SECURITIES AND EXCHANGE COMMISSION
Amendment No. 2
Assurant, Inc. *
Delaware | 6321 | 39-1126612 | ||
(State or other jurisdiction of
incorporation or organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification No.) |
One Chase Manhattan Plaza, 41st Floor
Telephone: (212) 859-7000
Katherine Greenzang, Esq.
Copies to:
Gary I. Horowitz, Esq.
Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, NY 10017-3954 Telephone: (212) 455-7113 Facsimile: (212) 455-2502 |
Susan J. Sutherland, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 Telephone: (212) 735-2388 Facsimile: (917) 777-2388 |
Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) 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. o
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. o
If this form is a post-effective amendment filed pursuant to Rule 462(d) 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. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o
CALCULATION OF REGISTRATION FEE
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Title of Each Class of | Proposed Maximum Aggregate | Amount of | ||
Securities to be Registered | Offering Price(1)(2) | Registration Fee(3) | ||
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Common Stock, par value $0.01 per share
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$2,024,000,000 | $163,741.60 | ||
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(1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. |
(2) | Includes shares subject to the underwriters over-allotment option. |
(3) | Includes $80,900 previously paid in connection with the initial filing of this Registration Statement and a credit of $40,450. |
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.
*Prior to the effectiveness of this Registration Statement and in connection with the merger for the purpose of redomestication as described in this Registration Statement, Assurant, Inc., a Delaware corporation, will become the successor to the business and operations of Fortis, Inc., a Nevada corporation.
The information in this
prospectus is not complete and may be changed. These securities
may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
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PROSPECTUS (Subject to Completion)
Common Stock
Fortis Insurance N.V., the selling stockholder in this offering, is offering 80,000,000 shares of our common stock in an underwritten initial public offering. This is our initial public offering and no public market currently exists for our common stock. We will not receive any of the proceeds from the sale of shares by the selling stockholder. We anticipate that the initial public offering price of our common stock will be between $20 and $22 per share.
Fortis N.V. and Fortis SA/NV, through their affiliates, including their wholly owned subsidiary, Fortis Insurance N.V., currently indirectly own 100% of our outstanding common stock. After the offering, we estimate that Fortis Insurance N.V. will own approximately 45% of our common stock, or approximately 37% if the underwriters exercise their over-allotment option in full.
Our common stock has been approved for listing on the New York Stock Exchange under the symbol AIZ.
Investing in our common stock involves risks. See Risk Factors beginning on page 13.
PRICE $ A SHARE
Underwriting | ||||||||||||
Discounts and | Proceeds to Selling | |||||||||||
Price to Public | Commissions | Stockholder | ||||||||||
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Per Share
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$ | $ | $ | |||||||||
Total
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$ | $ | $ |
The selling stockholder has granted the underwriters the right to purchase up to an additional 12,000,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares to purchasers on , 2004.
MORGAN STANLEY
CREDIT SUISSE FIRST BOSTON | MERRILL LYNCH & CO. |
CITIGROUP | GOLDMAN, SACHS & CO. | JPMORGAN |
BEAR, STEARNS & CO. INC.
COCHRAN, CARONIA & CO. |
FORTIS INVESTMENT SERVICES LLC |
MCDONALD INVESTMENTS INC. |
RAYMOND JAMES |
SUNTRUST ROBINSON HUMPHREY |
, 2004
TABLE OF CONTENTS
Page | ||||
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Prospectus Summary
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1 | |||
Risk Factors
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13 | |||
Forward-Looking Statements
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37 | |||
Use of Proceeds
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38 | |||
Dividend Policy
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38 | |||
Corporate Structure and Reorganization
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40 | |||
Capitalization
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42 | |||
Selected Consolidated Financial Information
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44 | |||
Managements Discussion and Analysis of
Financial Condition and Results of Operations
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47 | |||
Business
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94 | |||
Regulation
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132 | |||
Management
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143 | |||
Principal and Selling Stockholders
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165 | |||
Certain Relationships and Related Transactions
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168 | |||
Certain United States Tax Consequences to
Non-U.S. Holders
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173 | |||
Description of Share Capital
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175 | |||
Description of Indebtedness
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181 | |||
Shares Eligible for Future Sale
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183 | |||
Underwriting
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184 | |||
Legal Matters
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188 | |||
Experts
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188 | |||
Where You Can Find More Information
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188 | |||
Index to Consolidated Financial Statements
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F-1 | |||
Glossary of Selected Insurance and Reinsurance
Terms
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G-1 |
Until , 2004, which is the 25th day after the date of this prospectus, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with information that is different from that contained in this prospectus. We are offering to sell and seeking offers to buy these securities only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock.
The states in which our insurance subsidiaries are domiciled have enacted laws which require regulatory approval for the acquisition of control of insurance companies. Under these laws, there exists a presumption of control when an acquiring party acquires 10% or more (5% or more, in the case of Florida) of the voting securities of an insurance company or of a company which itself controls an insurance company. Therefore, any person acquiring 10% or more (5% or more, in the case of Florida) of our common stock would need the prior approval of the state insurance regulators of these states, or a determination from such regulators that control has not been acquired.
In this prospectus, references to the Company, Assurant, we, us or our refer to (1) Fortis, Inc., a Nevada corporation, and its subsidiaries, and (2) Assurant, Inc., a Delaware corporation, and its subsidiaries after the consummation of the merger for the purpose of redomestication as described under Corporate Structure and Reorganization. Unless we specifically state otherwise or the context suggests otherwise, the information in this prospectus assumes that the merger as described under Corporate Structure and Reorganization has occurred. Unless the context otherwise requires, references to (1) Assurant, Inc. refer solely to Assurant, Inc., a Delaware corporation, and not to any of its subsidiaries, (2) Fortis, Inc. refer solely to Fortis, Inc., a Nevada corporation, and not to any of its subsidiaries, and (3) Fortis refer collectively to Fortis N.V., a public company with limited liability incorporated as naamloze
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United Kingdom
Neither we nor the selling stockholder has authorized any offer of our common stock being offered pursuant to this prospectus to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulation 1995, as amended (the Regulations). Our common stock may not lawfully be offered or sold to persons in the United Kingdom except in circumstances which do not result in an offer to the public in the United Kingdom within the meaning of the Regulations or otherwise in compliance with all applicable provisions of the Regulations.
This document is for distribution only to persons who (i) are outside the United Kingdom, (ii) have professional experience in matters relating to investments, (iii) are persons falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) or Article 60 (participation in employee share schemes) of The Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) or (iv) are persons to whom this document may otherwise lawfully be issued or passed on to (all such persons together being referred to as relevant persons). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.
The Netherlands
Our common stock being offered pursuant to this prospectus shall not be offered, transferred or sold in the Netherlands to any person other than to natural or legal persons who trade or invest in securities in the conduct of their profession or trade within the meaning of section 2 of the Exemption Regulation pursuant
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Belgium
Neither we nor the selling stockholder has authorized any offer of our common stock being offered pursuant to this prospectus to the public in Belgium. The offering is exclusively conducted under applicable private placement exemptions and therefore it has not been notified to, and the prospectus or any other offering material relating to our common stock has not been approved by, the Belgium Banking and Finance Commission (Commission Bancaire et Financière/Commissie voor het Bank- en Financiewezen). Accordingly, the offering may not be advertised and no offers, sales, resales, transfers or deliveries of our common stock or any distributions of the prospectus or any other offering material relating to our common stock may be made, directly or indirectly, to any individual or legal entity in Belgium other than: (i) investors required to invest a minimum of 250,000 (per investor and per transaction); (ii) institutional investors as defined in Article 3, 2°, of Belgian Royal Decree of 7 July 1999 on the public character of financial transactions, acting for their own account; and (iii) persons for which the acquisition of the common stock subject to the offering is necessary to enable them to exercise their professional activity.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and may not contain all of the information that may be important to you. Although this summary highlights important information about us and what we believe to be the key aspects of this offering, you should read this summary together with the more detailed information and our financial statements and the notes to those financial statements appearing elsewhere in this prospectus. You should read this entire prospectus carefully, including the Risk Factors and Forward-Looking Statements sections before making an investment decision.
OUR COMPANY
Overview
We pursue a differentiated strategy of building leading positions in specialized market segments for insurance products and related services in North America and selected other markets. We provide:
| creditor-placed homeowners insurance ; | |
| manufactured housing homeowners insurance; | |
| debt protection administration; | |
| credit insurance ; | |
| warranties and extended service contracts; | |
| individual health and small employer group health insurance; | |
| group dental insurance; | |
| group disability insurance ; | |
| group life insurance ; and | |
| pre-funded funeral insurance . |
The markets we target are generally complex, have a relatively limited number of competitors and, we believe, offer attractive profit opportunities. In these markets, we leverage the experience of our management team and apply our expertise in risk management , underwriting and business-to-business management, as well as our technological capabilities in complex administration and systems. Through these activities, we seek to generate above-average returns by building on specialized market knowledge, well-established distribution relationships and economies of scale.
As a result of our strategy, we are a leader in many of our chosen markets and products. We have leadership positions or are aligned with clients who are leaders in creditor-placed homeowners insurance based on servicing volume, manufactured housing homeowners insurance based on number of homes built and debt protection administration based on credit card balances outstanding. We are also a leading writer of group dental plans sponsored by employers based on the number of subscribers and based on the number of master contracts in force and the largest writer of pre-funded funeral insurance measured by face amount of new policies sold. We believe that our leadership positions give us a sustainable competitive advantage in our chosen markets.
We currently have four decentralized operating business segments to ensure focus on critical activities close to our target markets and customers, while simultaneously providing centralized support in key functions. Our four operating business segments are: Assurant Solutions, Assurant Health, Assurant Employee Benefits and Assurant PreNeed. Each operating business segment has its own experienced management team with the autonomy to make decisions on key operating matters. These managers are eligible to receive incentive-based compensation based in part on operating business segment performance and in part on company-wide performance, thereby encouraging strong business performance and cooperation across all our businesses. At the operating business segment level, we stress disciplined underwriting, careful analysis and constant improvement and product redesign. At the corporate level, we provide support services, including investment, asset/liability matching and capital management, leadership development, information technology support and other administrative and finance functions, enabling the operating business segments to focus on their target markets and distribution relationships while enjoying the economies of scale realized by operating these businesses together. Also, our overall strategy and financial objectives are set and continuously monitored at the corporate level to ensure that our capital resources are being properly allocated.
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Our Assurant Solutions segment, which we began operating with the acquisition of American Security Group in 1980, provides specialty property solutions and consumer protection solutions. Specialty property solutions primarily include creditor-placed homeowners insurance (including tracking services) and manufactured housing homeowners insurance. Consumer protection solutions primarily include debt protection administration, credit insurance and warranties and extended service contracts. Our Assurant Health segment, which we began operating with the acquisition of Time Holdings, Inc. (now Fortis Insurance Company) in 1978, provides individual health insurance, including short-term and student medical insurance, and small employer group health insurance. Most of the health insurance products we sell are preferred provider organization (PPO) plans. In Assurant Employee Benefits, which we began operating with the acquisition of Mutual Benefit Life Group Division (now Fortis Benefits Insurance Company) in 1991, we provide employer- and employee-paid group dental insurance, as well as group disability insurance and group life insurance. In Assurant PreNeed, which we began operating with the acquisition of United Family Life Insurance Company in 1980, we provide pre-funded funeral insurance, which provides whole life insurance death benefits or annuity benefits used to fund costs incurred in connection with pre-arranged funerals.
We have created strong relationships with our distributors and clients in each of the niche markets we serve. In Assurant Solutions, we have strong long-term relationships in the United States with six of the ten largest mortgage lenders and servicers based on servicing volume, four of the seven largest manufactured housing builders based on number of homes built, four of the six largest general purpose credit card issuers based on credit card balances outstanding and six of the ten largest consumer electronics and appliances retailers based on combined product sales. In Assurant Health, we have exclusive distribution relationships with leading insurance companies based on total assets, through which we gain access to a broad distribution network and a significant number of potential customers, as well as relationships with independent brokers . In Assurant Employee Benefits, we distribute our products primarily through our sales representatives who work through independent employee benefits advisors, including brokers and other intermediaries. In Assurant PreNeed, we have an exclusive distribution relationship with Service Corporation International (SCI), the largest funeral provider in North America based on total revenues, as well as relationships with approximately 2,000 funeral homes.
For the nine months ended September 30, 2003, we generated total revenues of $5,239 million and net income of $263 million. For the year ended December 31, 2002, we generated total revenues of $6,532 million, net income before cumulative effect of change in accounting principle of $260 million and net loss of $1,001 million (after giving effect to a cumulative change in accounting principle of $1,261 million). As of September 30, 2003, we had total assets of $22,873 million, including separate accounts . For the nine months ended September 30, 2003 and the year ended December 31, 2002, respectively, we had total revenues of $1,978 million and $2,401 million in Assurant Solutions, $1,536 million and $1,912 million in Assurant Health, $1,062 million and $1,455 million in Assurant Employee Benefits and $545 million and $727 million in Assurant PreNeed.
Competitive Strengths
We believe our competitive strengths include:
| Leadership Positions in Specialized Markets. We are a market leader in many of our chosen markets, and we believe that our leadership positions provide us with the opportunity to generate high returns in these niche markets. | |
| Strong Relationships with Key Clients and Distributors. As a result of our expertise in business-to-business management, we have created strong relationships with our distributors and clients in each of the niche markets we serve. We believe these relationships enable us to market our products and services to our customers in an effective and efficient manner that would be difficult for our competitors to replicate. | |
| History of Product Innovation and Ability to Adapt to Changing Market Conditions. We are able to adapt quickly to changing market conditions by tailoring our product and service offerings to the specific needs of our clients. By understanding the dynamics of our core markets, we design innovative products and services to seek to sustain profitable growth and market leading positions. |
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| Disciplined Approach to Underwriting and Risk Management. We focus on generating profitability through careful analysis of risks, drawing on our experience in core specialized markets and continually seeking to improve and redesign our product offerings based on our underwriting experience. In addition, we closely monitor regulatory and market developments and adapt our approach as we deem necessary to achieve our underwriting and risk management goals. | |
| Prudent Capital Management. We focus on generating above-average returns on a risk-adjusted basis from our operating activities. We believe we have benefited from having the discipline and flexibility to deploy capital opportunistically and prudently to maximize returns to our stockholders. We invest capital in our business segments when we identify attractive profit opportunities in our target markets and also take a disciplined approach towards withdrawing capital when businesses are no longer anticipated to meet our expectations. | |
| Diverse Business Mix and Excellent Financial Strength. We have four operating business segments, which are generally not affected in the same way by economic and operating trends. Our domestic operating insurance subsidiaries have financial strength ratings of A (Excellent) or A- (Excellent) from A.M. Best Company (A.M. Best). Ratings of A and A- are the second highest of ten ratings categories and the highest and lowest, respectively, within the category based on modifiers (i.e., A and A- are Excellent). Six of our domestic operating insurance subsidiaries have financial strength ratings of A2 (Good) or A3 (Good) from Moodys Investors Service, Inc. (Moodys). Ratings of A2 and A3 are the third highest of nine ratings categories and mid-range and the lowest, respectively, within the category based on modifiers (i.e., A1, A2 and A3 are Good). In addition, seven of our domestic operating insurance subsidiaries have financial strength ratings of A (Strong) or A- (Strong) from Standard & Poors (S&P). Ratings of A and A- are the third highest of ten ratings categories and mid-range and the lowest, respectively, within the category based on modifiers (i.e., A+, A and A- are Strong). We believe our solid capital base and overall financial strength allow us to distinguish ourselves from our competitors and continue to enable us to attract clients that are seeking long-term financial stability. | |
| Experienced Management Team with Proven Track Record and Entrepreneurial Culture. We have a talented and experienced management team both at the corporate level and at each of our business segments. Our management team has successfully managed our business and executed our specialized niche strategy through numerous business cycles and political and regulatory challenges. |
Growth Strategy
Our objective is to achieve superior financial performance by enhancing our leading positions in our specialized niche insurance and related businesses. We intend to achieve this objective by continuing to execute the following strategies in pursuit of profitable growth:
| Enhance Market Position in Our Business Lines. We have been selective in developing our product and service offerings and will continue to focus on providing products and services to those markets that we believe offer attractive growth opportunities. We will also seek to continue penetrating our target markets and expand our market positions by developing and introducing new products and services that are tailored to the specific needs of our clients. | |
| Develop New Distribution Channels and Strategic Alliances. Our strong, multi-channel distribution network comprised of leading market participants has been critical to our market penetration and growth. We will continue to be selective in developing new distribution channels as we seek to expand our market share, enter new geographic markets and develop new niche businesses. | |
| Deploy Capital and Resources to Maintain Flexibility and Establish or Enhance Market Leading Positions. We seek to deploy our capital and resources in a manner that provides us with the flexibility to grow internally through product development, new distribution relationships and investments in technology, as well as to pursue acquisitions. As we expand through internal growth and acquisitions, we intend to leverage our expertise in risk management, underwriting and business- |
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to-business management, as well as our technological capabilities in running complex administration systems and support services. | ||
| Maintain Disciplined Pricing Approach. We intend to maintain our disciplined pricing approach by seeking to focus on profitable products and markets and by pursuing a flexible approach to product design. We will continue to pursue pricing strategies and adjust our mix of businesses by geography and by product so that we can maintain attractive pricing and margins. | |
| Continue to Manage Capital Prudently. We intend to manage our capital prudently relative to our risk exposure to maximize profitability and long-term growth in stockholder value. Our capital management strategy is to maintain financial strength through conservative and disciplined risk management practices. We will also maintain our conservative investment portfolio management philosophy and properly manage our invested assets in order to match the duration of our insurance product liabilities. |
Risks Relating to Our Company
As part of your evaluation of our Company, you should take into account the risks associated with our business. These risks include:
| Reliance on Relationships with Significant Clients, Distributors and Other Parties. If our significant clients, distributors and other parties with which we do business decline to renew or seek to terminate our relationships or contractual arrangements, our results of operations and financial condition could be materially adversely affected. We are also subject to the risk that these parties may face financial difficulties, reputational issues or problems with respect to their own products and services, which may lead to decreased sales of products and services. | |
| Failure to Attract and Retain Sales Representatives or Develop and Maintain Distribution Sources. Our sales representatives interface with clients and third party distributors. Our inability to attract and retain our sales representatives or an interruption in, or changes to, our relationships with various third-party distributors could impair our ability to compete and market our insurance products and services and materially adversely affect our results of operations and financial condition. In addition, our ability to market our products and services depends on our ability to tailor our channels of distribution to comply with changes in the regulatory environment. | |
| Effect of General Economic, Financial Market and Political Conditions. Our results of operations and financial condition may be materially adversely affected by general economic, financial market and political conditions, including: |
| insurance industry cycles; | |
| levels of employment; | |
| levels of consumer lending; | |
| levels of inflation and movements of the financial markets; | |
| fluctuations in interest rates; | |
| monetary policy; | |
| demographics; and | |
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legislative and competitive factors.
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| Failure to Accurately Predict Benefits and Other Costs and Claims. We may be unable to accurately predict benefits, claims and other costs or to manage such costs through our loss limitation methods, which could have a material adverse effect on our results of operations and financial condition if claims substantially exceed our expectations. | |
| Changes in Regulation. Legislation or other regulatory reform that increases the regulatory requirements imposed on us or that changes the way we are able to do business may significantly harm our business or results of operations in the future. |
For more information about these and other risks, see Risk Factors beginning on page 13. You should carefully consider these risk factors together with all the other information included in this prospectus.
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OUR CORPORATE STRUCTURE AND REORGANIZATION
Assurant, Inc. is a Delaware corporation and is currently a wholly owned subsidiary of Fortis, Inc. Assurant, Inc. has had no operations and nominal financial activity and will be used solely for the purpose of the redomestication of Fortis, Inc., which is organized as a Nevada corporation and of which 100% of the outstanding common stock is currently indirectly owned by Fortis N.V. and Fortis SA/NV. Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will effectuate a merger of Fortis, Inc. with and into Assurant, Inc. for the purpose of redomesticating Fortis, Inc. in Delaware. As a result of the merger, Assurant, Inc. will be domiciled in Delaware and will be the successor to the business, operations and obligations of Fortis, Inc. After the merger, our company will use the name Assurant, Inc. The ongoing operations of Assurant, Inc. will effectively be comprised of the existing operations of Fortis, Inc. and its subsidiaries.
