . . . . . . . . . . . . 10 ARTICLE XIV - SARS 14.1 Grant and Payment. . . . . . . . . . . . . . . . . . 10 14.2 Grant of Tandem Award. . . . . . . . . . . . . . . . 10 14.3 ISO Tandem Award . . . . . . . . . . . . . . . . . . 10 14.4 Payment of Award . . . . . . . . . . . . . . . . . . 10 14.5 Limitation on SARs . . . . . . . . . . . . . . . . . 10 ARTICLE XV - RESTRICTED STOCK 15.1 Description. . . . . . . . . . . . . . . . . . . . . 11 15.2 Cost of Restricted Stock . . . . . . . . . . . . . . 11 15.3 Non-Transferability. . . . . . . . . . . . . . . . . 11 ARTICLE XVI - PERFORMANCE SHARES 16.1 Description. . . . . . . . . . . . . . . . . . . . . 11 16.2 Grant. . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE XVII - CASH AWARDS 17.1 Grant. . . . . . . . . . . . . . . . . . . . . . . . 11 17.2 Limitation on Amount . . . . . . . . . . . . . . . . 12 17.3 Restrictions . . . . . . . . . . . . . . . . . . . . 12 ARTICLE XVIII - OTHER STOCK BASED AWARDS AND OTHER BENEFITS 18.1 Other Stock Based Awards . . . . . . . . . . . . . . 12 18.2 Other Benefits . . . . . . . . . . . . . . . . . . . 12 ARTICLE XIX - MISCELLANEOUS PROVISIONS 19.1 Underscored References . . . . . . . . . . . . . . . 12 19.2 Number and Gender. . . . . . . . . . . . . . . . . . 12 19.3 Governing Law. . . . . . . . . . . . . . . . . . . . 12 19.4 Purchase for Investment. . . . . . . . . . . . . . . 12 19.5 No Employment Contract . . . . . . . . . . . . . . . 13 -iii- 5 19.6 No Effect on Other Benefits. . . . . . . . . . . . . 13 19.7 Section 16 Fail-Safe Provision . . . . . . . . . . . 13 19.8 Section 162(m) Fail-Safe Provision . . . . . . . . . 13
-iv- 6 CONNING CORPORATION 1996 FLEXIBLE STOCK PLAN ARTICLE I --------- NAME AND PURPOSE ---------------- 1.1 Name. The name of this Plan is the "Conning ---- Corporation 1996 Flexible Stock Plan." 1.2 Purpose. The Company has established this Plan ------- to attract, retain, motivate and reward Employees and other individuals, to encourage ownership of the Company's Common Stock by Employees and other individuals, and to promote and further the best interests of the Company by granting cash and other awards. ARTICLE II ---------- DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION ---------------------------------------------- 2.1 General Definitions. The following words and ------------------- phrases, when used in the Plan, unless otherwise specifically defined or unless the context clearly otherwise requires, shall have the following respective meanings: (a) Affiliate. A Parent or Subsidiary of the --------- Company. (b) Agreement. The document which evidences --------- the grant of any Benefit under the Plan and which sets forth the Benefit and the terms, conditions and provisions of, and restrictions relating to, such Benefit. (c) Benefit. Any benefit granted to a ------- Participant under the Plan. (d) Board. The Board of Directors of the ----- Company. (e) Cash Award. A Benefit payable in the form ---------- of cash. (f) Change of Control. The acquisition, ----------------- without the approval of the Board, by any person or entity, other than the Company or a Related Entity, of more than 20% of the outstanding shares of the Company's voting common stock through a tender offer, exchange offer or otherwise; the liquidation or dissolution of the Company following a sale or other disposition of all or substantially all of its assets; a merger or consolidation involving the Company which results in the Company not being the surviving parent corporation; or any time during any two-year period in which individuals who constituted the Board at the start of such period (or whose election was approved by at least two-thirds of the then members of the Board who were members at the start of the two-year period) do not constitute at least 50% of the Board for any reason. A Related Entity is the Parent, a Subsidiary or any employee benefit plan (including a trust forming a part of such a plan) maintained by the Parent, the Company or a Subsidiary. 