In connection with the merger:
| each share of the existing Class A Common Stock of Fortis, Inc. will be exchanged for 10.75882039 shares of Common Stock of Assurant, Inc.; | |
| each share of the existing Class B Common Stock of Fortis, Inc. will be exchanged for one share of Class B Common Stock of Assurant, Inc.; | |
| each share of the existing Class C Common Stock of Fortis, Inc. will be exchanged for one share of Class C Common Stock of Assurant, Inc.; | |
| each share of the existing Series B Preferred Stock of Fortis, Inc. will be exchanged for one share of Series B Preferred Stock of Assurant, Inc.; and | |
| each share of the existing Series C Preferred Stock of Fortis, Inc. will be exchanged for one share of Series C Preferred Stock of Assurant, Inc. |
In addition, in connection with the offering contemplated by this prospectus:
| we entered into a $650 million senior bridge credit facility in December 2003 and incurred $650 million aggregate principal amount of indebtedness under the facility in connection with the repayments and redemptions described below and for general corporate purposes; | |
| we entered into a $1,100 million senior bridge credit facility in December 2003 and incurred $1,100 million aggregate principal amount of indebtedness under the facility in connection with the repayments and redemptions described below and for general corporate purposes; | |
| we will receive a $744 million capital contribution from Fortis Insurance N.V. immediately prior to or simultaneously with the closing of the offering contemplated by this prospectus and will use the proceeds of that capital contribution to repay the $650 million of outstanding indebtedness under the $650 million senior bridge credit facility and $94 million of outstanding indebtedness under the $1,100 million senior bridge credit facility, and simultaneously with the closing of the offering contemplated by this prospectus, we will also repay a portion of the $1,100 million senior bridge credit facility with $31 million in cash; | |
| we will issue shares of Common Stock of Assurant, Inc. to Fortis Insurance N.V. simultaneously with the closing of the offering contemplated by this prospectus in exchange for the $744 million capital contribution referred to above based on the public offering price of our common stock which, assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 35,428,571 shares of Common Stock of Assurant, Inc.; | |
| we redeemed the outstanding $550 million aggregate liquidation amount of 2000 trust capital securities in December 2003 at 100% of the liquidation amount thereof plus (i) accrued interest to the date of redemption and (ii) premium of approximately $73 million; |
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| we redeemed the outstanding $699.9 million aggregate liquidation amount of 1999 trust capital securities in December 2003 at 100% of the liquidation amount thereof plus (i) accrued interest to the date of redemption and (ii) premium of approximately $64 million; we redeemed such securities partially with the proceeds of a four-day loan for $650 million that we repaid in December 2003; | |
| we redeemed the outstanding $196.2 million aggregate liquidation amount of 1997 capital securities in January 2004 at 100% of the liquidation amount thereof plus (i) accrued interest to the date of redemption and (ii) premium of approximately $67 million; and | |
| each outstanding share of Class B Common Stock and Class C Common Stock of Assurant, Inc. issued in the merger in accordance with its terms simultaneously with the closing of the offering contemplated by this prospectus will be automatically converted into shares of Common Stock of Assurant, Inc. based on a liquidation amount of $1,000 per share divided by the public offering price of our common stock, which assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 47.619048 shares of Common Stock of Assurant, Inc. per share of Class B Common Stock and Class C Common Stock. | |
We also intend to repay the $975 million remaining principal amount to be outstanding under the $1,100 senior bridge credit facility with the proceeds of the incurrence of senior long-term indebtedness following the offering.
The purpose of the foregoing transactions is to simplify our capital structure in anticipation of becoming a public company. In addition, we redeemed our indebtedness owed to Fortis in anticipation of Fortis reducing its stock ownership in our Company. The senior bridge credit facilities were entered into in order to fund the redemptions and for general corporate purposes. We will receive the capital contribution from Fortis Insurance N.V. to repay in full the $650 million senior bridge credit facility and to reduce amounts outstanding under the $1,100 million senior bridge credit facility immediately prior to or simultaneously with the closing of the offering contemplated by this prospectus.
See Capitalization.
Assurant, Inc. was incorporated in October 2003. Fortis, Inc. was incorporated in April 1969. Our principal executive offices are located at One Chase Manhattan Plaza, 41st Floor, New York, New York 10005. Our telephone number is 212-859-7000.
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OUR RELATIONSHIP WITH FORTIS
Fortis currently indirectly owns 100% of our outstanding common stock. Upon completion of this offering, we estimate that Fortis will own approximately 45% of our outstanding common stock, or approximately 37% if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus. Fortis will have the right to nominate designees to our board of directors and, subject to limited exceptions, our board of directors will nominate those designees as follows: (i) so long as Fortis owns at least 10% of our outstanding common stock, two designees (out of a maximum of 12 directors); and (ii) so long as Fortis owns less than 10% but at least 5% of our outstanding common stock, one designee. Currently, Fortis has five designees on our board of directors. As Fortis ownership is expected to fall below 50%, three Fortis designees are expected to resign from our board of directors upon the consummation of the offering contemplated by this prospectus.
For so long as Fortis continues to own shares of common stock representing more than one-third of the voting power of our outstanding capital stock entitled to vote on the matter, it will have the power to block a merger or sale of all or substantially all of our assets. In addition, as long as Fortis owns at least 10% of our outstanding common stock, certain significant corporate actions may only be taken with the approval of Fortis Insurance N.V., as stockholder. In addition, we may have conflicts of interest with Fortis that may be resolved in a manner that is unfavorable to us. See Risk Factors Risks Related to Our Relationship with and Separation from Fortis, Description of Share Capital Anti-takeover Effects of Certain Provisions of the Certificate of Incorporation, By-Laws and Delaware General Corporation Law Certificate of Incorporation and By-Laws, Description of Share CapitalShareholders Agreement, Certain Relationships and Related Transactions Shareholders Agreement and Certain Relationships and Related Transactions Cooperation Agreement.
Fortis has advised us that it intends to divest its ownership interest in our Company completely over a period of time. However, Fortis is not subject to any contractual obligation to sell any additional shares of our common stock and, subject to limited exceptions, may not sell or otherwise dispose of any shares for a period of 180 days after the date of this prospectus without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters. See Certain Relationships and Related Transactions, Description of Share CapitalShareholders Agreement, Description of Share Capital Registration Rights, Shares Eligible For Future Sale and Underwriting.
7
THE OFFERING
8
(1)
The number of shares of common stock shown to be
outstanding after the offering reflects the effects of the
merger, conversion, capital contribution and stock grants
described above and assumes an initial public offering price of
$21 per share, which is the midpoint of the price range set
forth on the cover of this prospectus.
Table of Contents
SUMMARY CONSOLIDATED FINANCIAL
INFORMATION
The following table sets forth our summary
historical consolidated financial information for the periods
ended and as of the dates indicated. Assurant, Inc. is a
Delaware corporation and is currently a wholly owned subsidiary
of Fortis, Inc. Assurant, Inc. has had no operations and nominal
financial activity and will be used solely for the purpose of
the redomestication of Fortis, Inc., which is organized as a
Nevada corporation and of which 100% of the outstanding common
stock is currently indirectly owned by Fortis N.V. and Fortis
SA/NV. Prior to the effectiveness of the registration statement
of which this prospectus forms a part, we will effectuate a
merger of Fortis, Inc. with and into Assurant, Inc. for the
purpose of redomesticating Fortis, Inc. in Delaware. As a result
of the merger, Assurant, Inc. will be domiciled in Delaware and
will be the successor to the business, operations and
obligations of Fortis, Inc. After the merger, our company will
use the name Assurant, Inc. The ongoing operations of Assurant,
Inc. will effectively be comprised of the existing operations of
Fortis, Inc. and its subsidiaries.
The summary consolidated statement of operations
data for each of the three years in the period ended
December 31, 2002 are derived from the audited consolidated
financial statements of Fortis, Inc. and its consolidated
subsidiaries included elsewhere in this prospectus, which have
been prepared in accordance with
generally accepted
accounting principles
in the United States
(GAAP)
.
The summary consolidated statement of operations data for the
nine months ended September 30, 2003 and September 30,
2002 and the summary consolidated balance sheet data at
September 30, 2003 are derived from the unaudited interim
financial statements of Fortis, Inc. and its consolidated
subsidiaries included elsewhere in this prospectus. The
unaudited interim financial statements have been prepared on the
same basis as the audited consolidated financial statements of
Fortis, Inc. and in our opinion, include all adjustments
consisting only of normal recurring adjustments, that we
consider necessary for a fair statement of our results of
operations and financial condition for these periods and as of
such dates. These historical results are not necessarily
indicative of expected results for any future period. The
results for the nine months ended September 30, 2003 are
not necessarily indicative of results to be expected for the
full year. You should read the following summary consolidated
financial information together with the other information
contained in this prospectus, including Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
related notes included elsewhere in this prospectus.
9
10
(1) Reflects only the following events as if
such events had occurred at the beginning of the period
indicated:
11
See Capitalization.
12
Table of Contents
For the
Nine Months Ended
For the
September 30,
Year Ended December 31,
2003
2002
2002
2001
2000
(in thousands, except share amounts and per share data)
$
4,533,503
$
4,217,145
$
5,681,596
$
5,242,185
$
5,144,375
456,608
472,324
631,828
711,782
690,732
14,808
(92,407
)
(118,372
)
(119,016
)
(44,977
)
52,235
59,941
79,801
68,296
10,284
10,672
10,672
61,688
11,994
181,588
182,741
246,675
221,939
399,571
5,238,742
4,850,416
6,532,200
6,186,874
6,211,979
2,657,193
2,560,851
3,429,145
3,238,925
3,208,054
732,657
671,577
876,185
875,703
766,904
1,367,289
1,244,185
1,738,077
1,620,931
1,801,196
113,300
106,773
14,001
24,726
87,854
88,122
118,396
118,370
110,142
4,844,993
4,564,735
6,161,803
5,981,230
6,017,795
393,749
285,681
370,397
205,644
194,184
130,464
86,349
110,657
107,591
104,500
263,285
199,332
$
259,740
$
98,053
$
89,684
(1,260,939
)
(1,260,939
)
$
263,285
$
(1,061,607
)
$
(1,001,199
)
$
98,053
$
89,684
$
31.72
$
(127.90
)
$
(120.63
)
$
11.81
$
10.93
$
2.40
$
(9.69
)
$
(9.14
)
$
0.89
$
0.85
8,300,002
8,300,002
8,300,002
8,300,002
8,208,335
109,571,430
109,571,430
109,571,430
109,571,430
105,206,334
$
17.98
$
$
$
8.65
$
Class B Common Stock(3)
74.69
74.69
74.69
75.44
37.66
76.68
76.68
76.68
77.45
38.65
Table of Contents
At
September 30, 2003
As
Actual
Adjusted(5)
(in thousands,
except share amounts
and per share data)
$
11,155,385
$
11,224,311
22,873,297
22,942,223
12,780,855
12,780,855
975,000
1,446,074
24,160
24,160
$
2,753,223
$
3,364,623
$
331.71
$
23.19
(9)
the exchange of each existing share of
Class A Common Stock of Fortis, Inc. for 10.75882039 shares
of Common Stock of Assurant, Inc. in the merger for the purpose
of redomestication; and
the automatic conversion of each share of
Class B Common Stock and each share of Class C Common
Stock issued in the merger in accordance with its terms
simultaneously with the closing of the offering contemplated by
this prospectus into shares of Common Stock of Assurant, Inc.
based on a liquidation amount of $1,000 per share divided by the
public offering price of our common stock, which assuming an
initial public offering price of $21 per share (the
midpoint of the price range set forth on the cover of this
prospectus), will result in the issuance of 47.619048 shares of
Common Stock of Assurant, Inc. per share of Class B Common
Stock and Class C Common Stock.
(2)
For each of the periods and dates presented,
7,750,000 shares of Class A Common Stock were issued
and outstanding; these shares are held by Fortis Insurance N.V.,
Fortis (US) Funding Partners I LP and Fortis (US) Funding
Partners II LP. Each existing share of Class A Common
Stock of Fortis, Inc. will be exchanged for
10.75882039 shares of Common Stock of Assurant, Inc. in
connection with the merger of Fortis, Inc. with and into
Assurant, Inc. and accordingly, the dividends per share data
presented may not be meaningful.
(3)
For each of the periods and dates presented,
150,001 shares of Class B Common Stock were issued and
outstanding, which were issued as a stock dividend; these shares
are held by Fortis (US) Funding Partners I LP.
(4)
For each of the periods and dates presented,
400,001 shares of Class C Common Stock were issued and
outstanding, which were issued as a stock dividend; these shares
are held by Fortis (US) Funding Partners II LP.
(5)
The as adjusted balance sheet data as of
September 30, 2003 reflects the following events as if such
events had occurred on September 30, 2003:
the incurrence by us in December 2003 of $1,750
million aggregate principal amount of indebtedness under two
senior bridge credit facilities entered into by us, and the
subsequent repayment of one of the facilities in full and a
portion of the other with $31 million in cash together with
the proceeds of a $744 million capital contribution to be
received by us from Fortis Insurance N.V. immediately prior to
or simultaneously with the closing of the offering contemplated
by this prospectus;
the issuance by us of shares of Common Stock of
Assurant, Inc. to Fortis Insurance N.V. simultaneously with the
closing of the offering contemplated by this prospectus in
exchange for the $744 million capital contribution referred
to above based on the public offering price of our common stock
which, assuming an initial public offering price of $21 per
share (the midpoint of the price range set forth on the cover of
this prospectus), will result in the issuance of 35,428,571
shares of Common Stock of Assurant, Inc.;
Table of Contents
the redemption by us of the mandatorily
redeemable preferred securities of subsidiary trusts at 100% of
the liquidation amount thereof plus (i) accrued interest to
the date of redemption and (ii) aggregate premium of
approximately $204 million, which occurred in December 2003
and January 2004;
the consummation of the merger described under
Corporate Structure and Reorganization, which will
occur immediately prior to the effectiveness of the registration
statement of which this prospectus forms a part, including the
exchange in the merger of each share of Class A Common
Stock of Fortis, Inc. having a par value of $0.10 per share
for 10.75882039 shares of Common Stock of Assurant, Inc.
having a par value of $0.01 per share;
the automatic conversion of each share of
Class B Common Stock and each share of Class C Common
Stock issued in the merger in accordance with its terms
simultaneously with the closing of the offering contemplated by
this prospectus into shares of Common Stock of Assurant, Inc.
based on a liquidation amount of $1,000 per share divided by the
public offering price of our common stock, which assuming an
initial public offering price of $21 per share (the
midpoint of the price range set forth on the cover of this
prospectus), will result in the issuance of 47.619048 shares of
Common Stock of Assurant, Inc. per share of Class B Common
Stock and Class C Common Stock; and
the issuance by us of shares of Common Stock of
Assurant, Inc. to certain of our officers and directors pursuant
to stock grants to be made on the closing of the offering
contemplated by this prospectus, which assuming an initial
public offering price of $21 per share (the midpoint of the
price range set forth on the cover of this prospectus), will
result in the issuance of 72,262 shares of Common Stock of
Assurant, Inc.
(6)
Policy liabilities include future policy benefits
and expenses, unearned premiums and claims and benefits payable.
(7)
The proceeds from the sale of each of these
securities were used by the applicable subsidiary trusts to
purchase our subordinated debentures, which are eliminated upon
consolidation. See Certain Relationships and Related
Transactions.
(8)
Actual total book value per share based on total
stockholders equity divided by 8,300,002 shares issued and
outstanding, and, as adjusted total book value per share based
on as adjusted total stockholders equity divided by as
adjusted 145,072,262 shares issued and outstanding.
(9)
Total stockholders equity divided by as
adjusted weighted average of basic and diluted shares of common
stock outstanding adjusted solely for the events described in
footnote (1) above would be $25.13 at September 30, 2003.
Table of Contents
RISK FACTORS
An investment in our common stock involves a number of risks. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before investing in our common stock. Any of the events or circumstances described as risks below could result in a significant or material adverse effect on our business, results of operations or financial condition and a corresponding decline in the market price of our common stock.
Risks Related to Our Company
Our profitability may decline if we are unable to maintain our relationships with significant clients, distributors and other parties important to the success of our business.
Our relationships and contractual arrangements with significant clients, distributors and other parties with which we do business are important to the success of our business segments. Many of these arrangements are exclusive. For example, in Assurant Solutions, we have exclusive relationships with several mortgage lenders and servicers, retailers, credit card issuers and other financial institutions through which we distribute our products. In Assurant Health, we have exclusive distribution relationships for our individual health insurance products with Insurance Placement Services, Inc. (IPSI), a wholly owned subsidiary of State Farm Mutual Automobile Insurance Company (State Farm), United Services Automobile Association (USAA) and Mutual of Omaha, as well as a relationship with Health Advocates Alliance, the association through which we provide many of our individual health insurance products, through Assurant Healths agreement dated September 1, 2003 with its administrator, National Administration Company, Inc. The agreement that provides for our exclusive distribution relationship with IPSI terminates in July 2004, but may be extended if agreed to by both parties. We also maintain contractual relationships with several separate networks of health and dental care providers, each referred to as a PPO, through which we obtain discounts. In Assurant PreNeed, we have an exclusive distribution relationship with SCI. Many of these arrangements have terms ranging from one to five years. Although we believe we have generally been successful in maintaining our client, distribution and related relationships, if these parties decline to renew or seek to terminate these arrangements, our results of operations and financial condition could be materially adversely affected. In addition, we are subject to the risk that these parties may face financial difficulties, reputational issues or problems with respect to their own products and services, which may lead to decreased sales of our products and services. Moreover, if one or more of our clients or distributors consolidate or align themselves with other companies, we may lose business or suffer decreased revenues. A loss of the discount arrangements with PPOs could also lead to higher medical or dental costs and/or a loss of members to other medical or dental plans.
For example, Assurant Solutions lost a few clients over the last three years as a result of bankruptcies and termination of contracts either by it or its clients; however, none of the clients lost was significant to its business. At Assurant Health, client turnover increased slightly over the last three years from issues related to the slowing economy, particularly in 2001 through early 2003; however, none of the clients lost was significant to its business. Similar to Assurant Health, Assurant Employee Benefits client turnover increased slightly over the last three years from issues related to the slowing economy, particularly in 2001 through early 2003, such as companies going out of business and businesses no longer providing benefits; however, none of the clients lost was significant to its business. Assurant PreNeed terminated several client relationships with three funeral home groups in 2003 because of profitability issues with the business; none of the clients terminated was significant to its business.
Sales of our products and services may be reduced if we are unable to attract and retain sales representatives or develop and maintain distribution sources.
We distribute our insurance products and services through a variety of distribution channels, including:
| independent employee benefits specialists; | |
| brokers; | |
| managing general agents; |
13
| life agents; | |
| financial institutions; | |
| funeral directors; | |
| association groups; and | |
| other third-party marketing organizations. |
We do not distribute our insurance products and services through captive or affiliated agents except for a small number of affiliated agents at Assurant Health. Our relationships with these various distributors are significant both for our revenues and profits. In Assurant Health, we depend in large part on the services of independent agents and brokers and on associations, including Health Advocates Alliance, in the marketing of our products. In Assurant Employee Benefits, independent agents and brokers who act as advisors to our customers, market and distribute our products. Independent agents and brokers are typically not exclusively dedicated to us and usually also market products of our competitors. Strong competition exists among insurers to form relationships with agents and brokers of demonstrated ability. We compete with other insurers for sales representatives, agents and brokers primarily on the basis of our financial position, support services, compensation and product features. In addition, by relying on independent agents and brokers to distribute products for us, we face continued competition from our competitors products. Moreover, our ability to market our products and services depends on our ability to tailor our channels of distribution to comply with changes in the regulatory environment. Recently, the marketing of health insurance through association groups has come under increased scrutiny. An interruption in, or changes to, our relationships with various third-party distributors or our inability to respond to regulatory changes could impair our ability to compete and market our insurance products and services and materially adversely affect our results of operations and financial condition.
We have our own sales representatives whose role in the distribution process varies by segment. We depend in large part on our sales representatives to develop and maintain client relationships. Our inability to attract and retain effective sales representatives could materially adversely affect our results of operations and financial condition.
General economic, financial market and political conditions may adversely affect our results of operations and financial condition.
Our results of operations and financial condition may be materially adversely affected from time to time by general economic, financial market and political conditions. These conditions include economic cycles such as:
| insurance industry cycles; | |
| levels of employment; | |
| levels of consumer lending; | |
| levels of inflation; and | |
| movements of the financial markets. |
Fluctuations in interest rates, monetary policy, demographics, and legislative and competitive factors also influence our performance. During periods of economic downturn:
| individuals and businesses may choose not to purchase our insurance products and other related products and services, may terminate existing policies or contracts or permit them to lapse, may choose to reduce the amount of coverage purchased or, in Assurant Employee Benefits and in small group employer health insurance in Assurant Health, may have fewer employees requiring insurance coverage due to rising unemployment levels; | |
| new disability insurance claims and claims on other specialized insurance products tend to rise; |
14
| there is a higher loss ratio on credit card and installment loan insurance due to rising unemployment levels; and | |
| insureds tend to increase their utilization of health and dental benefits if they anticipate becoming unemployed or losing benefits. |
In addition, general inflationary pressures may affect the costs of medical and dental care, as well as repair and replacement costs on our real and personal property lines, increasing the costs of paying claims. Inflationary pressures may also affect the costs associated with our pre-funded funeral insurance policies, particularly those that are guaranteed to grow with the Consumer Price Index .
Our actual claims losses may exceed our reserves for claims, which may require us to establish additional reserves that may materially reduce our earnings, profitability and capital.
We maintain reserves to cover our estimated ultimate exposure for claims and claim adjustment expenses with respect to reported and unreported claims incurred but not reported as of the end of each accounting period. Reserves, whether calculated under GAAP or statutory accounting principles (SAP) , do not represent an exact calculation of exposure, but instead represent our best estimates, generally involving actuarial projections at a given time, of what we expect the ultimate settlement and administration of a claim or group of claims will cost based on our assessment of facts and circumstances then known. The adequacy of reserves will be impacted by future trends in claims severity, frequency, judicial theories of liability and other factors. These variables are affected by both external and internal events, such as:
| changes in the economic cycle; | |
| changes in the social perception of the value of work; | |
| emerging medical perceptions regarding physiological or psychological causes of disability; | |
| emerging health issues and new methods of treatment or accommodation; | |
| inflation; | |
| judicial trends; | |
| legislative changes; and | |
| claims handling procedures. |
Many of these items are not directly quantifiable, particularly on a prospective basis. Reserve estimates are refined as experience develops. Adjustments to reserves, both positive and negative, are reflected in the statement of operations of the period in which such estimates are updated. Because establishment of reserves is an inherently uncertain process involving estimates of future losses, there can be no certainty that ultimate losses will not exceed existing claims reserves. During the past three years, we did not experience substantial deviations in actual claims losses from reserve estimates previously established. However, future loss development could require reserves to be increased, which could have a material adverse effect on our earnings in the periods in which such increases are made.
We may be unable to accurately predict benefits, claims and other costs or to manage such costs through our loss limitation methods, which could have a material adverse effect on our results of operations and financial condition.
Our profitability depends in large part on accurately predicting benefits, claims and other costs, including medical and dental costs, and predictions regarding the frequency and magnitude of claims on our disability and property coverages. It also depends on our ability to manage future benefit and other costs through product design, underwriting criteria, utilization review or claims management and, in health and dental insurance, negotiation of favorable provider contracts. The aging of the population and other demographic characteristics and advances in medical technology continue to contribute to rising health care costs. Our
15
| changes in health and dental care practices; | |
| inflation; | |
| new technologies; | |
| the cost of prescription drugs; | |
| clusters of high cost cases; | |
| changes in the regulatory environment; | |
| economic factors; | |
| the occurrence of catastrophes; and | |
| numerous other factors affecting the cost of health and dental care and the frequency and severity of claims in all our business segments. |
The judicial and regulatory environments, changes in the composition of the kinds of work available in the economy, market conditions and numerous other factors may also materially adversely affect our ability to manage claim costs. As a result of one or more of these factors or other factors, claims could substantially exceed our expectations, which could have a material adverse effect on our results of operations and financial condition.
As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues relating to claims and coverage may emerge. These issues could materially adversely affect our results of operations and financial condition by either extending coverage beyond our underwriting intent or by increasing the number or size of claims or both. We may be limited in our ability to respond to such changes, by insurance regulations, existing contract terms, contract filing requirements, market conditions or other factors.
Our investment portfolio is subject to several risks that may diminish the value of our invested assets and affect our sales and profitability.
Our investment portfolio may suffer reduced returns or losses that could reduce our profitability.
Investment returns are an important part of our overall profitability and significant fluctuations in the fixed income market could impair our profitability, financial condition and/or cash flows. Our investments are subject to market-wide risks and fluctuations, as well as to risks inherent in particular securities. In particular, volatility of claims may force us to liquidate securities prior to maturity, which may cause us to incur capital losses. If we do not structure our investment portfolio so that it is appropriately matched with our insurance liabilities, we may be forced to liquidate investments prior to maturity at a significant loss to cover such liabilities. For the nine month period ended September 30, 2003, our net investment income was $457 million and our net realized gains on investments were $15 million, which collectively accounted for approximately 9% of our total revenues during such period. For the year ended December 31, 2002, our net investment income was $632 million and our net realized losses on investments were $118 million, which collectively accounted for approximately 8% of our total revenues during such period.
The performance of our investment portfolio is subject to fluctuations due to changes in interest rates and market conditions.
Changes in interest rates can negatively affect the performance of some of our investments. Interest rate volatility can reduce unrealized gains or create unrealized losses in our portfolios. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Fluctuations in interest rates affect our returns on, and the market value of, fixed maturity and short-term investments, which comprised $9,177 million, or 86%,
16
The fair market value of the fixed maturity securities in our portfolio and the investment income from these securities fluctuate depending on general economic and market conditions. The fair market value generally increases or decreases in an inverse relationship with fluctuations in interest rates, while net investment income realized by us from future investments in fixed maturity securities will generally increase or decrease with interest rates. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations. In periods of declining interest rates, mortgage prepayments generally increase and mortgage-backed securities, commercial mortgage obligations and bonds in our investment portfolio are more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates, and we may be required to reinvest those funds in lower interest-bearing investments. As of September 30, 2003, mortgage-backed and other asset-backed securities represented approximately $2,024 million, or 19%, of the fair value of our total investments.
Because substantially all of our fixed maturity securities are classified as available for sale, changes in the market value of these securities are reflected in our balance sheet. Similar treatment is not available for liabilities. Therefore, interest rate fluctuations affect the value of our investments and could materially adversely affect our results of operations and financial condition.
We employ asset/ liability matching strategies to reduce the adverse effects of interest rate volatility and to ensure that cash flows are available to pay claims as they become due. Our asset/ liability matching strategies include:
| asset/liability duration management; | |
| structuring our bond and commercial mortgage loan portfolios to limit the effects of prepayments; and | |
| consistent monitoring of, and appropriate changes to, the pricing of our products. |
However, these strategies may fail to eliminate or reduce the adverse effects of interest rate volatility, and no assurances can be given that significant fluctuations in the level of interest rates will not have a material adverse effect on our results of operations and financial condition.
In addition, Assurant PreNeed generally writes whole life insurance policies with increasing death benefits and obtains much of its profits through interest rate spreads. Interest rate spreads refer to the difference between the death benefit growth rates on pre-funded funeral insurance policies and the investment returns generated on the assets we hold related to those policies. As of September 30, 2003, approximately 82% of Assurant PreNeeds in force insurance policy reserves related to policies that provide for death benefit growth, some of which provide for minimum death benefit growth pegged to changes in the Consumer Price Index. In extended periods of declining interest rates or high inflation, there may be compression in the spread between Assurant PreNeeds death benefit growth rates and its investment earnings. As a result, declining interest rates or high inflation rates may have a material adverse effect on our results of operations and our overall financial condition.
Assurant Employee Benefits calculates reserves for long-term disability and life waiver of premium claims using net present value calculations based on current interest rates at the time claims are funded and expectations regarding future interest rates. If interest rates decline, reserves for open and/or new claims would need to be calculated using lower discount rates thereby increasing the net present value of those claims and the required reserves. Depending on the magnitude of the decline, this could have a material adverse effect on our results of operations and financial condition. In addition, investment income may be lower than that assumed in setting premium rates.
Our investment portfolio is subject to credit risk.
We are subject to credit risk in our investment portfolio, primarily from our investments in corporate bonds and preferred stocks. Defaults by third parties in the payment or performance of their obligations could
17
As of September 30, 2003, less than 1% of the fair value of our total investments was invested in common stock; however, we have had higher percentages in the past and may make more such investments in the future. Investments in common stock generally provide higher expected total returns, but present greater risk to preservation of principal than our fixed income investments.
In addition, while currently we do not utilize derivative instruments to hedge or manage our interest rate or equity risk, we may do so in the future. Derivative instruments generally present greater risk than fixed income investments or equity investments because of their greater sensitivity to market fluctuations. Effective as of August 1, 2003, we utilize derivative instruments in managing Assurant PreNeeds exposure to inflation risk. While these instruments seek to protect a portion of Assurant PreNeeds existing business that is tied to the Consumer Price Index, a sharp increase in inflation could have a material adverse effect on our results of operations and financial condition.
Our commercial mortgage loans and real estate investments subject us to liquidity risk.
As of September 30, 2003, commercial mortgage loans on real estate investments represented approximately 8% of the fair value of our total investments. These types of investments are relatively illiquid, thus increasing our liquidity risk. In addition, if we require extremely large amounts of cash on short notice, we may have difficulty selling these investments at attractive prices, in a timely manner, or both.
The risk parameters of our investment portfolio may not target an appropriate level of risk, thereby reducing our profitability and diminishing our ability to compete and grow.
We seek to earn returns on our investments to enhance our ability to offer competitive rates and prices to our customers. Accordingly, our investment decisions and objectives are a function of the underlying risks and product profiles of each of our business segments. However, we may not succeed in targeting an appropriate overall risk level for our investment portfolio. As a result, the return on our investments may be insufficient to meet our profit targets over the long-term, thereby reducing our profitability. If in response we choose to increase our product prices to maintain profitability, we may diminish our ability to compete and grow.
Environmental liability exposure may result from our commercial mortgage loan portfolio and real estate investments.
Liability under environmental protection laws resulting from our commercial mortgage loan portfolio and real estate investments may harm our financial strength and reduce our profitability. Under the laws of several states, contamination of a property may give rise to a lien on the property to secure recovery of the costs of the cleanup. In some states, this kind of lien has priority over the lien of an existing mortgage against the property, which would impair our ability to foreclose on that property should the related loan be in default. In addition, under the laws of some states and under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, under certain circumstances, we may be liable for costs of addressing releases or threatened releases of hazardous substances that require remedy at a property securing a mortgage loan held by us. We also may face this liability after foreclosing on a property securing a mortgage loan held by us after a loan default.
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Catastrophe losses, including man-made catastrophe losses, could materially reduce our profitability and have a material adverse effect on our results of operations and financial condition.
Our insurance operations expose us to claims arising out of catastrophes, particularly in our homeowners, life and other personal business lines. We have experienced, and expect in the future to experience, catastrophe losses that may materially reduce our profitability or have a material adverse effect on our results of operations and financial condition. Catastrophes can be caused by various natural events, including hurricanes, windstorms, earthquakes, hailstorms, severe winter weather, fires and epidemics, or can be man-made catastrophes, including terrorist attacks or accidents such as airplane crashes. The frequency and severity of catastrophes are inherently unpredictable. Catastrophe losses can vary widely and could significantly exceed our recent historic results. It is possible that both the frequency and severity of man-made catastrophes will increase and that we will not be able to implement exclusions from coverage in our policies or obtain reinsurance for such catastrophes.
The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most of our catastrophe claims in the past have related to homeowners and other personal lines coverages, which for the nine months ended September 30, 2003 represented approximately 23% of our net earned premiums and other considerations in our Assurant Solutions segment. In addition, as of September 30, 2003, approximately 33% of the insurance in force in our homeowners and other personal lines related to properties located in California, Florida and Texas. As a result of our creditor-placed homeowners insurance product, our concentration in these areas may increase in the future. This is because in our creditor-placed homeowners insurance line, we agree to provide homeowners insurance coverage automatically. If other insurers withdraw coverage in these or other states, this may lead to adverse selection and increased utilization of our creditor-placed homeowners insurance in these areas.
Claims resulting from natural or man-made catastrophes could cause substantial volatility in our financial results for any fiscal quarter or year and could materially reduce our profitability or harm our financial condition. Our ability to write new business also could be affected. Increases in the value and geographic concentration of insured property and the effects of inflation could increase the severity of claims from catastrophes in the future.
Pre-tax catastrophe losses in excess of $1 million (before the benefits of reinsurance) that we have experienced in recent years are:
| a loss of approximately $10 million incurred in 2001 in connection with tropical storm Allison; | |
| total losses of approximately $12 million incurred in 2002 in connection with Arizona wildfires, Texas floods and Hurricane Lili; and | |
| total losses of approximately $18 million incurred in the first nine months in 2003 in connection with various catastrophes caused by windstorms, hailstorms and tornadoes and Hurricane Isabel. | |
In addition, we estimate a loss of approximately $11 million in the fourth quarter of 2003 related to the wildfires in Southern California. No liquidation in investments was required in connection with these catastrophes as the claims were paid from current cash flow, cash on hand or short-term investments.
In addition, our group life and health insurance operations could be materially impacted by catastrophes such as terrorist attacks or by an epidemic that causes a widespread increase in mortality , morbidity or disability rates or that causes an increase in the need for medical care. For example, the influenza epidemic of 1918 caused several million deaths. Losses due to catastrophes would not generally be covered by reinsurance and could have a material adverse effect on our results of operations and financial condition. In addition, in Assurant PreNeed the average age of policyholders is in excess of 70 years. This group is more susceptible to epidemics than the overall population, and an epidemic resulting in a higher incidence of mortality could have a material adverse effect on our results of operations and financial condition.
Our ability to manage these risks depends in part on our successful utilization of catastrophic property and life reinsurance to limit the size of property and life losses from a single event or multiple events, and life and disability reinsurance to limit the size of life or disability insurance exposure on an individual insured life.
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Reinsurance may not be available or adequate to protect us against losses, and we are subject to the credit risk of reinsurers.
As part of our overall risk and capacity management strategy, we purchase reinsurance for certain risks underwritten by our various business segments. Market conditions beyond our control determine the availability and cost of the reinsurance protection we purchase. For example, subsequent to the terrorist assaults of September 11, 2001, reinsurance for man-made catastrophes became generally unavailable due to capacity constraints and, to the limited extent available, much more expensive. The high cost of reinsurance or lack of affordable coverage could adversely affect our results. If we fail to obtain sufficient reinsurance, it could adversely affect our ability to write future business.
As part of our business, we have reinsured certain life, property and casualty and health risks to reinsurers. Although the reinsurer is liable to us to the extent of the ceded reinsurance, we remain liable as the direct insurer on all risks reinsured. As a result, ceded reinsurance arrangements do not eliminate our obligation to pay claims. We are subject to credit risk with respect to our ability to recover amounts due from reinsurers. Our reinsurers may not pay the reinsurance recoverables that they owe to us or they may not pay such recoverables on a timely basis. A reinsurers insolvency, underwriting results or investment returns may affect its ability to fulfill reinsurance obligations.
Our reinsurance facilities are generally subject to annual renewal. We may not be able to maintain our current reinsurance facilities and, even where highly desirable or necessary, we may not be able to obtain other reinsurance facilities in adequate amounts and at favorable rates. If we are unable to renew our expiring facilities or to obtain new reinsurance facilities, either our net exposures would increase or, if we are unwilling to bear an increase in net exposures, we may have to reduce the level of our underwriting commitments. Either of these potential developments could materially adversely affect our results of operations and financial condition.
We have sold businesses through reinsurance that could again become our direct financial and administrative responsibility if the purchasing companies were to become insolvent.
We have sold businesses through reinsurance ceded to third parties, such as our 2001 sale of the insurance operations of our Fortis Financial Group (FFG) division to The Hartford Financial Services Group Inc. (The Hartford). The assets backing the liabilities on these businesses are held in a trust, and the separate accounts relating to the FFG business are still reflected on our balance sheet. However, we would be responsible for administering this business in the event of a default by the reinsurer. We do not have the administrative systems and capabilities to process this business today. Accordingly, we would need to obtain those capabilities in the event of an insolvency of one or more of the reinsurers of these businesses. We might be forced to obtain such capabilities on unfavorable terms, with a resulting material adverse effect on our results of operations and financial condition. In addition, under the reinsurance agreement, The Hartford is obligated to contribute funds to increase the value of the separate accounts relating to the business sold if such value declines. If The Hartford fails to fulfill these obligations, we will be obligated to make these payments.
We are exposed to the credit risk of our agents in Assurant PreNeed and our clients in Assurant Solutions.
We advance agents commissions as part of our pre-funded funeral insurance product offerings. These advances are a percentage of the total face amount of coverage as opposed to a percentage of the first-year premium paid, the formula that is more common in other life insurance markets. There is a one-year payback provision against the agency if death or lapse occurs within the first policy year. There is a very large producer within Assurant PreNeed and if it were unable to fulfill its payback obligations, it could have an adverse effect on our results of operations and financial condition. However, we have not had any loss experience with this
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A further decline in the manufactured housing market may adversely affect our results of operations and financial condition.
The manufactured housing industry has experienced a significant decline in both shipments and retail sales in the last five years. Manufactured housing shipments have decreased from approximately 370,000 in 1998 to 130,000 (annualized) in 2003, representing a 65% decline. Repossessions are at an all time high, resale values have been significantly reduced and several lenders, dealers, manufacturers and vertically integrated manufactured housing companies have either ceased operations or gone bankrupt. This downturn in the industry is the result of several factors, including excess production, aggressive sales practices, reduced underwriting standards and poor lending practices. As a result of this downturn, the industry has experienced consolidation, with the leaders purchasing the weaker competitors. If these downward trends continue, our results of operations and financial condition may be adversely affected.
The financial strength of our insurance company subsidiaries is rated by A.M. Best, Moodys and S&P, and a decline in these ratings could affect our standing in the insurance industry and cause our sales and earnings to decrease.
Ratings have become an increasingly important factor in establishing the competitive position of insurance companies. All of our domestic operating insurance subsidiaries are rated by A.M. Best, six of our domestic operating insurance subsidiaries are rated by Moodys and seven of our domestic operating insurance subsidiaries are rated by S&P. The ratings reflect A.M. Bests, Moodys and S&Ps opinions of our subsidiaries financial strength, operating performance, strategic position and ability to meet their obligations to policyholders. The ratings are not evaluations directed to investors and are not recommendations to buy, sell or hold our securities. These ratings are subject to periodic review by A.M. Best, Moodys and S&P, and we cannot assure you that we will be able to retain these ratings.
Most of our domestic operating insurance subsidiaries have A.M. Best financial strength ratings of A (Excellent), which is the second highest of ten ratings categories and the highest within the category based on modifiers (i.e., A and A- are Excellent). Our other domestic operating insurance subsidiaries have A.M. Best financial strength ratings of A- (Excellent), which is the second highest of ten ratings categories and the lowest within the category based on modifiers.
The Moodys financial strength rating is A2 (Good) for one of our domestic operating insurance subsidiaries, which is the third highest of nine ratings categories and mid-range within the category based on modifiers (i.e., A1, A2 and A3 are Good), and A3 (Good) for five of our domestic operating insurance subsidiaries, which is the third highest of nine ratings categories and the lowest within the category based on modifiers.
The S&P financial strength rating is A (Strong) for five of our domestic operating insurance subsidiaries, which is the third highest of ten ratings categories and mid-range within the category based on modifiers (i.e., A+, A and A- are Strong), and A- (Strong) for two of our domestic operating insurance subsidiaries, which is the third highest of ten ratings categories and the lowest within the category based on modifiers.