7 (g) Code. The Internal Revenue Code of 1986, ---- as amended. Any reference to the Code includes the regulations promulgated pursuant to the Code. (h) Company. Conning Corporation, a Missouri ------- corporation. (i) Committee. The Committee described in --------- Section 5.1. (j) Common Stock. The Company's Class B Non- ------------ Voting Common Stock which presently has a par value of $.01 per Share. (k) Effective Date. The date that the Plan is -------------- approved by the shareholders of the Company which must occur within one year before or after approval by the Board. Any grants of Benefits prior to the approval by the shareholders of the Company shall be void if such approval is not obtained. (l) Employee. Any person employed by the -------- Employer. (m) Employer. The Company and all Affiliates. -------- (n) Exchange Act. The Securities Exchange Act ------------ of 1934, as amended. (o) Fair Market Value. The value of a Share as ----------------- determined by the Board of Directors or the Committee. (p) Fiscal Year. The taxable year of the ----------- Company which is the calendar year. (q) ISO. An Incentive Stock Option as defined --- in Section 422 of the Code. (r) NQSO. A Non-Qualified Stock Option, which ---- is an Option that does not qualify as an ISO. (s) Option. An option to purchase Shares ------ granted under the Plan. (t) Other Stock Based Award. An award under ----------------------- ARTICLE XVIII that is valued in whole or in part by reference to, or is otherwise based on, Common Stock. (u) Parent. Any corporation (other than the ------ Company or a Subsidiary) in an unbroken chain of corporations ending with the Company, if, at the time of the grant of an Option or other Benefit, each of the corporations (other than the Company or a Subsidiary) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. -2- 8 (v) Participant. An individual who is granted ----------- a Benefit under the Plan. Benefits may be granted only to Employees, employees and owners of entities which are not Affiliates but which have a direct or indirect ownership interest in an Employer or in which an Employer has a direct or indirect ownership interest, individuals who, and employees and owners of entities which, are customers and suppliers of an Employer, individuals who, and employees and owners of entities which, render services to an Employer, and individuals who, and employees and owners of entities, which have ownership or business affiliations with any individual or entity previously described. (w) Performance Share. A Share awarded to a ----------------- Participant under ARTICLE XVI of the Plan. (x) Plan. The Conning Corporation 1996 ---- Flexible Stock Plan and all amendments and supplements to it. (y) Restricted Stock. Shares issued under ---------------- ARTICLE XV of the Plan. (z) Rule 16b-3. Rule 16b-3 promulgated by the ---------- SEC, as amended, or any successor rule in effect from time to time. (aa) SEC. The Securities and Exchange --- Commission. (bb) Share. A share of Common Stock. ----- (cc) SAR A stock appreciation right, which is --- the right to receive an amount equal to the appreciation, if any, in the Fair Market Value of a Share from the date of the grant of the right to the date of its payment. (dd) Subsidiary. Any corporation, other than ---------- the Company, in an unbroken chain of corporations beginning with the Company if, at the time of grant of an Option or other Benefit, each of the corporations, other than the last corporation in the unbroken chain, owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 2.2 Other Definitions. In addition to the above ----------------- definitions, certain words and phrases used in the Plan and any Agreement may be defined in other portions of the Plan or in such Agreement. 2.3 Conflicts in Plan. In the case of any conflict ----------------- in the terms of the Plan relating to a Benefit, the provisions in the ARTICLE of the Plan which specifically grants such Benefit shall control those in a different ARTICLE. -3- 9 ARTICLE III ----------- COMMON STOCK ------------ 3.1 Number of Shares. The number of Shares which ---------------- may be issued or sold or for which Options, SARs or Performance Shares may be granted under the Plan shall be 2,100,000 Shares. 3.2 Reusage. If an Option or SAR expires or is ------- terminated, surrendered, or cancelled without having been fully exercised, if Restricted Shares or Performance Shares are forfeited, or if any other grant results in any Shares not being issued, the Shares covered by such Option or SAR, grant of Restricted Shares, Performance Shares or other grant, as the case may be, shall again be available for use under the Plan. 3.3 Adjustments. If there is any change in the ----------- Common Stock of the Company by reason of any stock dividend, spin-off, split-up, spin-out, recapitalization, merger, consolidation, reorganization, combination or exchange of shares, the number of SARs and number and class of shares available for Options and grants of Restricted Stock, Performance Shares and Other Stock Based Awards and the number of Shares subject to outstanding Options, SARs, grants of Restricted Stock and Performance Shares which are not vested, and Other Stock Based Awards, and the price thereof, as applicable, shall be appropriately adjusted by the Committee. -4- 10 ARTICLE IV ---------- ELIGIBILITY ----------- 4.1 Determined By Committee or Board. The -------------------------------- Participants and the Benefits they receive under the Plan shall be determined by the Board or, subject to Section 5.3, the Committee. In making determinations, the Committee or Board shall consider past, present and expected future contributions of Participants and potential Participants to the Employer, including, without limitation, the performance of, or the refraining from the performance of, services. ARTICLE V --------- ADMINISTRATION -------------- 5.1 Committee or Board. The Plan shall be ------------------ administered by the Board or the Committee. The Committee shall consist of two or more members of the Board. The members of the Committee shall be appointed by and shall serve at the pleasure of the Board, which may from time to time appoint members in substitution for members previously appointed and fill vacancies, however caused, in the Committee. The Committee may select one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. 5.2 Authority. Subject to the terms of the Plan, --------- the Board and, subject to Section 5.3, the Committee shall have discretionary authority to: (a) determine the individuals to whom Benefits are granted, the type and amounts of Benefits to be granted and the time of all such grants; (b) determine the terms, conditions and provisions of, and restrictions relating to, each Benefit granted; (c) interpret and construe the Plan and all Agreements; (d) prescribe, amend and rescind rules and regulations relating to the Plan; (e) determine the content and form of all Agreements; (f) determine all questions relating to Benefits under the Plan; (g) maintain accounts, records and ledgers relating to Benefits; -5- 11 (h) maintain records concerning its decisions and proceedings; (i) employ agents, attorneys, accountants or other persons for such purposes as the Committee considers necessary or desirable; (j) take, at anytime, any action permitted by Section 9.1 irrespective of whether any Change of Control has occurred or is imminent; and (k) do and perform all acts which it may deem necessary or appropriate for the administration of the Plan and carry out the purposes of the Plan. 5.3 Delegation. Except as required by Rule 16b-3 ---------- with respect to grants of Options, Stock Appreciation Awards, Performance Shares, Other Stock Based Awards, or other Benefits to individuals who are subject to Section 16 of the Exchange Act or as otherwise required for compliance with Rule 16b-3 or other applicable law, the Board may delegate all or any part of its authority under the Plan to the Committee, and the Committee may delegate all or any part of its authority under the Plan to any Employee, Employees or committee. 5.4 Adjudication of Claims. The Committee shall ---------------------- have discretionary authority to make all determinations as to the right to Benefits under the Plan. In the event that a Participant believes he has not received the Benefits to which he is entitled under the Plan, a claim shall be made in writing to the Committee. The claim shall be reviewed by the Committee. If the claim is approved or denied, in full or in part, the Committee shall provide a written notice of approval or denial within 90 days with, in the case of a denial, the specific reasons for the denial and specific reference to the provisions of the Plan and/or Agreement upon which the denial is based. A claim shall be deemed denied if the Committee does not take any action within the aforesaid 90 day period. If a claim is denied or deemed denied and a review is desired, the Participant shall notify the Committee in writing within 60 days of the receipt of notice of denial or the date on which the claim is deemed to be denied, as the case may be. In requesting a review, the Participant may review the Plan or any document relating to it and submit any written issues and comments he may deem appropriate. The Committee shall then review the claim and provide a written decision within 60 days. This decision, if adverse to the Participant, shall state the specific reasons for the decision and shall include reference to specific provisions of the Plan and/or Agreement on which the decision is based. The Committee's decision on review shall be final. ARTICLE VI ---------- AMENDMENT --------- 6.1 Power of Board. Except as hereinafter provided, -------------- the Board shall have the sole right and power to amend the Plan at any time and from time to time. -6- 12 6.2 Limitation. The Board may not amend the Plan, ---------- without approval of the shareholders of the Company: (a) in a manner which would cause Options which are intended to qualify as ISOs to fail to qualify; (b) in a manner which would cause the Plan to fail to meet the requirements of Rule 16b-3; or (c) in a manner which would violate applicable law. ARTICLE VII ----------- TERM AND TERMINATION -------------------- 7.1 Term. The Plan shall commence as of the ---- Effective Date and, subject to the terms of the Plan, including those requiring approval by the shareholders of the Company and those limiting the period over which ISOs or any other Benefits may be granted, shall continue in full force and effect until terminated. 