Rating agencies review their ratings periodically and our current ratings may not be maintained in the future. If our ratings are reduced from their current levels by A.M. Best, Moodys or S&P, or placed under surveillance or review with possible negative implications, our competitive position in the respective insurance industry segments could suffer and it could be more difficult for us to market our products. Rating agencies may take action to lower our ratings in the future due to, among other things:
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| the competitive environment in the insurance industry, which may adversely affect our revenues; | |
| the inherent uncertainty in determining reserves for future claims, which may cause us to increase our reserves for claims; | |
| the outcome of pending litigation and regulatory investigations, which may adversely affect our financial position and reputation; and | |
| possible changes in the methodology or criteria applied by the rating agencies. |
As customers and their advisors place importance on our financial strength ratings, we may lose customers and compete less successfully if we are downgraded. In addition, ratings impact our ability to attract investment capital on favorable terms. If our financial strength ratings are reduced from their current levels by A.M. Best, Moodys or S&P, our cost of borrowing would likely increase, our sales and earnings could decrease and our results of operations and financial condition could be materially adversely affected.
Contracts representing approximately 18% of Assurant Solutions net earned premiums and fee income for the nine months ended September 30, 2003 contain provisions requiring the applicable subsidiaries to maintain minimum A.M. Best financial strength ratings ranging from A or better to B or better, depending on the contract. Our clients may terminate these contracts if the subsidiaries ratings fall below these minimum acceptable levels. Under our ten-year marketing agreement with SCI, American Memorial Life Insurance Company (AMLIC), one of our subsidiaries in the Assurant PreNeed segment, is required to maintain an A.M. Best financial strength rating of B or better throughout the term of the agreement. If AMLIC fails to maintain this rating for a period of 180 days, SCI may terminate the agreement. In our Assurant Health and Assurant Employee Benefits segments, we do not have any material contracts that permit termination in the case of a ratings downgrade.
Since January 1, 2000, none of the A.M. Best ratings for our domestic operating insurance subsidiaries has been downgraded. On September 25, 2003, the Moodys financial strength rating for Fortis Benefits Insurance Company, one of our domestic operating insurance subsidiaries, was downgraded from A1 (Good) to A2 (Good) and the financial strength rating for John Alden Life Insurance Company, another domestic operating insurance subsidiary, was downgraded from A2 (Good) to A3 (Good) in contemplation of the fact that we will no longer be wholly owned by Fortis after this offering. In addition, on May 2, 2003, Moodys downgraded the insurance financial strength rating of Fortis Benefits Insurance Company from Aa3 (Excellent) to A1 (Good) corresponding to the downgrading of Fortis. These recent downgrades did not have a quantifiable impact on the business of these subsidiaries primarily because our operating insurance companies rely solely on the ratings of A.M. Best for the marketing and sale of their products. S&P re-instituted its rating of our domestic operating insurance subsidiaries as of December 8, 2003 and as of such date rates seven of our domestic operating insurance subsidiaries.
The failure to effectively maintain and modernize our information systems could adversely affect our business.
Our business is dependent upon our ability to keep up to date with technological advances. This is particularly important in Assurant Solutions, where our systems, including our ability to keep our systems fully integrated with those of our clients, are critical to the operation of our business. Our failure to update our systems to reflect technological advancements or to protect our systems may adversely affect our relationships and ability to do business with our clients.
During the nine months ended September 30, 2003, we have spent approximately $90 million in Assurant Solutions, $55 million in Assurant Health, $43 million in Assurant Employee Benefits and $4 million in Assurant PreNeed to maintain, upgrade and consolidate our information systems. In 2004, we plan to spend for these purposes approximately $124 million in Assurant Solutions, $73 million in Assurant Health, $53 million in Assurant Employee Benefits and $5 million in Assurant PreNeed.
In addition, our business depends significantly on effective information systems, and we have many different information systems for our various businesses. We must commit significant resources to maintain and enhance our existing information systems and develop new information systems in order to keep pace with
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| inadequate information on which to base pricing, underwriting and reserving decisions; | |
| the loss of existing customers; | |
| difficulty in attracting new customers; | |
| customer, provider and agent disputes; | |
| regulatory problems, such as failure to meet prompt payment obligations; | |
| litigation exposure; or | |
| increases in administrative expenses. |
Our management information, internal control and financial reporting systems may need further enhancements and development to satisfy the financial and other reporting requirements of being a public company.
Failure to protect our clients confidential information and privacy could result in the loss of customers, reduction to our profitability and/ or subject us to fines and penalties .
A number of our businesses are subject to privacy regulations and to confidentiality obligations. For example, the collection and use of patient data in our Assurant Health segment is the subject of national and state legislation, including the Health Insurance Portability and Accountability Act of 1996 (HIPAA), and certain of the activities conducted by our Assurant Solutions segment are subject to the privacy regulations of the Gramm-Leach-Bliley Act. We also have contractual obligations to protect certain confidential information we obtain from our existing vendors and clients. These obligations generally include protecting such confidential information in the same manner and to the same extent as we protect our own confidential information. The actions we take to protect such confidential information vary by business segment and may include among other things:
| training and educating our employees regarding our obligations relating to confidential information; | |
| actively monitoring our record retention plans and any changes in state or federal privacy and compliance requirements; | |
| drafting appropriate contractual provisions into any contract that raises proprietary and confidentiality issues; | |
| maintaining secure storage facilities for tangible records; and | |
| limiting access to electronic information and maintaining a clean desk policy aimed at safeguarding certain current information. |
In addition, we must develop, implement and maintain a comprehensive written information security program with appropriate administrative, technical and physical safeguards to protect such confidential information. If we do not properly comply with privacy regulations and protect confidential information we could experience adverse consequences, including regulatory problems, loss of reputation and client litigation.
See Risks Related to Our IndustryCost of compliance with privacy laws could adversely affect our business and results of operations.
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We may not find suitable acquisition candidates or new insurance ventures and even if we do, we may not successfully integrate any such acquired companies or successfully invest in such ventures.
From time to time, we evaluate possible acquisition transactions and the start-up of complementary businesses, and at any given time, we may be engaged in discussions with respect to possible acquisitions and new ventures. While our business model is not dependent upon acquisitions or new insurance ventures, the time frame for achieving or further improving upon our desired market positions can be significantly shortened through opportune acquisitions or new insurance ventures. Historically, acquisitions and new insurance ventures have played a significant role in achieving desired market positions in some, but not all, of our businesses. We cannot assure you that we will be able to identify suitable acquisition transactions or insurance ventures, that such transactions will be financed and completed on acceptable terms or that our future acquisitions or ventures will be successful. The process of integrating any companies we do acquire or investing in new ventures could have a material adverse effect on our results of operations and financial condition.
In addition, implementation of an acquisition strategy entails a number of risks, including among other things:
| inaccurate assessment of undisclosed liabilities; | |
| difficulties in realizing projected efficiencies, synergies and cost savings; | |
| failure to achieve anticipated revenues, earnings or cash flow; and | |
| increase in our indebtedness and a limitation in our ability to access additional capital when needed. |
Our failure to adequately address these acquisition risks could materially adversely affect our results of operations and financial condition. Although we believe that most of our acquisitions have been successful and have not had a material adverse impact on our financial condition, we did recognize a goodwill impairment of $1,261 million in 2002 related to an earlier acquisition.
The inability of our subsidiaries to pay dividends to us in sufficient amounts could harm our ability to meet our obligations and pay future stockholder dividends.
As a holding company whose principal assets are the capital stock of our subsidiaries, we rely primarily on dividends and other statutorily permissible payments from our subsidiaries to meet our obligations for payment of interest and principal on outstanding debt obligations, dividends to stockholders (including any dividends on our common stock) and corporate expenses. The ability of our subsidiaries to pay dividends and to make such other payments in the future will depend on their statutory surplus, future statutory earnings and regulatory restrictions. Except to the extent that we are a creditor with recognized claims against our subsidiaries, claims of the subsidiaries creditors, including policyholders, have priority with respect to the assets and earnings of the subsidiaries over the claims of our creditors. If any of our subsidiaries should become insolvent, liquidate or otherwise reorganize, our creditors and stockholders will have no right to proceed against the assets of that subsidiary or to cause the liquidation, bankruptcy or winding-up of the subsidiary under applicable liquidation, bankruptcy or winding-up laws. The applicable insurance laws of the jurisdiction where each of our insurance subsidiaries is domiciled would govern any proceedings relating to that subsidiary. The insurance authority of that jurisdiction would act as a liquidator or rehabilitator for the subsidiary. Both creditors and policyholders of the subsidiary would be entitled to payment in full from the subsidiarys assets before we, as a stockholder, would be entitled to receive any distribution from the subsidiary.
The payment of dividends to us by any of our operating subsidiaries in excess of a certain amount (i.e., extraordinary dividends) must be approved by the subsidiarys domiciliary state department of insurance. Ordinary dividends, for which no regulatory approval is generally required, are limited to amounts determined by formula, which varies by state. The formula for the majority of the states in which our subsidiaries are domiciled is the lesser of (i) 10% of the statutory surplus as of the end of the prior year or (ii) the prior years statutory net income . In some states, the formula is the greater amount of clauses (i) and (ii). Some states, however, have an additional stipulation that dividends may only be paid out of earned surplus. In addition, as part of the regulatory approval process for the acquisition of American Bankers Insurance Group (ABIG) in 1999, we entered into an agreement with the Florida Insurance Department pursuant to which, until August of
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Our senior bridge credit facilities and our Series B and Series C Preferred Stock also contain limitations on our ability to pay dividends.
We may be unable to refinance indebtedness under our $1,100 million senior bridge credit facility on a timely basis or on commercially reasonable terms, which may have a material adverse effect on our business.
On a pro forma basis after giving effect to the events described in note 5 to Summary Consolidated Financial Information, we will have $975 million of indebtedness outstanding under our $1,100 million senior bridge credit facility. No assurances can be given that we will be able to secure permanent financing to refinance this indebtedness on a timely basis or on commercially reasonable terms, which may have a material adverse effect on our business.
Risks Related to Our Industry
We face significant competitive pressures in our businesses, which may reduce premium rates and prevent us from pricing our products at rates that will allow us to be profitable.
In each of our lines of business, we compete with other insurance companies or service providers, depending on the line and product, although we have no single competitor who competes against us in all of the business lines in which we operate. Assurant Solutions has numerous competitors in its product lines, but we believe no other company participates in all of the same lines or offers comprehensive capabilities. Competitors include insurance companies and financial institutions. In Assurant Health, we believe the market is characterized by many competitors, and our main competitors include health insurance companies and the Blue Cross/ Blue Shield plans in the states in which we write business. In Assurant Employee Benefits, commercial competitors include benefits and life insurance companies as well as not-for-profit Delta Dental plans. In Assurant PreNeed, our main competitors are two pre-need life insurance companies with nationwide representation, Forethought Financial Services and Homesteaders Life Company, and several small regional insurers. While we are among the largest competitors in terms of market share in many of our business lines, in some cases there are one or more major market players in a particular line of business.
Competition in our businesses is based on many factors, including quality of service, product features, price, scope of distribution, scale, financial strength ratings and name recognition. We compete, and will continue to compete, for customers and distributors with many insurance companies and other financial services companies. We compete not only for business and individual customers, employer and other group customers, but also for agents and distribution relationships. Some of our competitors may offer a broader
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In certain markets, we compete with organizations that have a substantial market share. In addition, with regard to Assurant Health, organizations with sizable market share or provider-owned plans may be able to obtain favorable financial arrangements from health care providers that are not available to us. Without our own similar arrangements, we may not be able to compete effectively in such markets.
New competition could also cause the supply of insurance to change, which could affect our ability to price our products at attractive rates and thereby adversely affect our underwriting results. Although there are some impediments facing potential competitors who wish to enter the markets we serve, the entry of new competitors into our markets can occur, affording our customers significant flexibility in moving to other insurance providers.
The insurance industry is cyclical, which may impact our results.
The insurance industry is cyclical. Although no two cycles are the same, insurance industry cycles have typically lasted for periods ranging from two to six years. The segments of the insurance markets in which we operate tend not to be correlated to each other, with each segment having its own cyclicality. Periods of intense price competition due to excessive underwriting capacity, periods when shortages of underwriting capacity permit more favorable rate levels, consequent fluctuations in underwriting results and the occurrence of other losses characterize the conditions in these markets. Historically, insurers have experienced significant fluctuations in operating results due to volatile and sometimes unpredictable developments, many of which are beyond the direct control of the insurer, including competition, frequency of occurrence or severity of catastrophic events, levels of capacity, general economic conditions and other factors. This may cause a decline in revenue at times in the cycle if we choose not to reduce our product prices in order to maintain our market position, because of the adverse effect on profitability of such a price reduction. We can be expected therefore to experience the effects of such cyclicality and changes in customer expectations of appropriate premium levels, the frequency or severity of claims or other loss events or other factors affecting the insurance industry that generally could have a material adverse effect on our results of operations and financial condition.
The insurance and related businesses in which we operate may be subject to periodic negative publicity, which may negatively impact our financial results.
The nature of the market for the insurance and related products and services we provide is that we interface with and distribute our products and services ultimately to individual consumers. There may be a perception that these purchasers may be unsophisticated and in need of consumer protection. Accordingly, from time to time, consumer advocate groups or the media may focus attention on our products and services, thereby subjecting our industries to periodic negative publicity. We may also be negatively impacted if another company in one of our industries engages in practices resulting in increased public attention to our businesses. Negative publicity may result in increased regulation and legislative scrutiny of industry practices as well as increased litigation, which may further increase our costs of doing business and adversely affect our
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Our business is subject to risks related to litigation and regulatory actions.
In addition to the occasional employment-related litigation to which all businesses are subject, we are a defendant in actions arising out of, and are involved in various regulatory investigations and examinations relating to, our insurance and other related business operations. We may from time to time be subject to a variety of legal and regulatory actions relating to our current and past business operations, including, but not limited to:
| disputes over coverage or claims adjudication; | |
| disputes regarding sales practices, disclosures, premium refunds, licensing, regulatory compliance and compensation arrangements; | |
| disputes with our agents, producers or network providers over compensation and termination of contracts and related claims; | |
| disputes concerning past premiums charged by companies acquired by us for coverage that may have been based on factors such as race; | |
| disputes relating to customers regarding the ratio of premiums to benefits in our various business segments; | |
| disputes alleging packaging of credit insurance products with other products provided by financial institutions; | |
| disputes relating to certain excess of loss programs in the London market; | |
| disputes with taxing authorities regarding our tax liabilities; and | |
| disputes relating to certain businesses acquired or disposed of by us. |
In addition, plaintiffs continue to bring new types of legal claims against insurance and related companies. Current and future court decisions and legislative activity may increase our exposure to these types of claims. Multiparty or class action claims may present additional exposure to substantial economic, non-economic or punitive damage awards. The loss of even one of these claims, if it resulted in a significant damage award or a judicial ruling that was otherwise detrimental, could have a material adverse effect on our results of operations and financial condition. This risk of potential liability may make reasonable settlements of claims more difficult to obtain. We cannot determine with any certainty what new theories of recovery may evolve or what their impact may be on our businesses.
There are various governmental and administrative investigations and proceedings pending against us. For example, an indictment has been issued in Minnesota alleging that one of our subsidiaries and two corporate officers of Assurant Solutions each violated the Minnesota Fair Campaign Practices Act. The outcome of these investigations and proceedings cannot be predicted, and no assurances can be given that such investigations or proceedings or any litigation would not materially adversely affect our results of operations and financial condition. In addition, if we were to experience difficulties with our relationship with a regulatory body in a given jurisdiction, it could have a material adverse effect on our ability to do business in that jurisdiction. See BusinessLegal Proceedings.
We are subject to extensive governmental regulation, which increases our costs and could restrict the conduct of our business.
Our operating subsidiaries are subject to extensive regulation and supervision in the jurisdictions in which they do business. Such regulation is generally designed to protect the interests of policyholders, as opposed to stockholders and other investors. To that end, the laws of the various states establish insurance departments with broad powers with respect to such things as:
| licensing companies to transact business; |
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| authorizing lines of business; | |
| mandating capital and surplus requirements; | |
| regulating underwriting limitations; | |
| imposing dividend limitations; | |
| regulating changes in control; | |
| licensing agents and distributors of insurance products; | |
| placing limitations on the minimum and maximum size of life insurance contracts; | |
| restricting companies ability to enter and exit markets; | |
| admitting statutory assets ; | |
| mandating certain insurance benefits; | |
| restricting companies ability to terminate or cancel coverage; | |
| requiring companies to provide certain types of coverage; | |
| regulating premium rates, including the ability to increase premium rates; | |
| approving policy forms; | |
| regulating trade and claims practices; | |
| imposing privacy requirements; | |
| establishing reserve requirements and solvency standards; | |
| restricting certain transactions between affiliates; | |
| regulating the content of disclosures to debtors in the credit insurance area; | |
| regulating the type, amounts and valuation of investments; | |
| mandating assessments or other surcharges for guaranty funds ; | |
| regulating market conduct and sales practices of insurers and agents; and | |
| restricting contact with consumers, such as the recently created national do not call list, and imposing consumer protection measures. |
Assurant Health is also required by some jurisdictions to provide coverage to persons who would not otherwise be considered eligible by insurers. Each of these jurisdictions dictates the types of insurance and the level of coverage that must be provided to such involuntary risks. Our share of these involuntary risks is mandatory and generally a function of our respective share of the voluntary market by line of insurance in each jurisdiction. Assurant Health is exposed to some risk of losses in connection with mandated participation in such schemes in those jurisdictions in which they are still effective. In addition, HIPAA imposed insurance reform provisions as well as requirements relating to the privacy of individuals. HIPAA requires certain guaranteed issuance and renewability of health insurance coverage for individuals and small groups (generally 50 or fewer employees) and limits exclusions based on pre-existing conditions. Most of the insurance reform provisions of HIPAA became effective for plan years beginning July 1, 1997. See also Risks Related to Our IndustryCosts of compliance with privacy laws could adversely affect our business and results of operations.
If regulatory requirements impede our ability to raise premium rates, utilize new policy forms or terminate, deny or cancel coverage in any of our businesses, our results of operations and financial condition could be materially adversely affected. The capacity for an insurance companys growth in premiums is in part a function of its statutory surplus. Maintaining appropriate levels of statutory surplus, as measured by statutory accounting practices and procedures, is considered important by insurance regulatory authorities and the
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We may be unable to maintain all required licenses and approvals and our business may not fully comply with the wide variety of applicable laws and regulations or the relevant authoritys interpretation of the laws and regulations. Also, some regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us. That type of action could materially adversely affect our results of operations and financial condition. See Regulation.
Changes in regulation may reduce our profitability and limit our growth.
Legislation or other regulatory reform that increases the regulatory requirements imposed on us or that changes the way we are able to do business may significantly harm our business or results of operations in the future. For example, some states have imposed new time limits for the payment of uncontested covered claims and require health care and dental service plans to pay interest on uncontested claims not paid promptly within the required time period. Some states have also granted their insurance regulatory agencies additional authority to impose monetary penalties and other sanctions on health and dental plans engaging in certain unfair payment practices. If we were to be unable for any reason to comply with these requirements, it could result in substantial costs to us and may materially adversely affect our results of operations and financial condition.
Legislative or regulatory changes that could significantly harm us and our subsidiaries include, but are not limited to:
| legislation that holds insurance companies or managed care companies liable for adverse consequences of medical or dental decisions; | |
| limitations on premium levels or the ability to raise premiums on existing policies; | |
| increases in minimum capital, reserves and other financial viability requirements; | |
| impositions of fines, taxes or other penalties for improper licensing, the failure to promptly pay claims, however defined, or other regulatory violations; | |
| increased licensing requirements; | |
| prohibitions or limitations on provider financial incentives and provider risk-sharing arrangements; | |
| imposition of more stringent standards of review of our coverage determinations; | |
| new benefit mandates; | |
| increased regulation relating to the use of associations and trusts in the sale of individual health insurance; | |
| limitations on our ability to build appropriate provider networks and, as a result, manage health care and utilization due to any willing provider legislation, which requires us to take any provider willing to accept our reimbursement; | |
| limitations on the ability to manage health care and utilization due to direct access laws that allow insureds to seek services directly from specialty medical providers without referral by a primary care provider; and | |
| restriction of solicitation of pre-funded funeral insurance consumers by funeral board laws. |
State legislatures regularly enact laws that alter and, in many cases, increase state authority to regulate insurance companies and insurance holding companies. Further, state insurance regulators regularly reinterpret existing laws and regulations and the National Association of Insurance Commissioners (NAIC)
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Although the U.S. federal government does not directly regulate the insurance business, changes in federal legislation and administrative policies in several areas, including changes in the Gramm-Leach-Bliley Act, financial services regulation and federal taxation, could significantly harm the insurance industry and us. Federal legislation and administrative policies in areas such as employee benefit plan regulation, financial services regulation and federal taxation can reduce our profitability. In addition, state legislatures and the U.S. Congress continue to focus on health care issues. The U.S. Congress is considering Patients Bill of Rights legislation, which, if adopted, would permit health plans to be sued in state court for coverage determinations and could fundamentally alter the treatment of coverage decisions under Employee Retirement Income Security Act of 1974, as amended (ERISA). There recently have been legislative attempts to limit ERISAs preemptive effect on state laws. For example, the U.S. Congress has, from time to time, considered legislation relating to changes in ERISA to permit application of state law remedies, such as consequential and punitive damages, in lawsuits for wrongful denial of benefits, which, if adopted, could increase our liability for damages in future litigation. Additionally, new interpretations of existing laws and the passage of new legislation may harm our ability to sell new policies and increase our claims exposure on policies we issued previously.
A number of legislative proposals have been made at the federal level over the past several years that could impose added burdens on Assurant Health. These proposals would, among other things, mandate benefits with respect to certain diseases or medical procedures, require plans to offer an independent external review of certain coverage decisions and establish a national health insurance program. Any of these proposals, if implemented, could adversely affect our results of operations or financial condition. Federal changes in Medicare and Medicaid that reduce provider reimbursements could have negative implications for the private sector due to cost shifting. When the government reduces reimbursement rates for Medicare and Medicaid, providers often try to recover shortfalls by raising the prices charged to privately insured customers. State small employer group and individual health insurance market reforms to increase access and affordability could also reduce profitability by precluding us from appropriately pricing for risk in our individual and small employer group health insurance policies.
In addition, the U.S. Congress and some federal agencies from time to time investigate the current condition of insurance regulation in the United States to determine whether to impose federal regulation or to allow an optional federal incorporation, similar to banks. Bills have been introduced in the U.S. Congress from time to time that would provide for a federal scheme of chartering insurance companies or an optional federal charter for insurance companies. Meanwhile, the federal government has granted charters in years past to insurance-like organizations that are not subject to state insurance regulations, such as risk retention groups. See RegulationUnited StatesFederal RegulationLegislative Developments. Thus, it is hard to predict the likelihood of a federal chartering scheme and its impact on the industry or on us.
We cannot predict with certainty the effect any proposed or future legislation, regulations or NAIC initiatives may have on the conduct of our business. In addition, the insurance laws or regulations adopted or amended from time to time may be more restrictive or may result in materially higher costs than current requirements. See Regulation.
Costs of compliance with privacy laws could adversely affect our business and results of operations.
The privacy of individuals has been the subject of recent state and federal legislation. State privacy laws, particularly those with opt-in clauses, can affect the pre-funded funeral insurance business. These laws make it harder to share information for marketing purposes, such as generating new sales leads. Similarly, the recently created do not call list would restrict our ability to contact customers and, in Assurant Solutions, has lowered our expectations for growth in our direct-marketed consumer credit insurance products in the United States.
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HIPAA and the implementing regulations that have thus far been adopted impose new obligations for issuers of health and dental insurance coverage and health and dental benefit plan sponsors. HIPAA also establishes new requirements for maintaining the confidentiality and security of individually identifiable health information and new standards for electronic health care transactions. The Department of Health and Human Services promulgated final HIPAA regulations in 2002. The privacy regulations required compliance by April 2003, the electronic transactions regulations by October 2003 and the security regulations by April 2005. As have other entities in the health care industry, we have incurred substantial costs in meeting the requirements of these HIPAA regulations and expect to continue to incur costs to achieve and to maintain compliance. We have been working diligently to comply with these regulations in the time periods required. However, there can be no assurances that we will achieve such compliance with all of the required transactions or that other entities with which we interact will take appropriate action to meet the compliance deadlines. Moreover, as a consequence of these new standards for electronic transactions, we may see an increase in the number of health care transactions that are submitted to us in paper format, which could increase our costs to process medical claims.
HIPAA is far-reaching and complex and proper interpretation and practice under the law continue to evolve. Consequently, our efforts to measure, monitor and adjust our business practices to comply with HIPAA are ongoing. Failure to comply could result in regulatory fines and civil lawsuits. Knowing and intentional violations of these rules may also result in federal criminal penalties.
In addition, the Gramm-Leach-Bliley Act requires that we deliver a notice regarding our privacy policy both at the delivery of the insurance policy and annually thereafter. Certain exceptions are allowed for sharing of information under joint marketing agreements. However, certain state laws may require individuals to opt in to information sharing instead of being immediately included. This could significantly increase costs of doing business. Additionally, when final U.S. Treasury Department regulations are promulgated in connection with the USA PATRIOT Act, we will likely have to expend additional resources to tailor our existing anti-fraud efforts to the new rules.
Risks Related to Our Relationship with and Separation from Fortis
Fortis will continue to have representation on our board of directors and influence our affairs for as long as it remains a significant stockholder.
After the completion of this offering, we estimate that Fortis, through Fortis Insurance N.V., its wholly owned subsidiary, will own approximately 45% of our outstanding common stock, or approximately 37% if the underwriters exercise their over-allotment option in full, in each case assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus. As a result, for as long as Fortis continues to own shares of common stock representing more than one-third of the voting power of our outstanding capital stock entitled to vote on the matter, it will be able to veto corporate actions requiring a two-thirds vote of our stockholders. Fortis may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests.
Prior to the consummation of this offering, we will enter into a shareholders agreement with Fortis pursuant to which Fortis will have the right to nominate designees to our board of directors and, subject to limited exceptions, our board of directors will nominate those designees as follows: (i) so long as Fortis owns less than 50% but at least 10% of our outstanding common stock, two designees (out of a maximum of 12 directors); and (ii) so long as Fortis owns less than 10% but at least 5% of our outstanding common stock, one designee. Currently, Fortis has five designees on our board of directors. As Fortis ownership is expected to fall below 50%, three Fortis designees are expected to resign from our board of directors upon the consummation of the offering contemplated by this prospectus.
In addition, although Fortis has advised us that it intends to divest all of its shares of our common stock over a period of time, Fortis is under no obligation to do so. Subject to the terms of the lock-up agreement, Fortis has the sole discretion to determine the timing of any such divestiture. See Certain Relationships and Related Transactions, Description of Share CapitalShareholders Agreement, Description of Share CapitalRegistration Rights, Shares Eligible for Future Sale and Underwriting for additional information on lock-up agreements and related party transactions between our Company and Fortis.
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In addition, if for any reason, Fortis should continue to own at least 50% of our outstanding common stock after the offering contemplated by this prospectus, the following will also apply:
| As long as Fortis owns at least 50% of our outstanding common stock, our board of directors shall consist of no more than 14 directors (including at least five independent directors if there are 12 or fewer directors and otherwise at least six independent directors); | |
| As long as Fortis owns at least 50% of our outstanding common stock, Fortis will have the right to nominate five designees to our board of directors (out of a maximum of 14 directors), and the shareholders agreement and our by-laws provide that, subject to limited exceptions, our board of directors will nominate those designees; | |
| Pursuant to the shareholders agreement and our by-laws, as long as Fortis owns at least 50% of our outstanding common stock, the following significant corporate actions may only be taken with the approval of 75% of our directors, which will require the approval of two or more Fortis designees: | |
| any recapitalization, reclassification or combination of any of our securities or any of those of our principal subsidiaries (other than certain activities between wholly owned subsidiaries); | |
| any liquidation, dissolution, winding up or commencement of voluntary bankruptcy or insolvency proceedings with respect to us or our principal subsidiaries; | |
| any acquisition or disposition with a value in excess of $500 million; | |
| the incurrence or assumption of indebtedness resulting in total indebtedness in excess of $1.5 billion on a consolidated basis; and | |
| any offer or sale of shares of our common stock, other equity securities or securities convertible into or exchangeable into our equity securities in excess of 10% of the common stock outstanding or such amounts as would reduce Fortis ownership to below 50% of our outstanding common stock. | |
Accordingly, although Fortis designees on our board of directors have a fiduciary duty to all of our stockholders, they would be able to veto certain actions for as long as Fortis owns at least 50% of our outstanding common stock. |
In addition, for so long as Fortis continues to own shares of our common stock representing more than 50% of the voting power of our outstanding capital stock entitled to vote on the matter, it will be able to determine the outcome of corporate actions requiring majority stockholder approval.
Because Fortis will control us, conflicts of interest between Fortis and us could be resolved in a manner unfavorable to us.
Various conflicts of interest between Fortis and us could arise which may be resolved in a manner that is unfavorable to us, including, but not limited to, the following areas:
Stock Ownership. So long as Fortis owns shares of common stock representing more than one-third of the voting power of our outstanding capital stock entitled to vote on the matter, Fortis will be able to veto mergers and the sale of all or substantially all of our consolidated assets. With certain limited exceptions, Fortis, exercising its rights as a stockholder, can veto a merger or sale without regard to the interests of the other stockholders. In addition, the shareholders agreement will also provide that for as long as Fortis owns at least 10% of our outstanding common stock, the following actions may only be taken with the approval of Fortis Insurance N.V., as stockholder:
| any recapitalization, reclassification or combination of any of our securities or any of those of our principal subsidiaries (other than certain activities between wholly owned subsidiaries); and | |
| any liquidation, dissolution, winding up or commencement of voluntary bankruptcy or insolvency proceedings with respect to us or our principal subsidiaries. | |
For more information regarding the shareholders agreement, see Description of Share Capital Shareholders Agreement.
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Cross-Directorships. Anton van Rossum, Michel Baise and Gilbert Mittler are directors of our Company who are also currently directors and/or officers of Fortis. Service as both a director of our Company and as a director or officer of Fortis or ownership interests of directors or officers of our Company in the stock of Fortis could create or appear to create potential conflicts of interest when directors and officers are faced with decisions that could have different implications for the two companies. Our directors who are also directors or officers of Fortis will have obligations to both companies and may have conflicts of interest with respect to matters potentially or actually involving or affecting us. For example, these decisions could relate to:
| disagreement over the desirability of a potential acquisition or disposition opportunity; or | |
| corporate finance decisions. |
Allocation of Business Opportunities. Although we do not expect Fortis to compete with us in the near term, there may be business opportunities that are suitable for both Fortis and us. Fortis designees may direct such opportunities to Fortis and we may have no recourse against the Fortis designees or Fortis. We have no formal mechanisms for allocating business opportunities.
The loss of the Fortis name in Assurant Health, Assurant Employee Benefits and Assurant PreNeed may affect our profitability.
In connection with our separation from Fortis, we will change our name and the names of our business units to Assurant, Inc. and other Assurant names and launch a re-branding initiative pursuant to which we will change our brand name and most of the trademarks and trade names under which we conduct our business. The transition to our new name in each of our business segments and subsidiaries will occur rapidly in the case of some products and business segments and over specified periods in the case of other products and business segments. Under the terms of a license from Fortis, we will have only a limited amount of time to continue to use the Fortis name. Assurant Health, Assurant Employee Benefits and Assurant PreNeed have expended substantial resources to establish the Fortis name and reputation in the health, employee benefits and pre-funded funeral insurance marketplace, particularly among brokers and consultants acting as advisors in the health and benefits market and with funeral directors in the pre-funded funeral market. The impact of the change in trademarks and trade names and other changes (including, without limitation, the name change) on our business and operations cannot be fully predicted, and the lack of an established brand image for the Assurant name in the health, benefits and pre-funded funeral insurance marketplace may cause a disruption in sales and persistency and thus affect profitability. Any such disruption could also cause rating agencies to lower our financial strength and other ratings in the future. In addition, the costs of effecting the name change and branding initiative will be substantial and are currently estimated to be approximately $10 million. In certain states we may be required to notify policyholders of our name change and in certain instances new certificates may need to be issued. This might result in increased lapses of our insurance policies.
Because Fortis operates U.S. branch offices, we are subject to regulation and oversight by the Federal Reserve Board under the U.S. Bank Holding Company Act (BHCA).
Fortis Bank SA/ NV (Fortis Bank), which is a subsidiary of Fortis, obtained approval in 2002 from state banking authorities and the Federal Reserve Board to establish branch offices in Connecticut and New York. By virtue of the opening of these offices, the U.S. operations of Fortis, including our operations, became subject to the nonbanking prohibitions of Section 4 of the BHCA. In order to continue to operate its U.S. nonbanking operations, including the insurance activities conducted by our subsidiaries, Fortis notified the Federal Reserve Board of its election to be a financial holding company for purposes of the BHCA and the Federal Reserve Boards implementing regulations in Regulation Y. Pursuant to Fortis status as a financial holding company, Fortis and its subsidiaries, including our subsidiaries, are permitted to engage in nonbanking activities in the United States that are financial in nature or incidental to a financial activity as defined in Section 4(k) of the BHCA and in Regulation Y. In particular, Fortis status as a financial holding company permits Fortis to engage in the United States in both banking activities through the U.S. branches of Fortis
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| insuring, guaranteeing or indemnifying against loss, harm, damage, illness, disability or death, or providing and issuing annuities; and | |
| acting as principal, agent or broker for purposes of the foregoing. |
Fortis will continue to qualify as a financial holding company so long as Fortis Bank remains well capitalized and well managed as those terms are defined in Regulation Y. Generally, Fortis Bank will be considered well capitalized if it maintains tier 1 and total risk-based capital ratios of at least 6% and 10%, respectively, and will be considered well managed if it has received at least a satisfactory composite rating of its U.S. branch operations at its most recent examination. As a general matter, as long as Fortis controls us within the meaning of the BHCA or owns more than 5% of any class of our voting shares, the BHCA does not permit us to engage in nonfinancial activities such as manufacturing, distribution of goods and real estate development except to the extent that another exemption under the BHCA, such as the merchant banking exemption, is available. If the Federal Reserve Board were to determine that any of our existing activities were not insurance activities or not otherwise financial in nature or not incidental to such activities, or if Fortis lost and was unable to regain its financial holding company status, we could be required to restructure our operations or divest some of these operations, which could result in increased costs and reduced profitability.
The Federal Reserve Board oversees all of Fortis direct and indirect U.S. subsidiaries for compliance with the BHCA, including our Company. Our Company will be considered a subsidiary of Fortis so long as Fortis owns 25% or more of any class of our voting shares or otherwise controls us within the meaning of the BHCA. In addition, even if we are not a subsidiary of Fortis, the nonfinancial activities restrictions of the BHCA and Regulation Y (discussed above) would continue to apply so long as Fortis owned more than 5% of any class of our voting shares and another BHCA exemption, such as the merchant banking exemption, is not available.
Risks Related to Our Common Stock and This Offering
Applicable laws and our certificate of incorporation and by-laws may discourage takeovers and business combinations that our stockholders might consider in their best interests.
State laws and our certificate of incorporation and by-laws may delay, defer, prevent or render more difficult a takeover attempt that our stockholders might consider in their best interests. For instance, they may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.
State laws and our certificate of incorporation and by-laws may also make it difficult for stockholders to replace or remove our directors. These provisions may facilitate directors entrenchment which may delay, defer or prevent a change in our control, which may not be in the best interests of our stockholders.
The following provisions that will be included in our certificate of incorporation and by-laws have anti-takeover effects and may delay, defer or prevent a takeover attempt that our stockholders might consider in their best interests. In particular, our certificate of incorporation and by-laws will:
| permit our board of directors to issue one or more series of preferred stock; | |
| divide our board of directors into three classes; | |
| limit the ability of stockholders to remove directors; | |
| except for Fortis, prohibit stockholders from filling vacancies on our board of directors; | |
| prohibit stockholders from calling special meetings of stockholders and from taking action by written consent; |
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| impose advance notice requirements for stockholder proposals and nominations of directors to be considered at stockholder meetings; | |
| subject to limited exceptions, require the approval of at least two-thirds of the voting power of our outstanding capital stock entitled to vote on the matter to approve mergers and consolidations or the sale of all or substantially all of our assets; and | |
| require the approval by the holders of at least two-thirds of the voting power of our outstanding capital stock entitled to vote on the matter for the stockholders to amend the provisions of our by-laws and certificate of incorporation described in the second through seventh bullet points above and this supermajority provision. | |
In addition, Section 203 of the General Corporation Law of the State of Delaware may limit the ability of an interested stockholder to engage in business combinations with us. An interested stockholder is defined to include persons owning 15% or more of our outstanding voting stock. See Description of Share Capital for additional information on the anti-takeover measures applicable to us.
Applicable insurance laws may make it difficult to effect a change of control of our Company.
Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance commissioner of the state where the domestic insurer is domiciled. Generally, state statutes provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, 10% or more of the voting securities of the domestic insurer. However, the State of Florida, in which certain of our insurance subsidiaries are domiciled, defines control as 5% or more. Because a person acquiring 5% or more of shares of our common stock would indirectly control the same percentage of the stock of our Florida subsidiaries, the insurance change of control laws of Florida would apply to such transaction and at 10%, the laws of many other states would likely apply to such a transaction. Prior to granting approval of an application to acquire control of a domestic insurer, a state insurance commissioner will typically consider such factors as the financial strength of the applicant, the integrity of the applicants board of directors and executive officers, the applicants plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control.
Our stock and the stocks of other companies in the insurance industry are subject to stock price and trading volume volatility.
From time to time, the stock price and the number of shares traded of companies in the insurance industry experience periods of significant volatility. Company-specific issues and developments generally in the insurance industry and in the regulatory environment may cause this volatility. Our stock price may fluctuate in response to a number of events and factors, including:
| quarterly variations in operating results; | |
| natural disasters and terrorist attacks; | |
| changes in financial estimates and recommendations by securities analysts; | |
| operating and stock price performance of other companies that investors may deem comparable; | |
| press releases or publicity relating to us or our competitors or relating to trends in our markets; | |
| regulatory changes; | |
| sales of stock by insiders; and | |
| changes in our financial strength ratings. |
You may be unable to resell your shares of our common stock at or above the initial public offering price.
In addition, broad market and industry fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.
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There may not be an active trading market for shares of our common stock, which may cause our common stock to trade at a discount and make it difficult to sell the shares you purchase.
Prior to this offering, there has been no public trading market for shares of our common stock. It is possible that, after this offering, an active trading market will not develop or continue. The initial public offering price per share of our common stock will be determined by agreement among us, Fortis and the representative of the underwriters, and may not be indicative of the price at which the shares of our common stock will trade in the public market after this offering.
Sales of a substantial number of shares of our common stock following this offering may adversely affect the market price of our common stock and the issuance of additional shares will dilute all other stockholdings.
Sales of a substantial number of shares of our common stock in the public market or otherwise following this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock. After completion of this offering, we estimate that Fortis, through Fortis Insurance N.V., will own approximately 65,000,000 shares of our common stock, assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus, and assuming there is no exercise of the underwriters over-allotment option. Fortis has advised us that it intends to divest all of its shares of our common stock over a period of time, subject to the lock-up agreement referred to below. In addition, concurrently with the offering contemplated by this prospectus, we will grant Fortis Insurance N.V. and its affiliates certain demand and piggyback registration rights with respect to all of the shares of our common stock owned by them. Pursuant to these registration rights, after completion of this offering and subject to the lock-up agreement, Fortis will have the right to require us to register its shares of our common stock under the Securities Act of 1933, as amended (Securities Act) for sale into the public markets.