7.2 Termination. The Plan may be terminated at any ----------- time by the Board. ARTICLE VIII ------------ MODIFICATION OR TERMINATION OF BENEFITS --------------------------------------- 8.1 General. Subject to the provisions of ------- Section 8.2, the amendment or termination of the Plan shall not adversely affect a Participant's right to any Benefit granted prior to such amendment or termination. 8.2 Right to Modify. Any Benefit granted may be --------------- converted, modified, forfeited or cancelled, in whole or in part, by the Board or the Committee if and to the extent permitted in the Plan or applicable Agreement or with the consent of the Participant to whom such Benefit was granted. ARTICLE IX ---------- CHANGE OF CONTROL ----------------- 9.1 Right of Committee or Board. In order to --------------------------- maintain a Participant's rights in the event of a Change in Control, the Board or the Committee, in its sole discretion, may, in any Agreement evidencing a Benefit, or at any time prior to, or simultaneously with or after a Change in Control, provide such protection as it may deem necessary. Without, in any way, limiting the -7- 13 generality of the foregoing sentence or requiring any specific protection, the Board or Committee may: (a) provide for the acceleration of any time periods relating to the exercise or realization of such Benefit so that such Benefit may be exercised or realized in full on or before a date fixed by the Committee; (b) provide for the purchase of such Benefit, upon the Participant's request, for an amount of cash equal to the amount which could have been attained upon the exercise or realization of such Benefit had such Benefit been currently exercisable or payable; (c) make such adjustment to the Benefits then outstanding as the Committee deems appropriate to reflect such transaction or change; and/or (d) cause the Benefits then outstanding to be assumed, or new Benefits substituted therefor, by the surviving corporation in such change. ARTICLE X --------- AGREEMENTS AND CERTAIN BENEFITS ------------------------------- 10.1 Grant Evidenced by Agreement. The grant of any ---------------------------- Benefit under the Plan may be evidenced by an Agreement which shall describe the specific Benefit granted and the terms and conditions of the Benefit. The granting of any Benefit shall be subject to, and conditioned upon, the recipient's execution of any Agreement required by the Board or the Committee. Except as otherwise provided in an Agreement, all capitalized terms used in the Agreement shall have the same meaning as in the Plan, and the Agreement shall be subject to all of the terms of the Plan. 10.2 Provisions of Agreement. Each Agreement shall ----------------------- contain such provisions that the Committee shall determine to be necessary, desirable and appropriate for the Benefit granted which may include, but not be limited to, the following with respect to any Benefit: description of the type of Benefit; the Benefit's duration; its transferability; if an Option, the exercise price, the exercise period and the person or persons who may exercise the Option; the effect upon such Benefit of the Participant's death or termination of employment; the Benefit's conditions; when, if, and how any Benefit may be forfeited, converted into another Benefit, modified, exchanged for another Benefit, or replaced; and the restrictions on any Shares purchased or granted under the Plan. 10.3 Certain Benefits. Any Benefit granted to an ---------------- individual who is subject to Section 16 of the Exchange Act shall be not transferable other than by will or the laws of descent and distribution and shall be exercisable during his lifetime only by him, his guardian or his legal representative, unless otherwise specifically provided in the Option. -8- 14 ARTICLE XI ---------- REPLACEMENT AND TANDEM AWARDS ----------------------------- 11.1 Replacement. The Board or Committee may permit ----------- a Participant to elect to surrender a Benefit in exchange for a new Benefit. 