After completion of this offering, we estimate that there will be approximately 145,072,262 shares of our common stock outstanding, assuming an initial public offering price of $21 per share, which is the midpoint of the price range on the cover of this prospectus. Of our outstanding shares, the shares of common stock sold in this offering will be freely tradable in the public market, except for any shares sold to our affiliates, as that term is defined in Rule 144 under the Securities Act, and any other shares purchased through the directed share program, which will also be subject to 180-day lock-up agreements and certain National Association of Securities Dealers, Inc. (NASD) restrictions. In addition, our certificate of incorporation permits the issuance of up to 800,000,000 shares of common stock. After this offering, we estimate that we will have an aggregate of approximately 655,000,000 shares of our common stock authorized but unissued, assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus. Thus, we have the ability to issue substantial amounts of common stock in the future, which would dilute the percentage ownership held by the investors who purchase our shares in this offering. See Shares Eligible for Future Sale for further information regarding circumstances under which additional shares of our common stock may be sold.
We, each of our directors and officers, Fortis N.V., Fortis SA/ NV and Fortis Insurance N.V. have agreed, with limited exceptions, that we and they will not, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, during the period ending 180 days after the date of this prospectus, among other things, directly or indirectly, offer to sell, sell or otherwise dispose of any of shares of our common stock or file a registration statement with the Securities and Exchange Commission (SEC) relating to the offering of any shares of our common stock. However, in the event that either (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the lock-up restrictions, subject to certain exceptions, will continue to apply until the expiration of the 18-day period beginning on the earnings release or the occurrence of the material news or material event.
Shares registered under a registration statement on Form S-8 to be filed by us will be available for sale into the public markets, subject to the exercise of any future issued and outstanding options, if any.
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FORWARD-LOOKING STATEMENTS
Some of the statements under Prospectus Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business and elsewhere in this prospectus may contain forward-looking statements which reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as outlook, believes, expects, potential, continues, may, will, should, seeks, approximately, predicts, intends, plans, estimates, anticipates or the negative version of those words or other comparable words. Any forward-looking statements contained in this prospectus are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us, the underwriters or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include but are not limited to those described under Risk Factors. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements you read in this prospectus reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, financial condition, growth strategy and liquidity. You should specifically consider the factors identified in this prospectus that could cause actual results to differ before making an investment decision.
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USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholder. The selling stockholder will receive all net proceeds from the sale of the shares of our common stock in this offering.
DIVIDEND POLICY
Our board of directors currently intends to authorize the payment of a dividend of $0.07 per share of common stock per quarter to our stockholders of record beginning in the second quarter of 2004. Any determination to pay dividends will be at the discretion of our board of directors and will be dependent upon:
| our subsidiaries payment of dividends and/or other statutorily permissible payments to us; | |
| our results of operations and cash flows; | |
| our financial position and capital requirements; | |
| general business conditions; | |
| any legal, tax, regulatory and contractual restrictions on the payment of dividends; and | |
| any other factors our board of directors deems relevant. |
We are a holding company and, therefore, our ability to pay dividends, service our debt and meet our other obligations depends primarily on the ability of our insurance subsidiaries to pay dividends and make other statutorily permissible payments to us. Our insurance subsidiaries are subject to significant regulatory and contractual restrictions limiting their ability to declare and pay dividends. See Risk FactorsRisks Relating to Our CompanyThe inability of our subsidiaries to pay dividends to us in sufficient amounts could harm our ability to meet our obligations and pay future stockholder dividends. For the calendar year 2003, the maximum amount of dividends that our subsidiaries could pay to us under applicable laws and regulations without prior regulatory approval was approximately $290 million, of which approximately $19 million had been paid as of September 30, 2003. We expect that as a result of, among other things, statutory accounting for our businesses sold, the maximum amount of dividends our subsidiaries will be able to pay to us will be significantly lower in 2004. In addition, as part of the regulatory approval process for the acquisition of ABIG in 1999, we entered into an agreement with the Florida Insurance Department pursuant to which two of our subsidiaries, American Bankers Insurance Company (ABIC) and American Bankers Life Assurance Company (ABLAC), have agreed to limit the amount of ordinary dividends they would pay to us to an amount no greater than 50% of the amount otherwise permitted under Florida law. This agreement expires in August 2004. One of our subsidiaries, First Fortis Life Insurance Company, also entered into an agreement with the New York Insurance Department as part of the regulatory approval process for the merger of Bankers American Life Assurance Company into First Fortis Life Insurance Company in 2001 pursuant to which First Fortis Life Insurance Company has agreed not to pay any ordinary dividends to us until fiscal year 2004. For more information regarding restrictions on the payment of dividends by us and our insurance subsidiaries, including pursuant to the terms of our Series B and Series C Preferred Stock and our senior bridge credit facilities, see Regulation United States State Regulation Insurance Regulation Concerning Dividends and Statutory Accounting Practices (SAP), Description of Share Capital and Description of Indebtedness.
On May 27, 2003, we paid the holders of our Class A Common Stock a cash dividend in the aggregate amount of $139 million. We also paid dividends on our Class A Common Stock totaling $67 million in 2001.
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On September 2, 2003 and March 3, 2003, we paid the holders of our Class B Common Stock cash dividends totaling $5.6 million on each such date. We also paid dividends on our Class B Common Stock totaling $11 million in each of 2002 and 2001. On September 2, 2003 and March 3, 2003, we paid the holders of our Class C Common Stock cash dividends totaling $15.4 million and $15.3 million, respectively. We also paid dividends on our Class C Common Stock totaling $31 million in each of 2002 and 2001. In connection with the conversion of our Class B and Class C Common Stock into Common Stock, we will pay accrued dividends aggregating approximately $19 million from September 1, 2003 to the settlement date for the offer to purchase and consent solicitation, which is expected to be on or about the closing date of the offering contemplated by this prospectus.
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CORPORATE STRUCTURE AND REORGANIZATION
Assurant, Inc. is a Delaware corporation and is currently a wholly owned subsidiary of Fortis, Inc. Assurant, Inc. has had no operations and nominal financial activity and will be used solely for the purpose of the redomestication of Fortis, Inc., which is organized as a Nevada corporation and of which 100% of the outstanding common stock is currently indirectly owned by Fortis N.V. and Fortis SA/NV. Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will effectuate a merger of Fortis, Inc. with and into Assurant, Inc. for the purpose of redomesticating Fortis, Inc. in Delaware. As a result of the merger, Assurant, Inc. will be domiciled in Delaware and will be the successor to the business, operations and obligations of Fortis, Inc. After the merger, our company will use the name Assurant, Inc. The ongoing operations of Assurant, Inc. will effectively be comprised of the existing operations of Fortis, Inc. and its subsidiaries.
In connection with the merger:
| each share of the existing Class A Common Stock of Fortis, Inc. will be exchanged for 10.75882039 shares of Common Stock of Assurant, Inc.; | |
| each share of the existing Class B Common Stock of Fortis, Inc. will be exchanged for one share of Class B Common Stock of Assurant, Inc.; | |
| each share of the existing Class C Common Stock of Fortis, Inc. will be exchanged for one share of Class C Common Stock of Assurant, Inc.; | |
| each share of the existing Series B Preferred Stock of Fortis, Inc. will be exchanged for one share of Series B Preferred Stock of Assurant, Inc.; and | |
| each share of the existing Series C Preferred Stock of Fortis, Inc. will be exchanged for one share of Series C Preferred Stock of Assurant, Inc. | |
In addition, in connection with the offering contemplated by this prospectus:
| we entered into a $650 million senior bridge credit facility in December 2003 and incurred $650 million aggregate principal amount of indebtedness under the facility in connection with the repayments and redemptions described below and for general corporate purposes; | |
| we entered into a $1,100 million senior bridge credit facility in December 2003 and incurred $1,100 million aggregate principal amount of indebtedness under the facility in connection with the repayments and redemptions described below and for general corporate purposes; | |
| we will receive a $744 million capital contribution from Fortis Insurance N.V. immediately prior to or simultaneously with the closing of the offering contemplated by this prospectus and will use the proceeds of that capital contribution to repay the $650 million of outstanding indebtedness under the $650 million senior bridge credit facility and $94 million of outstanding indebtedness under the $1,100 million senior bridge credit facility, and simultaneously with the closing of the offering contemplated by this prospectus, we will also repay a portion of the $1,100 million senior bridge credit facility with $31 million in cash; | |
| we will issue shares of Common Stock of Assurant, Inc. to Fortis Insurance N.V. simultaneously with the closing of the offering contemplated by this prospectus in exchange for the $744 million capital contribution referred to above based on the public offering price of our common stock which, assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 35,428,571 shares of Common Stock of Assurant, Inc.; | |
| we redeemed the outstanding $550 million aggregate liquidation amount of 2000 trust capital securities in December 2003 at 100% of the liquidation amount thereof plus (i) accrued interest to the date of redemption and (ii) premium of approximately $73 million; | |
40
| we redeemed the outstanding $699.9 million aggregate liquidation amount of 1999 trust capital securities in December 2003 at 100% of the liquidation amount thereof plus (i) accrued interest to the date of redemption and (ii) premium of approximately $64 million; we redeemed such securities partially with the proceeds of a four-day loan for $650 million that we repaid in December 2003; | |
| we redeemed the outstanding $196.2 million aggregate liquidation amount of 1997 capital securities in January 2004 at 100% of the liquidation amount thereof plus (i) accrued interest to the date of redemption and (ii) premium of approximately $67 million; and | |
| each outstanding share of Class B Common Stock and Class C Common Stock of Assurant, Inc. issued in the merger in accordance with its terms simultaneously with the closing of the offering contemplated by this prospectus will be automatically converted into shares of Common Stock of Assurant, Inc. based on a liquidation amount of $1,000 per share divided by the public offering price of our common stock, which assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 47.619048 shares of Common Stock of Assurant, Inc. per share of Class B Common Stock and Class C Common Stock. | |
We also intend to repay the $975 million remaining principal amount to be outstanding under the $1,100 senior bridge credit facility with the proceeds of the incurrence of senior long-term indebtedness following the offering.
The purpose of the foregoing transactions is to simplify our capital structure in anticipation of becoming a public company. In addition, we redeemed our indebtedness owed to Fortis in anticipation of Fortis reducing its stock ownership in our Company. The senior bridge credit facilities were entered into in order to fund the redemptions and for general corporate purposes. We will receive the capital contribution from Fortis Insurance N.V. to repay in full the $650 million senior bridge credit facility and to reduce amounts outstanding under the $1,100 million senior bridge credit facility immediately prior to or simultaneously with the closing of the offering contemplated by this prospectus.
See Capitalization.
In connection with our separation from Fortis, we will change our name and the names of our business segments and operating subsidiaries to include the name Assurant, and we will cease using the Fortis name after a transition period. Under the terms of a license from Fortis, we will have only a limited amount of time to continue to use the Fortis name. We will launch a re-branding initiative pursuant to which we will change our brand name and most of our trademarks and trade names under which we conduct our business.
41
CAPITALIZATION
The following table sets forth our consolidated capitalization as of September 30, 2003, on an actual basis and as adjusted to give effect to the following events as if such events had occurred on September 30, 2003:
| the incurrence by us in December 2003 of $650 million aggregate principal amount of indebtedness under a senior bridge credit facility entered into by us in connection with the repayments and redemptions described below and for general corporate purposes and the subsequent repayment thereof with a portion of the proceeds of a $744 million capital contribution to be received by us from Fortis Insurance N.V. immediately prior to or simultaneously with the closing of the offering contemplated by this prospectus; | |
| the incurrence by us in December 2003 of $1,100 million aggregate principal amount of indebtedness under an additional senior bridge credit facility entered into by us in connection with the repayments and redemptions described below and for general corporate purposes and the subsequent repayment of a portion thereof with $94 million of the $744 million capital contribution referred to above and with $31 million in cash; | |
| the issuance by us of shares of Common Stock of Assurant, Inc. to Fortis Insurance N.V. simultaneously with the closing of the offering contemplated by this prospectus in exchange for the $744 million capital contribution referred to above based on the public offering price of our common stock which, assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 35,428,571 shares of Common Stock of Assurant, Inc. ; | |
| the redemption by us of the outstanding $550 million aggregate liquidation amount of 2000 trust capital securities at 100% of the liquidation amount thereof plus (i) accrued interest to the date of redemption and (ii) premium of approximately $73 million in December 2003; | |
| the redemption by us of the outstanding $699.9 million aggregate liquidation amount of 1999 trust capital securities at 100% of the liquidation amount thereof plus (i) accrued interest to the date of redemption and (ii) premium of approximately $64 million in December 2003; we redeemed such securities partially with the proceeds of a four-day loan for $650 million that we repaid in December 2003; | |
| the redemption by us of the outstanding $196.2 million aggregate liquidation amount of 1997 capital securities at 100% of the liquidation amount thereof plus (i) accrued interest to the date of redemption and (ii) premium of approximately $67 million in January 2004; | |
| the consummation of the merger described under Corporate Structure and Reorganization, which will occur immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, including the exchange in the merger of each share of Class A Common Stock of Fortis, Inc. having a par value of $0.10 per share for 10.75882039 shares of Common Stock of Assurant, Inc. having a par value of $0.01 per share; | |
| the automatic conversion of each share of Class B Common Stock and each share of Class C Common Stock issued in the merger in accordance with its terms simultaneously with the closing of the offering contemplated by this prospectus into shares of Common Stock of Assurant, Inc. based on a liquidation amount of $1,000 per share divided by the public offering price of our common stock, which assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 47.619048 shares of Common Stock of Assurant, Inc. per share of Class B Common Stock and Class C Common Stock; and | |
| the issuance by us of shares of Common Stock of Assurant, Inc. to certain of our officers and directors pursuant to stock grants to be made on the closing of the offering contemplated by this prospectus which, assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 72,262 shares of Common Stock of Assurant, Inc. | |
42
We will not receive any proceeds from the sale of shares in this offering by the selling stockholder.
You should read this table in conjunction with Selected Consolidated Financial Information and Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes that are included elsewhere in this prospectus. See also Certain Relationships and Related Transactions, Description of Share Capital and Description of Indebtedness.
As of September 30, 2003 | ||||||||||
|
||||||||||
As | ||||||||||
Actual | Adjusted | |||||||||
|
|
|||||||||
(unaudited) | ||||||||||
(in thousands, | ||||||||||
except share amounts and | ||||||||||
per share data) | ||||||||||
Cash and cash equivalents
|
$ | 441,468 | $ | 510,394 | ||||||
|
|
|||||||||
Debt Outstanding:
|
||||||||||
Long-term senior debt
|
$ | | $ | 975,000 | ||||||
Mandatorily redeemable preferred securities of
subsidiary trusts(1):
|
||||||||||
2000 trust capital securities
|
550,000 | | ||||||||
1999 trust capital securities
|
699,850 | | ||||||||
1997 capital securities
|
196,224 | | ||||||||
|
|
|||||||||
Total mandatorily redeemable preferred securities
of subsidiary trusts
|
1,446,074 | | ||||||||
|
|
|||||||||
Mandatorily redeemable preferred stock, par
value $1.00 per share, actual and as adjusted
(20,000,000 shares authorized,
actual and 200,000,000 shares authorized, as adjusted;
19,160 shares of Series B Preferred Stock and
5,000 shares of Series C Preferred Stock issued and
outstanding, actual and as adjusted)
|
24,160 | 24,160 | ||||||||
|
|
|||||||||
Stockholders Equity:
|
||||||||||
Common stock, par value $0.10 per share, actual,
and $0.01 per share, as adjusted (80,000,000 shares of
common stock authorized, actual and 800,550,002(2) shares of
common stock authorized, as adjusted):
|
||||||||||
Class A (7,750,000 shares issued and
outstanding, actual and 145,072,262, as adjusted)(3)
|
775 | 1,451 | ||||||||
Class B (150,001 shares issued and
outstanding, actual and 0, as adjusted)
|
15 | | ||||||||
Class C (400,001 shares issued and
outstanding, actual and 0, as adjusted)
|
40 | | ||||||||
Additional paid-in capital
|
2,064,025 | 2,807,404 | ||||||||
Retained earnings
|
326,602 | 194,002 | (4) | |||||||
Accumulated other comprehensive income
|
361,766 | 361,766 | ||||||||
|
|
|||||||||
Total stockholders equity
|
2,753,223 | 3,364,623 | ||||||||
|
|
|||||||||
Total Capitalization
|
$ | 4,223,457 | $ | 4,363,783 | ||||||
|
|
(1) | The proceeds from the sale of preferred securities by each of the subsidiary trusts were used by the applicable trusts to purchase our subordinated debentures, which are eliminated upon consolidation. See Certain Relationships and Related Transactions. |
(2) | The Class B and Class C Common Stock may not be reissued following the conversion. |
(3) | The Class A Common Stock of Fortis, Inc. will be exchanged for Common Stock, par value $0.01 per share, of Assurant, Inc. in connection with the merger. The figure presented in the as adjusted column refers to the Common Stock of Assurant, Inc. |
(4) | Decrease in retained earnings is attributable to after-tax premiums paid associated with the early redemption of mandatorily redeemable preferred securities of subsidiary trusts. |
43
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth our selected historical consolidated financial information for the periods ended and as of the dates indicated. Assurant, Inc. is a Delaware corporation and is currently a wholly owned subsidiary of Fortis, Inc. Assurant, Inc. has had no operations and nominal financial activity and will be used solely for the purpose of the redomestication of Fortis, Inc., which is organized as a Nevada corporation and of which 100% of the outstanding common stock is currently indirectly owned by Fortis N.V. and Fortis SA/NV. Prior to the effectiveness of the registration statement of which this prospectus forms a part, we will effectuate a merger of Fortis, Inc. with and into Assurant, Inc. for the purpose of redomesticating Fortis, Inc. in Delaware. As a result of the merger, Assurant, Inc. will be domiciled in Delaware and will be the successor to the business, operations and obligations of Fortis, Inc. After the merger, our company will use the name Assurant, Inc. The ongoing operations of Assurant, Inc. will effectively be comprised of the existing operations of Fortis, Inc. and its subsidiaries.
The selected consolidated statement of operations data for each of the five years in the period ended December 31, 2002 and the selected consolidated balance sheet data at December 31, 2002, 2001, 2000, 1999 and 1998 are derived from the audited consolidated financial statements of Fortis, Inc. and its subsidiaries, which have been prepared in accordance with GAAP. The audited consolidated financial statements of Fortis, Inc. and its subsidiaries for the three years in the period ended December 31, 2002 and at December 31, 2002 and 2001 have been included elsewhere in this prospectus. The selected consolidated statement of operations data for the nine months ended September 30, 2003 and the selected consolidated balance sheet data as of September 30, 2003 are derived from the unaudited interim financial statements of Fortis, Inc. and its subsidiaries included elsewhere in this prospectus. The unaudited interim financial statements have been prepared on the same basis as the audited consolidated financial statements of Fortis, Inc. and in our opinion, include all adjustments consisting only of normal recurring adjustments, that we consider necessary for a fair statement of our results of operations and financial condition for these periods and as of such dates. These historical results are not necessarily indicative of expected results for any future period. The results for the nine months ended September 30, 2003 are not necessarily indicative of results to be expected for the full year. You should read the following selected consolidated financial information together with the other information contained in this prospectus, including Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included elsewhere in this prospectus.
44
For the | ||||||||||||||||||||||||||||||
Nine Months Ended | ||||||||||||||||||||||||||||||
September 30, | For the Year Ended December 31, | |||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | 1999 | 1998 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
(in thousands, except share amounts and per share data) | ||||||||||||||||||||||||||||||
Selected Consolidated Statement of Operations
Data:
|
||||||||||||||||||||||||||||||
Revenues
|
||||||||||||||||||||||||||||||
Net earned premiums and other considerations
|
$ | 4,533,503 | $ | 4,217,145 | $ | 5,681,596 | $ | 5,242,185 | $ | 5,144,375 | $ | 4,508,795 | $ | 3,056,550 | ||||||||||||||||
Net investment income
|
456,608 | 472,324 | 631,828 | 711,782 | 690,732 | 590,487 | 491,947 | |||||||||||||||||||||||
Net realized gains (losses) on investments
|
14,808 | (92,407 | ) | (118,372 | ) | (119,016 | ) | (44,977 | ) | 13,616 | 88,185 | |||||||||||||||||||
Amortization of deferred gain on disposal of
businesses
|
52,235 | 59,941 | 79,801 | 68,296 | 10,284 | | | |||||||||||||||||||||||
Gain on disposal of businesses
|
| 10,672 | 10,672 | 61,688 | 11,994 | | | |||||||||||||||||||||||
Fees and other income
|
181,588 | 182,741 | 246,675 | 221,939 | 399,571 | 357,878 | 307,780 | |||||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
Total revenues
|
5,238,742 | 4,850,416 | 6,532,200 | 6,186,874 | 6,211,979 | 5,470,776 | 3,944,462 | |||||||||||||||||||||||
Benefits, losses and expenses
|
||||||||||||||||||||||||||||||
Policyholder benefits
|
2,657,193 | 2,560,851 | 3,429,145 | 3,238,925 | 3,208,054 | 3,061,488 | 2,223,113 | |||||||||||||||||||||||
Amortization of deferred acquisition costs and
value of businesses acquired
|
732,657 | 671,577 | 876,185 | 875,703 | 766,904 | 494,000 | 213,817 | |||||||||||||||||||||||
Underwriting, general and administrative expenses
|
1,367,289 | 1,244,185 | 1,738,077 | 1,620,931 | 1,801,196 | 1,649,811 | 1,270,854 | |||||||||||||||||||||||
Amortization of goodwill
|
| | | 113,300 | 106,773 | 57,717 | 12,836 | |||||||||||||||||||||||
Interest expense
|
| | | 14,001 | 24,726 | 39,893 | 33,831 | |||||||||||||||||||||||
Distributions on preferred securities of
subsidiary trusts
|
87,854 | 88,122 | 118,396 | 118,370 | 110,142 | 53,824 | 16,713 | |||||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
Total benefits, losses and expenses
|
4,844,993 | 4,564,735 | 6,161,803 | 5,981,230 | 6,017,795 | 5,356,733 | 3,771,164 | |||||||||||||||||||||||
Income before income taxes
|
393,749 | 285,681 | 370,397 | 205,644 | 194,184 | 114,043 | 173,298 | |||||||||||||||||||||||
Income taxes
|
130,464 | 86,349 | 110,657 | 107,591 | 104,500 | 57,657 | 63,939 | |||||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
Net income before cumulative effect of change in
accounting
principle |
$ | 263,285 | $ | 199,332 | $ | 259,740 | $ | 98,053 | $ | 89,684 | $ | 56,386 | $ | 109,359 | ||||||||||||||||
Cumulative effect of change in accounting
principle
|
| (1,260,939 | ) | (1,260,939 | ) | | | | | |||||||||||||||||||||
Effect of discontinued operations
|
| | | | | | (13,979 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
Net income (loss)
|
$ | 263,285 | $ | (1,061,607 | ) | $ | (1,001,199 | ) | $ | 98,053 | $ | 89,684 | $ | 56,386 | $ | 95,380 | ||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
Per Share Data:
|
||||||||||||||||||||||||||||||
Net income (loss) per share
|
$ | 31.72 | $ | (127.90 | ) | $ | (120.63 | ) | $ | 11.81 | $ | 10.93 | $ | 9.17 | $ | 19.08 | ||||||||||||||
As adjusted net income (loss) per share(1)
|
$ | 2.40 | $ | (9.69 | ) | $ | (9.14 | ) | $ | 0.89 | $ | 0.85 | $ | 0.85 | $ | 1.77 | ||||||||||||||
Weighted average of basic and diluted shares of
common stock outstanding
|
8,300,002 | 8,300,002 | 8,300,002 | 8,300,002 | 8,208,335 | 6,145,883 | 5,000,000 | |||||||||||||||||||||||
As adjusted weighted average of basic and diluted
shares of common stock outstanding(1)
|
109,571,430 | 109,571,430 | 109,571,430 | 109,571,430 | 105,206,334 | 66,122,451 | 53,794,102 | |||||||||||||||||||||||
Dividends per share:
|
||||||||||||||||||||||||||||||
Class A Common Stock(2)
|
$ | 17.98 | $ | | $ | | $ | 8.65 | $ | | $ | | $ | | ||||||||||||||||
Class B Common Stock(3)
|
74.69 | 74.69 | 74.69 | 75.44 | 37.66 | | | |||||||||||||||||||||||
Class C Common Stock(4)
|
76.68 | 76.68 | 76.68 | 77.45 | 38.65 | | |
45
At | At December 31, | |||||||||||||||||||||||
September 30, |
|
|||||||||||||||||||||||
2003(5) | 2002 | 2001 | 2000 | 1999 | 1998 | |||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
(in thousands, except share amounts and per share data) | ||||||||||||||||||||||||
Selected Consolidated Balance Sheet
Data:
|
||||||||||||||||||||||||
Cash and cash equivalents and investments
|
$ | 11,155,385 | $ | 10,578,415 | $ | 10,159,809 | $ | 10,750,554 | $ | 10,110,136 | $ | 8,027,307 | ||||||||||||
Total assets
|
22,873,297 | 22,218,009 | 24,449,877 | 24,115,139 | 22,216,730 | 14,577,790 | ||||||||||||||||||
Policy liabilities(6)
|
12,780,855 | 12,388,623 | 12,064,643 | 11,534,891 | 10,336,265 | 7,316,949 | ||||||||||||||||||
Debt
|
| | | 238,983 | 1,007,243 | 650,000 | ||||||||||||||||||
Mandatorily redeemable preferred securities of
subsidiary trusts(7)
|
1,446,074 | 1,446,074 | 1,446,074 | 1,449,738 | 899,850 | 200,000 | ||||||||||||||||||
Mandatorily redeemable preferred stock
|
24,160 | 24,660 | 25,160 | 25,160 | 22,160 | 32,160 | ||||||||||||||||||
Total stockholders equity
|
2,753,223 | 2,555,059 | 3,452,405 | 3,367,713 | 3,164,297 | 1,765,568 | ||||||||||||||||||
Per Share Data:
|
||||||||||||||||||||||||
Total book value per share(8)
|
$ | 331.71 | $ | 307.84 | $ | 415.95 | $ | 410.28 | $ | 514.86 | $ | 353.11 | ||||||||||||
As adjusted total book value per share(1)(9)
|
$ | 25.13 | $ | 23.32 | $ | 31.51 | $ | 32.01 | $ | 47.86 | $ | 32.82 |
| the exchange of each existing share of Class A Common Stock of Fortis, Inc. for 10.75882039 shares of Common Stock of Assurant, Inc. in the merger for the purpose of redomestication; and | |
| the automatic conversion of each share of Class B Common Stock and each share of Class C Common Stock issued in the merger in accordance with its terms simultaneously with the closing of the offering contemplated by this prospectus into shares of Common Stock of Assurant, Inc. based on a liquidation amount of $1,000 per share divided by the public offering price of our common stock, which assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 47.619048 shares of Common Stock of Assurant, Inc. per share of Class B Common Stock and Class C Common Stock. | |
(2) | For each of the periods (other than the year ended December 31, 1998) and dates (other than December 31, 1998) presented, 7,750,000 shares of Class A Common Stock were issued and outstanding; these shares are held by Fortis Insurance N.V., Fortis (US) Funding Partners I LP and Fortis (US) Funding Partners II LP. For the year ended December 31, 1998 and as of December 31, 1998, 5,000,000 shares of Class A Common Stock were issued and outstanding. Each existing share of Class A Common Stock of Fortis, Inc. will be exchanged for 10.75882039 shares of Common Stock of Assurant, Inc. in connection with the merger of Fortis, Inc. with and into Assurant, Inc. and accordingly, the dividends per share data presented may not be meaningful. |
(3) | For each of the periods (other than the years ended December 31, 1999 and December 31, 1998) and dates (other than December 31, 1999 and December 31, 1998) presented, 150,001 shares of Class B Common Stock were issued and outstanding, which were issued as a stock dividend; these shares are held by Fortis (US) Funding Partners I LP. No shares of Class B Common Stock were issued and outstanding for the years ended December 31, 1999 and December 31, 1998 or as of December 31, 1999 and December 31, 1998. |
(4) | For each of the periods (other than the years ended December 31, 1999 and December 31, 1998) and dates (other than December 31, 1999 and December 31, 1998) presented, 400,001 shares of Class C Common Stock were issued and outstanding, which were issued as a stock dividend; these shares are held by Fortis (US) Funding Partners II LP. No shares of Class C Common Stock were issued and outstanding for the years ended December 31, 1999 and December 31, 1998 or as of December 31, 1999 and December 31, 1998. |
(5) | This column should be read in conjunction with Capitalization to understand the significant changes expected to our balance sheet data after September 30, 2003 as a result of transactions being undertaken in connection with the offering contemplated by this prospectus. |
(6) | Policy liabilities include future policy benefits and expenses, unearned premiums and claims and benefits payable. |
(7) | The proceeds from the sale of each of these securities were used by the applicable subsidiary trusts to purchase our subordinated debentures, which are eliminated upon consolidation. See Certain Relationships and Related Transactions. |
(8) | Based on total stockholders equity divided by weighted average of basic and diluted shares of common stock outstanding. |
(9) | Based on total stockholders equity divided by as adjusted weighted average of basic and diluted shares of common stock outstanding. |
46
MANAGEMENTS DISCUSSION AND ANALYSIS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes which appear elsewhere in this prospectus. It contains forward-looking statements that involve risks and uncertainties. Please see Forward-Looking Statements for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly under the headings Risk Factors and Forward-Looking Statements.
General
We pursue a differentiated strategy of building leading positions in specialized market segments for insurance products and related services in North America and selected other markets. We provide:
| creditor-placed homeowners insurance; | |
| manufactured housing homeowners insurance; | |
| debt protection administration; | |
| credit insurance; | |
| warranties and extended service contracts; | |
| individual health and small employer group health insurance; | |
| group dental insurance; | |
| group disability insurance; | |
| group life insurance; and | |
| pre-funded funeral insurance. |
The markets we target are generally complex, have a relatively limited number of competitors and, we believe, offer attractive profit opportunities.
We report our results through five segments: Assurant Solutions, Assurant Health, Assurant Employee Benefits, Assurant PreNeed and Corporate and Other. The Corporate and Other segment includes activities of the holding company, financing expenses, realized gains (losses) on investments, interest income earned from short-term investments held and interest income from excess surplus of insurance subsidiaries not allocated to other segments. The Corporate and Other segment also includes (i) the results of operations of FFG, a business we sold on April 2, 2001, and (ii) long-term care (LTC), a business we sold on March 1, 2000, for the periods prior to their disposition, and amortization of deferred gains associated with the portions of the sales of FFG and LTC sold through reinsurance agreements as described below.
Critical Factors Affecting Results
Our profitability depends on the adequacy of our product pricing, underwriting and the accuracy of our methodology for the establishment of reserves for future policyholder benefits and claims, returns on invested assets and our ability to manage our expenses. As such, factors affecting these items may have a material adverse effect on our results of operations or financial condition.
Revenues |
We derive our revenues primarily from the sale of our insurance policies and, to a lesser extent, fee income by providing administrative services to certain clients. Sales of insurance policies are recognized in revenue as earned premiums while sales of administrative services are recognized as fee income. In late 2000, the majority of our credit insurance clients began a transition from the purchase of our credit insurance products from which we earned premium revenue to debt protection administration programs, from which we earn fee income.
Our premium and fee income is supplemented by income earned from our investment portfolio. We recognize revenue from interest payments, dividends and sales of investments. Our investment portfolio is
47
Interest rate volatility can reduce unrealized gains or create unrealized losses in our portfolios. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Fluctuations in interest rates affect our returns on, and the market value of, fixed maturity and short-term investments.
The fair market value of the fixed maturity securities in our portfolio and the investment income from these securities fluctuate depending on general economic and market conditions. The fair market value generally increases or decreases in an inverse relationship with fluctuations in interest rates, while net investment income realized by us from future investments in fixed maturity securities will generally increase or decrease with interest rates. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations. In periods of declining interest rates, mortgage prepayments generally increase and mortgage-backed securities, commercial mortgage obligations and bonds in our investment portfolio are more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates, and we may be required to reinvest those funds in lower interest-bearing investments.
In addition, Assurant PreNeed generally writes whole life insurance policies with increasing death benefits and obtains much of its profits through interest rate spreads. Interest rate spreads refer to the difference between the death benefit growth rates on pre-funded funeral insurance policies and the investment returns generated on the assets we hold related to those policies. As of September 30, 2003, approximately 82% of Assurant PreNeeds in force insurance policy reserves related to policies that provide for death benefit growth, some of which provide for minimum death benefit growth pegged to changes in the Consumer Price Index. In extended periods of declining interest rates or high inflation, there may be compression in the spread between Assurant PreNeeds death benefit growth rates and its investment earnings. As a result, declining interest rates or high inflation rates may have a material adverse effect on our results of operations and our overall financial condition.
Expenses |
Our expenses primarily consist of policyholder benefits, underwriting, general and administrative expenses, and distributions on preferred securities of subsidiary trusts.
Selling, underwriting and general expenses consist primarily of commissions, premium taxes, licenses, fees, amortization of deferred acquisition costs (DAC) and value of businesses acquired (VOBA) and general operating expenses. For a description of DAC and VOBA, see Notes 2, 17 and 18 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus.
Our profitability depends in large part on accurately predicting benefits, claims and other costs, including medical and dental costs. It also depends on our ability to manage future benefit and other costs through product design, underwriting criteria, utilization review or claims management and, in health and dental insurance, negotiation of favorable provider contracts. Changes in the composition of the kinds of work available in the economy, market conditions and numerous other factors may also materially adversely affect our ability to manage claim costs. As a result of one or more of these factors or other factors, claims could substantially exceed our expectations, which could have a material adverse effect on our business, results of operations and financial condition.
In addition, in December 2003 and January 2004, we redeemed all of the mandatorily redeemable preferred securities of subsidiary trusts for a redemption price equal to their aggregate liquidation amount plus accrued and unpaid interest to the date of redemption and aggregate premium of approximately $204 million, all of which has been expensed in the fourth quarter of 2003. We entered into the senior bridge credit facilities described under Description of Indebtedness in connection with these redemptions.
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Regulation
Legislation or other regulatory reform that increases the regulatory requirements imposed on us or that changes the way we are able to do business may significantly harm our business or results of operations in the future. For example, some states have imposed new time limits for the payment of uncontested covered claims and require health care and dental service plans to pay interest on uncontested claims not paid promptly within the required time period. Some states have also granted their insurance regulatory agencies additional authority to impose monetary penalties and other sanctions on health and dental plans engaging in certain unfair payment practices. If we were to be unable for any reason to comply with these requirements, it could result in substantial costs to us and may materially adversely affect our results of operations and financial condition.
For other factors affecting our results of operations or financial condition, see Risk Factors.
Acquisitions and Dispositions of Businesses
Our results of operations were affected by the following transactions:
On October 10, 2002, we sold the Peer Review and Analysis division (PRA) of CORE, Inc. (CORE) to MCMC, LLC, an independent provider of medical analysis services. No gain or loss was recognized on the sale of PRA.
On June 28, 2002, we sold our 50% ownership in Neighborhood Health Partnership (NHP) to NHP Holding LLC. We recorded pre-tax gains on sale of $11 million, which was included in the Corporate and Other segment.
On December 31, 2001, we acquired Protective Life Corporations Dental Benefits Division (DBD), including the acquisition through reinsurance of Protectives indemnity dental, life and disability business and its prepaid dental subsidiaries. Total revenues of $305 million and income after tax of $15 million were generated by the DBD operations for the year ended December 31, 2002. DBD is included in Assurant Employee Benefits.
On July 12, 2001, we acquired CORE, a national provider of employee absence management services. Total revenues of $31 million and income after tax of $0.2 million were generated by the CORE operations from July 12, 2001 through December 31, 2001, as compared to total revenues of $66 million and income after tax of $3 million in 2002. CORE is included in Assurant Employee Benefits.
On April 2, 2001, we sold our FFG business to The Hartford primarily through a reinsurance arrangement. Total revenues of $146 million and income after tax of $8 million were generated by the FFG operations for the three months ended March 31, 2001, compared to total revenues of $669 million and income after tax of $65 million during 2000. FFG included certain individual life insurance policies, investment-type annuity contracts and mutual fund operations. The sale of the mutual fund operations resulted in $62 million of pre-tax gains. The sale via reinsurance of the individual life insurance policies and investment-type annuity contracts resulted in $558 million of pre-tax gains, which were deferred upon closing and are being amortized over the remaining life of the contracts. All activities related to FFG are included in the Corporate and Other segment. See Critical Accounting Policies.
Prior to April 2, 2001, FFG had issued variable insurance products that are required to be registered as securities under the Securities Act. These registered insurance contracts, which we no longer sell, have been 100% reinsured with The Hartford through modified coinsurance agreements. The Hartford administers this closed block of business pursuant to a third party administration agreement. Since this block of business was sold through modified coinsurance agreements, separate account assets and separate account liabilities associated with these products continue to be reflected in our financial statements. See the line items entitled Assets held in separate accounts and Liabilities related to separate accounts in our consolidated balance sheets. The liabilities created by these variable insurance policies are tied to the performance of underlying investments held in separate accounts of the insurance company that originally issued such policies. While we own the separate account assets, the laws governing separate accounts provide that the income, gains and
49
On October 1, 2000, we acquired AMLIC, a provider of pre-funded funeral insurance products, from SCI. Total revenues of $75 million and income after tax of $5 million were generated by AMLIC from October 1, 2000 through December 31, 2000, as compared to total revenues of $353 million and income after tax of $30 million in 2001. AMLIC is included in Assurant PreNeed.
On May 11, 2000, we sold Associated California State Insurance Agencies, Inc. and Ardiel Insurance Services, Inc. (together, ACSIA), our wholly owned subsidiaries, to Conseco Corporation. ACSIA is a distributor of long-term care insurance. We recorded $12 million of pre-tax gains on the sale. Total revenues of $7 million and a loss after tax of $1 million were generated by ACSIA from January 1, 2000 through May 11, 2000. All activities related to ACSIA are included in the Corporate and Other segment.
On March 1, 2000, we sold our LTC insurance business to John Hancock. The business was sold via a 100% coinsurance agreement whereby we ceded to John Hancock substantially all assets and liabilities related to our LTC business. The transaction resulted in after-tax deferred gains of approximately $34 million, which is being amortized over the remaining lives of the related contracts. Total revenues of $25 million and income after tax of $5 million were generated by our LTC business from January 1, 2000 through March 1, 2000. All activities related to LTC are included in the Corporate and Other segment.
Comparing our results from period to period requires taking into account these acquisitions and dispositions. For a more detailed description of these acquisitions and dispositions, see Notes 3 and 4 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus.
Critical Accounting Policies
There are certain accounting policies that we consider to be critical due to the amount of judgment and uncertainty inherent in the application of those policies. In calculating financial statement estimates, the use of different assumptions could produce materially different estimates. In addition, if factors such as those described above or in Risk Factors cause actual events to differ from the assumptions used in applying the accounting policies and calculating financial estimates, there could be a material adverse effect on our results of operations, financial condition and liquidity.
We believe the following critical accounting policies require significant estimates which, if such estimates are not materially correct, could affect the preparation of our consolidated financial statements.
Premiums
Short Duration Contracts |
Our short duration contracts are those on which we recognize revenue on a pro rata basis over the contract term. Our short duration contracts primarily include:
| group term life; | |
| group disability; | |
| medical and dental; | |
| property; | |
| credit insurance; and | |
| warranties and extended service contracts. |
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Long Duration Contracts |
Currently, our long duration contracts being sold are pre-funded funeral life insurance and investment-type annuities. For pre-funded funeral life insurance policies, any excess of the gross premium over the net premium is deferred and is recognized in income in a constant relationship with the insurance in force. For pre-funded funeral investment-type annuity contracts, revenues consist of charges assessed against policy balances.
For traditional life insurance contracts sold by Assurant PreNeed that are no longer offered, revenue is recognized when due from policyholders.
For universal life insurance and investment-type annuity contracts sold by Assurant Solutions that are no longer offered, revenues consist of charges assessed against policy balances.