11.2 Tandem Awards. Awards may be granted by the ------------- Board or the Committee in tandem. However, no Benefit may be granted in tandem with an ISO except SARs. ARTICLE XII ----------- PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING -------------------------------------------- 12.1 Payment. Upon the exercise of an Option or in ------- the case of any other Benefit that requires a payment to the Company, the amount due the Company is to be paid: (a) in cash; (b) by the tender to the Company of Shares owned by the optionee and registered in his name having a Fair Market Value equal to the amount due to the Company; (c) in other property, rights and credits, including the Participant's promissory note; (d) in cash, but by means of a so-called "cashless exercise" of an Option; and/or (e) by any combination of the payment methods specified in (a), (b), (c) and (d) above. Notwithstanding, the foregoing, any method of payment other than (a) may be used only with the consent of the Board or the Committee or if and to the extent so provided in an Agreement. The proceeds of the sale of Common Stock purchased pursuant to an Option and any payment to the Company for other Benefits shall be added to the general funds of the Company or to the Shares held in treasury, as the case may be, and used for the corporate purposes of the Company as the Board shall determine. 12.2 Dividend Equivalents. Grants of Benefits in -------------------- Shares or Share equivalents may include dividend equivalent payments or dividend credit rights. 12.3 Deferral. The right to receive any Benefit -------- under the Plan may, at the request of the Participant, be deferred for such period and upon such terms as the Committee shall -9- 15 determine, which may include crediting of interest on deferrals of cash and crediting of dividends on deferrals denominated in Shares. 12.4 Withholding. The Company may, at the time any ----------- distribution is made under the Plan, whether in cash or in Shares, or at the time any Option is exercised, withhold from such distribution or Shares issuable upon the exercise of an Option, any amount necessary to satisfy federal, state and local income and/or other tax withholding requirements with respect to such distribution or exercise of such Options. The Committee or the Company may require a participant to tender to the Company cash in the amount necessary to comply with any such withholding requirements. ARTICLE XIII ------------ OPTIONS ------- 13.1 Types of Options. It is intended that both ISOs ---------------- and NQSOs may be granted by the Committee under the Plan. 13.2 Shares for ISOs. The number of Shares for which --------------- ISOs may be granted on or after the Effective Date shall not exceed 2,100,000 Shares. 13.3 Grant of ISOs and Option Price. Each ISO must ------------------------------ be granted to an Employee and granted within ten years from the earlier of the date of adoption by the Board or the Effective Date. The purchase price for Shares under any ISO shall be no less than the Fair Market Value of the Shares at the time the Option is granted. 13.4 Other Requirements for ISOs. The terms of each --------------------------- Option which is intended to qualify as an ISO shall meet all requirements of Section 422 of the Code. 13.5 NQSOs. The terms of each NQSO shall provide ----- that such Option will not be treated as an ISO. The purchase price for Shares under any NQSO shall be the Fair Market Value of the Shares at the time the Option is granted. 13.6 Limitation on Shares Covered by Options. The --------------------------------------- maximum number of Shares with respect to which (a) ISOs plus (b) NQSOs where the purchase price for Shares upon exercise of the NQSO is no less than the Fair Market Value of the Shares at the time of grant which may be granted to any Participant in any one year period shall not exceed 250,000 Shares. For purposes of the preceding sentence, the Shares covered by an Option that is cancelled shall count against the maximum number of Shares, and, if the exercise price under an Option is reduced, the transaction shall be treated as a cancellation of the Option and a grant of a new Option. -10- 16 13.7 Determination by Board or the Committee. Except --------------------------------------- as otherwise provided in Section 13.2 through Section 13.6, the terms of all Options shall be determined by the Board or the Committee. ARTICLE XIV ----------- SARS ---- 14.1 Grant and Payment. The Committee may grant ----------------- SARs. Upon electing to receive payment of a SAR, a Participant shall receive payment in cash, in Common Stock, or in any combination of cash and Common Stock, as the Committee shall determine. 14.2 Grant of Tandem Award. The Committee may grant --------------------- SARs in tandem with an Option, in which case: the exercise of the Option shall cause a correlative reduction in SARs standing to a Participant's credit which were granted in tandem with the Option; and the payment of SARs shall cause a correlative reduction of the Shares under such Option. 14.3 ISO Tandem Award. When SARs are granted in ---------------- tandem with an ISO, the SARs shall have such terms and conditions as shall be required for the ISO to qualify as an ISO. 14.4 Payment of Award. SARs shall be paid, to the ---------------- extent payment is elected by the Participant (and is otherwise due and payable), as soon as practicable after the date on which such election is made. 14.5 Limitation on SARs. The maximum number of SARs ------------------ which may be granted to any Participant in any one year period shall not exceed 250,000 SARs. For purposes of the preceding sentence, the SARs covered by a grant of SARs that is cancelled shall count against the maximum number of SARs, and, if the Fair Market Value of a Share on which the appreciation under a grant of SARs will be calculated is reduced, the transaction will be treated as a cancellation of the SARs and the grant of a new grant of SARs. -11- 17 ARTICLE XV ---------- RESTRICTED STOCK ---------------- 15.1 Description. The Committee may grant Benefits ----------- in Shares available under ARTICLE III of the Plan as Restricted Stock. Shares of Restricted Stock shall be issued and delivered at the time of the grant but shall be subject to forfeiture until provided otherwise in the applicable Agreement or the Plan. Each certificate representing Shares of Restricted Stock shall bear a legend referring to the Plan and the risk of forfeiture of the Shares and stating that such Shares are nontransferable until all restrictions have been satisfied and the legend has been removed. The grantee shall be entitled to full voting and dividend rights with respect to all shares of Restricted Stock from the date of grant. 15.2 Cost of Restricted Stock. Grants of Shares of ------------------------ Restricted Stock shall be made at a per Share cost to the Participant equal to par value. 15.3 Non-Transferability. Shares of Restricted Stock ------------------- shall not be transferable until after the removal of the legend with respect to such Shares. ARTICLE XVI ----------- PERFORMANCE SHARES ------------------ 16.1 Description. Performance Shares are the right ----------- of an individual to whom a grant of such Shares is made to receive Shares or cash equal to the Fair Market Value of such Shares at a future date in accordance with the terms of such grant. Generally, such right shall be based upon the attainment of targeted profit and/or performance objectives. 16.2 Grant. The Committee may grant an award of ----- Performance Shares. The number of Performance Shares and the terms and conditions of the grant shall be set forth in the applicable Agreement. ARTICLE XVII ------------ CASH AWARDS ----------- 17.1 Grant. The Committee may grant Cash Awards at ----- such times and (subject to Section 17.2) in such amounts as it deems appropriate. 17.2 Limitation on Amount. The Amount of any Cash -------------------- Award in any Fiscal Year to any Participant who is subject to Section 16 of the Exchange Act shall not exceed the greater of $100,000 or 50% of his cash compensation (excluding any Cash Award under this ARTICLE XVII) for such Fiscal Year. -12- 18 17.3 Restrictions. Cash Awards may be subject or not ------------ subject to conditions (such as an investment requirement), restricted or nonrestricted, vested or subject to forfeiture and may be payable currently or in the future or both. ARTICLE XVIII ------------- OTHER STOCK BASED AWARDS AND OTHER BENEFITS ------------------------------------------- 18.1 Other Stock Based Awards. The Committee or ------------------------ Board shall have the right to grant Other Stock Based Awards which may include, without limitation, the grant of Shares based on certain conditions, the payment of cash based on the performance of the Common Stock, and the grant of securities convertible into Shares. 18.2 Other Benefits. The Committee or Board shall -------------- have the right to provide types of Benefits under the Plan in addition to those specifically listed, if it believes that such Benefits would further the purposes for which the Plan was established. ARTICLE XIX ----------- MISCELLANEOUS PROVISIONS ------------------------ 19.1 Underscored References. The underscored ---------------------- references contained in the Plan are included only for convenience, and they shall not be construed as a part of the Plan or in any respect affecting or modifying its provisions. 19.2 Number and Gender. The masculine and neuter, ----------------- wherever used in the Plan, shall refer to either the masculine, neuter or feminine; and, unless the context otherwise requires, the singular shall include the plural and the plural the singular. 19.3 Governing Law. This Plan shall be construed and ------------- administered in accordance with the laws of the State of Missouri. 19.4 Purchase for Investment. The Committee or Board ----------------------- may require each person purchasing Shares pursuant to an Option or other award under the Plan to represent to and agree with the Company in writing that such person is acquiring the Shares for investment and without a view to distribution or resale. The certificates for such Shares may include any legend which the Committee or Board deems appropriate to reflect any restrictions on transfer. All certificates for Shares delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee or Board may deem advisable under all applicable laws, rules and regulations, and the Committee or Board may cause a legend or legends to be put on any such certificates to make appropriate references to such restrictions. -13- 19 19.5 No Employment Contract. The adoption of the ---------------------- Plan shall not confer upon any Employee any right to continued employment nor shall it interfere in any way with the right of the Employer to terminate the employment of any of its Employees at any time. 19.6 No Effect on Other Benefits. The receipt of --------------------------- Benefits under the Plan shall have no effect on any benefits to which a Participant may be entitled from the Employer, under another plan or otherwise, or preclude a Participant from receiving any such benefits. 19.7 Section 16 Fail-Safe Provision. With respect to ------------------------------ Participants subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3. If and to the extent any provision of the Plan or action by the Board, Committee, or the Committee's designee fails to so comply, it shall be deemed null and void. 19.8 Section 162(m) Fail-Safe Provision. If Code ---------------------------------- Section 162(m) is applicable to the Company and to a Participant, ISOs, NQSOs where the exercise price is no less than fair market value at the time of grant, and SARs granted to any such Participant are intended to meet the requirements of other performance-based compensation under Section 162(m)(4)(C), so that any remuneration resulting from the grant of any such Benefit to such Participant will not be considered "applicable employee remuneration" within the meaning of Code Section 162(m)(4). If and to the extent any provision of the Plan or action by the Board, Committee, or the Committee's designee is contrary to such intention, it shall be deemed null and void. -14- EX-21.1 14 SUBSIDIARIES OF CONNING CORPORATION 1 Exhibit 21.1 Subsidiaries of Conning Corporation Conning, Inc., a Delaware corporation and wholly-owned subsidiary of the Company Conning & Company, a Connecticut corporation and wholly-owned subsidiary of Conning, Inc. Conning Asset Management Company, a Missouri corporation and wholly-owned subsidiary of Conning & Company EX-23.1 15 CONSENT OF EXPERT 1 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Shareholders Conning Corporation: We consent to the use of our reports included herein and to the references to our firm under the headings, "Selected Consolidated Financial Data" and "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP St. Louis, Missouri September 19, 1997 EX-23.2 16 CONSENT OF EXPERT 1 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated February 21, 1995, except for Note 12, as to which the date is September 19, 1997, relating to the financial statements of Conning, Inc. & Subsidiaries, which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Price Waterhouse LLP Hartford, Connecticut September 19, 1997 EX-27.1 17 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 17,718,205 45,625 5,462,660 165,000 0 23,235,559 1,377,924 562,812 50,019,939 14,372,987 2,000,000 67,100 24,781,804 0 4,300,531 50,019,939 52,604,507 53,666,362 39,153,040 41,874,009 0 (97,750) 729,088 11,063,265 4,851,034 6,212,231 0 0 0 6,212,231 0 0
EX-27.2 18 FINANCIAL DATA SCHEDULE
5 6-MOS JUN-30-1997 JAN-01-1997 JUN-30-1997 15,668,544 0 7,250,364 165,000 0 25,155,354 1,838,650 775,002 49,958,898 11,537,185 0 68,200 34,074,687 0 0 49,958,898 30,543,898 30,921,623 22,224,814 23,543,004 0 0 161,804 7,216,815 3,118,918 4,097,897 0 0 0 4,097,897 0 0
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