Premiums for LTC insurance and traditional life insurance contracts within FFG are recognized as revenue when due from the policyholder. For universal life insurance and investment-type annuity contracts within FFG, revenues consist of charges assessed against policy balances. For the FFG and LTC businesses previously sold, all revenue is ceded to The Hartford and John Hancock, respectively.
Reinsurance Assumed |
Reinsurance premiums assumed are calculated based upon payments received from ceding companies together with accrual estimates which are based on both payments received and in force policy information received from ceding companies. Any subsequent differences arising on such estimates are recorded in the period in which they are determined.
Fee Income
We derive income from fees received from providing administration services. Fee income is earned when services are performed.
Reserves
Reserves are established according to generally accepted actuarial principles and are based on a number of factors. These factors include experience derived from historical claim payments and actuarial assumptions to arrive at loss development factors. Such assumptions and other factors include trends, the incidence of incurred claims, the extent to which all claims have been reported and internal claims processing charges. The process used in computing reserves cannot be exact, particularly for liability coverages, since actual claim costs are dependent upon such complex factors as inflation, changes in doctrines of legal liability and damage awards. The methods of making such estimates and establishing the related liabilities are periodically reviewed and updated.
Reserves, whether calculated under GAAP or statutory accounting principles, do not represent an exact calculation of exposure, but instead represent our best estimates, generally involving actuarial projections at a given time, of what we expect the ultimate settlement and administration of a claim or group of claims will cost based on our assessment of facts and circumstances then known. The adequacy of reserves will be impacted by future trends in claims severity, frequency, judicial theories of liability and other factors. These variables are affected by both external and internal events, such as:
| changes in the economic cycle; | |
| changes in the social perception of the value of work; | |
| emerging medical perceptions regarding physiological or psychological causes of disability; | |
| emerging health issues and new methods of treatment or accommodation; | |
| inflation; | |
| judicial trends; |
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| legislative changes; and | |
| claims handling procedures. |
Many of these items are not directly quantifiable, particularly on a prospective basis. Reserve estimates are refined as experience develops. Adjustments to reserves, both positive and negative, are reflected in the statement of operations of the period in which such estimates are updated. Because establishment of reserves is an inherently uncertain process involving estimates of future losses, there can be no certainty that ultimate losses will not exceed existing claims reserves. Future loss development could require reserves to be increased, which could have a material adverse effect on our earnings in the periods in which such increases are made.
Short Duration Contracts |
For short duration contracts, claims and benefits payable reserves are recorded when insured events occur. The liability is based on the expected ultimate cost of settling the claims. The claims and benefits payable reserves include (1) case base reserves for known but unpaid claims as of the balance sheet date; (2) incurred but not reported (IBNR) reserves for claims where the insured event has occurred but has not been reported to us as of the balance sheet date; and (3) loss adjustment expense reserves for the expected handling costs of settling the claims.
For group disability, the case base reserves and the IBNR are recorded at an amount equal to the net present value of the expected claims future payments. Group long-term disability reserves are discounted to the valuation date at the valuation interest rate. The valuation interest rate is determined by taking into consideration actual and expected earned rates on our asset portfolio, with adjustments for investment expenses and provisions for adverse deviation. In July 2003, the valuation interest rate was lowered to 5.25% from 6% for group long-term disability and raised to 5.25% from 3.5% for group life waiver of premium reserves. Group long-term disability and group life waiver of premium reserves are discounted because the payment pattern and ultimate cost are fixed and determinable on an individual claim basis.
Unearned premium reserves are maintained for the portion of the premiums on short duration contracts that is related to the unexpired period of the policy.
We have exposure to asbestos, environmental and other general liability claims arising from our participation in various reinsurance pools from 1971 through 1983. This exposure arose from a short duration contract that we discontinued writing many years ago. We carried case reserves for these liabilities as recommended by the various pool managers and bulk reserves for IBNR of $40 million (before reinsurance) and $39 million (after reinsurance) in the aggregate at December 31, 2002. Any estimation of these liabilities is subject to greater than normal variation and uncertainty due to the general lack of sufficiently detailed data, reporting delays and absence of a generally accepted actuarial methodology for those exposures. There are significant unresolved industry legal issues, including such items as whether coverage exists and what constitutes an occurrence. In addition, the determination of ultimate damages and the final allocation of losses to financially responsible parties are highly uncertain. However, based on information currently available, and after consideration of the reserves reflected in the financial statements, we believe that any changes in reserve estimates for these claims are not reasonably likely to be material. Asbestos, environmental and other general liability claim payments, net of reinsurance recoveries, were $1.4 million, $2.2 million and $2.1 million for the years ended December 31, 2002, 2001 and 2000, respectively.
One of our subsidiaries, American Reliable Insurance Company (ARIC), participated in certain excess of loss reinsurance programs in the London market and, as a result, reinsured certain personal accident, ransom and kidnap insurance risks from 1995 to 1997. ARIC and a foreign affiliate ceded a portion of these risks to other reinsurers (retrocessionaires). ARIC ceased reinsuring such business in 1997. However, certain risks continued beyond 1997 due to the nature of the reinsurance contracts written. ARIC and some of the other reinsurers involved in the programs are seeking to avoid certain treaties on various grounds, including material misrepresentation and non-disclosure by the ceding companies and intermediaries involved in the programs. Similarly, some of the retrocessionaires are seeking avoidance of certain treaties with ARIC and the other reinsurers and some reinsureds are seeking collection of disputed balances under some of the treaties. The disputes generally involve multiple layers of reinsurance, and allegations that the reinsurance programs
52
Long Duration Contracts |
Future policy benefits and expense reserves on LTC, life insurance policies and annuity contracts that are no longer offered, individual medical and the traditional life insurance contracts within FFG are recorded at the present value of future benefits to be paid to policyholders and related expenses less the present value of the future net premiums. These amounts are estimated and include assumptions as to the expected investment yield, inflation, mortality, morbidity and withdrawal rates as well as other assumptions that are based on our experience. These assumptions reflect anticipated trends and include provisions for possible unfavorable deviations.
Future policy benefits and expense reserves for pre-funded funeral investment-type annuities, universal life insurance policies and investment-type annuity contracts that are no longer offered, and the variable life insurance and investment-type annuity contracts in FFG consist of policy account balances before applicable surrender charges and certain deferred policy initiation fees that are being recognized in income over the terms of the policies. Policy benefits charged to expense during the period include amounts paid in excess of policy account balances and interest credited to policy account balances.
Future policy benefits and expense reserves for pre-funded funeral life insurance contracts are recorded as the present value of future benefits to policyholders and related expenses less the present value of future net premiums. Reserve assumptions are selected using best estimates for expected investment yield, inflation, mortality and withdrawal rates. These assumptions reflect current trends, are based on Company experience and include provision for possible unfavorable deviation. An unearned premium reserve is also recorded for these contracts which represents the balance of the excess of gross premiums over net premiums that is still to be recognized in future years income in a constant relationship to insurance in force.
Deferred Acquisition Costs (DAC)
The costs of acquiring new business that vary with and are primarily related to the production of new business have been deferred to the extent that such costs are deemed recoverable from future premiums or gross profits. Acquisition costs primarily consist of commissions, policy issuance expenses, premium tax and certain direct marketing expenses.
A premium deficiency is recognized immediately by a charge to the statement of operations as a reduction of DAC to the extent that future policy premiums, including anticipation of interest income, are not adequate to recover all DAC and related claims, benefits and expenses. If the premium deficiency is greater than unamortized DAC, a liability will be accrued for the excess deficiency.
Short Duration Contracts |
DAC relating to property contracts, warranty and extended service contracts and single premium credit insurance contracts are amortized over the term of the contracts in relation to premiums earned.
Acquisition costs relating to monthly pay credit insurance business consist mainly of direct marketing costs and are deferred and amortized over the estimated average terms of the underlying contracts.
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Acquisition costs on small group medical, group term life and group disability consist primarily of commissions to agents and brokers, which are level, and compensation to representatives, which is spread out and is not front-end loaded. These costs do not vary with the production of new business. As a result, these costs are not deferred but rather are recorded in the statement of operations in the period in which they are incurred.
Long Duration Contracts |
Acquisition costs for pre-funded funeral life insurance policies and life insurance policies no longer offered are deferred and amortized in proportion to anticipated premiums over the premium-paying period.
For pre-funded funeral investment-type annuities and universal life insurance policies and investment-type annuity contracts that are no longer offered, DAC is amortized in proportion to the present value of estimated gross margins or profits from investment, mortality, expense margins and surrender charges over the estimated life of the policy or contract. The assumptions used for the estimates are consistent with those used in computing the policy or contract liabilities.
Acquisition costs relating to individual medical contracts are deferred and amortized over the estimated average terms of the underlying contracts. These acquisition costs relate to commissions and policy issuance expenses. Commissions represent the majority of deferred costs and result from commission schedules that pay significantly higher rates in the first year. The majority of deferred policy issuance expenses are the costs of separately underwriting each individual medical contract.
Acquisition costs on the FFG and LTC disposed businesses were written off when the businesses were sold.
Investments
We regularly monitor our investment portfolio to ensure that investments that may be other than temporarily impaired are identified in a timely fashion and properly valued and that any impairments are charged against earnings in the proper period. Our methodology to identify potential impairments requires professional judgment.
Changes in individual security values are monitored on a semi-monthly basis in order to identify potential problem credits. In addition, pursuant to our impairment process, each month the portfolio holdings are screened for securities whose market price is equal to 85% or less of their original purchase price. Management then makes their assessment as to which of these securities are other than temporarily impaired. Assessment factors include, but are not limited to, the financial condition and rating of the issuer, any collateral held and the length of time the market value of the security has been below cost. Each month the watchlist is discussed at a meeting attended by members of our investment, accounting and finance departments. Each quarter any security whose price decrease is deemed to have been other than temporarily impaired is written down to its then current market level, with the amount of the writedown reflected in our statement of operations for that quarter. Previously impaired issues are also monitored monthly, with additional writedowns taken quarterly if necessary.
Inherently, there are risks and uncertainties involved in making these judgments. Changes in circumstances and critical assumptions such as a continued weak economy, a more pronounced economic downturn or unforeseen events which affect one or more companies, industry sectors or countries could result in additional writedowns in future periods for impairments that are deemed to be other-than-temporary. See also Investments in Note 2 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus.
Reinsurance |
Reinsurance recoverables include amounts related to paid benefits and estimated amounts related to unpaid policy and contract claims, future policyholder benefits and policyholder contract deposits. The cost of reinsurance is accounted for over the terms of the underlying reinsured policies using assumptions consistent
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Other Accounting Policies |
For a description of other accounting policies applicable to the periods covered by this prospectus, see Note 2 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus.
New Accounting Standard |
On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (FAS 142). As of our adoption of FAS 142, we ceased amortizing goodwill. In addition, we were required to subject our goodwill to an initial impairment test. As a result of FAS 142, we are required to conduct impairment testing on an annual basis and between annual tests if an event occurs or circumstances change indicating a possible goodwill impairment. In the absence of an impairment event, our net income will be higher as a result of not having to amortize goodwill.
As a result of this initial impairment test, we recognized a non-cash goodwill impairment charge of $1,261 million. The impairment charge was recorded as a cumulative effect of a change in accounting principle as of January 1, 2002. The impairment charge had no impact on cash flows or the statutory-basis capital and surplus of our insurance subsidiaries. We also performed a January 1, 2003 impairment test during the six months ended June 30, 2003 and concluded that goodwill was not further impaired.
See New Accounting Pronouncements in Note 2 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus for a description of additional new accounting standards that are applicable to us.
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Results of Operations
Consolidated Overview
The table below presents information regarding
our consolidated results of operations:
For the
Nine Months
Ended
For the
September 30,
Year Ended December 31,
2003
2002
2002
2001
2000
(in millions)
$
4,534
$
4,217
$
5,681
$
5,242
$
5,144
457
472
632
712
691
15
(92
)
(118
)
(119
)
(45
)
52
60
80
68
10
11
11
62
12
181
182
246
222
400
5,239
4,850
6,532
6,187
6,212
(2,657
)
(2,561
)
(3,429
)
(3,239
)
(3,208
)
(2,100
)
(1,916
)
(2,615
)
(2,497
)
(2,568
)
(113
)
(107
)
(14
)
(25
)
(88
)
(88
)
(118
)
(118
)
(110
)
(4,845
)
(4,565
)
(6,162
)
(5,981
)
(6,018
)
394
285
370
206
194
(131
)
(86
)
(110
)
(108
)
(104
)
263
199
260
98
90
(1,261
)
(1,261
)
$
263
$
(1,062
)
$
(1,001
)
$
98
$
90
(1) | Includes amortization of DAC and VOBA and underwriting, general and administrative expenses. |
Note: | The table above includes amortization of goodwill in 2001 and 2000 and the cumulative effect of change in accounting principle in 2002 and for the nine months ended September 30, 2002. These items are only included in this Consolidated Overview. As a result, the tables presented under the segment discussions do not total to the same amounts shown on this consolidated overview table. See Note 19 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus. |
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002 |
Total Revenues
Total revenues increased by $389 million, or 8%, from $4,850 million for the nine months ended September 30, 2002, to $5,239 million for the nine months ended September 30, 2003.
Net earned premiums and other considerations increased by $317 million, or 8%, from $4,217 million for the nine months ended September 30, 2002, to $4,534 million for the nine months ended September 30, 2003, primarily due to increases in net earned premiums in Assurant Solutions and Assurant Health. Net earned premiums increased by $223 million, or 15%, in Assurant Solutions and $111 million, or 8%, in Assurant
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Net investment income decreased by $15 million, or 3%, from $472 million for the nine months ended September 30, 2002 to $457 million for the nine months ended September 30, 2003. The decrease was primarily due to a decrease in achieved investment yields driven by the lower interest rate environment. The yield on average invested assets was 6% (annualized) for the nine months ended September 30, 2003, as compared to 6% (annualized) for the nine months ended September 30, 2002.
Net realized gains on investments improved by $107 million from net realized losses on investments of $92 million for the nine months ended September 30, 2002, to net realized gains of $15 million for the nine months ended September 30, 2003. Net realized gains/losses on investments are comprised of both other-than-temporary impairments and realized capital gains/ losses on sales of securities. For the nine months ended September 30, 2003, we had other-than-temporary impairments of $17 million, as compared to $57 million for the nine months ended September 30, 2002. There were no individual impairments in excess of $10 million for the nine months ended September 30, 2003. Impairments on available for sale securities in excess of $10 million during the nine months ended September 30, 2002 consisted of a $12 million writedown of fixed maturity investments in AT&T Canada Inc. (AT&T Canada), an $11 million writedown of fixed maturity investments in MCI WorldCom Inc. (MCI WorldCom) and an $18 million writedown of fixed maturity investments in NRG Energy Inc. (NRG Energy). Excluding the effect of other-than-temporary impairments, we recorded an increase in net realized gains of $67 million in the Corporate and Other segment.
Amortization of deferred gain on disposal of businesses decreased by $8 million, or 13%, from $60 million for the nine months ended September 30, 2002, to $52 million for the nine months ended September 30, 2003. The decrease was consistent with the run-off of the business ceded to The Hartford and John Hancock.
Gain on disposal of businesses decreased by $11 million, or 100%, from $11 million for the nine months ended September 30, 2002. On June 28, 2002, we sold our investment in NHP, which resulted in pre-tax gains of $11 million for the nine months ended September 30, 2002.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased by $280 million, or 6%, from $4,565 million for the nine months ended September 30, 2002, to $4,845 million for the nine months ended September 30, 2003.
Policyholder benefits increased by $96 million, or 4%, from $2,561 million for the nine months ended September 30, 2002, to $2,657 million for the nine months ended September 30, 2003. The increase was primarily due to increases of $87 million, $56 million and $3 million in Assurant Solutions, Assurant Health and Assurant PreNeed, respectively, offset by a $50 million decrease in Assurant Employee Benefits.
Selling, underwriting and general expenses increased by $184 million, or 10%, from $1,916 million for the nine months ended September 30, 2002, to $2,100 million for the nine months ended September 30, 2003. The increase was primarily due to increases of $141 million, $29 million and $9 million in Assurant Solutions, Assurant Health, and Assurant PreNeed, respectively. The increase in Assurant Solutions was primarily due to growth in warranty and extended service contract products. The increase in Assurant Health was primarily due to amortization of DAC related to higher sales from individual health insurance products.
Distributions on preferred securities of subsidiary trusts during the nine months ended September 30, 2003 remained unchanged from the comparable prior year period at $88 million.
Net Income
Net income increased by $1,325 million from a loss of $1,062 million for the nine months ended September 30, 2002 to a profit of $263 million for the nine months ended September 30, 2003.
Income taxes increased by $45 million, or 52%, from $86 million for the nine months ended September 30, 2002, to $131 million for the nine months ended September 30, 2003. The effective tax rate for the nine months ended September 30, 2002 was 30% compared to 33% for the nine months ended September 30, 2003. During the nine months ended September 30, 2002, we recognized the release of
57
A cumulative effect (expense) of changes in accounting principles of $1,261 million was recognized for the nine months ended September 30, 2002, as compared to $0 recognized for the nine months ended September 30, 2003. Effective January 1, 2002, we adopted FAS 142, pursuant to which we ceased amortization of goodwill. See Critical Accounting Policies New Accounting Standard and Note 2 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus for a discussion of this new accounting standard.
Year Ended December 31, 2002 Compared to December 31, 2001 |
Total Revenues |
Total revenues increased by $345 million, or 6%, from $6,187 million in 2001 to $6,532 million in 2002.
Net earned premiums and other considerations increased by $439 million, or 8%, from $5,242 million in 2001 to $5,681 million in 2002. Excluding the effect of the various acquisitions and dispositions described above, net earned premiums and other considerations increased mainly due to strong growth in Assurant Solutions primarily as a result of growth in new business and in Assurant PreNeed primarily due to an increase in the average size of policies sold by the AMLIC division.
Net investment income decreased by $80 million, or 11%, from $712 million in 2001 to $632 million in 2002. The decrease was primarily due to a decrease in achieved investment yields, driven by the lower interest rate environment and a decrease in average invested assets of $290 million. The yield on average invested assets was 6.27% for the year ended December 31, 2002 as compared to 6.86% for the year ended December 31, 2001. This reflected lower yields on fixed maturity securities and commercial mortgages.
Net realized losses on investments decreased by $1 million, or 1%, from $119 million in 2001 to $118 million in 2002. In 2002, we had other-than-temporary impairments of $85 million, as compared to $78 million in 2001. Impairments of available for sale securities in excess of $10 million in 2002 consisted of an $18 million writedown of fixed maturity investments in NRG Energy, a $12 million writedown of fixed maturity investments in AT&T Canada and an $11 million writedown of fixed maturity investments in MCI WorldCom. Impairments of available for sale securities in excess of $10 million in 2001 consisted of a $22 million writedown of fixed maturity investments in Enron Corp. (Enron).
Amortization of deferred gain on disposal of businesses increased by $12 million, or 18%, from $68 million in 2001 to $80 million in 2002. The increase was primarily due to a full year of amortization of the deferred gain on the sale of FFG as compared to nine months of amortization in 2001. This deferred gain on sale is discussed in more detail under Corporate and Other below.
Gain on disposal of businesses decreased by $51 million, or 82%, from $62 million in 2001 to $11 million in 2002. The $62 million reflects the gain on the sale of FFGs mutual fund operations. The $11 million reflected the pre-tax gain on the sale of NHP.
Fees and other income increased by $24 million, or 11%, from $222 million in 2001 to $246 million in 2002. The increase was primarily due to a full year of fee income from CORE and an increase in fee income from Assurant Solutions, mainly from their credit insurance business transitioning to debt protection administration. In late 2000, the majority of Assurant Solutions credit insurance clients began a transition from use of our credit insurance products to debt protection administration programs, from which we earn fee income rather than net earned premiums and where margins are lower than in the traditional credit insurance programs. However, because debt protection administration is not an insurance product, certain costs such as regulatory costs and cost of capital are expected to be eliminated as the transition from credit insurance to debt protection administration services continues. The fees from debt protection administration did not fully compensate for the decrease in credit insurance premiums. See BusinessOperating Business SegmentsAssurant SolutionsConsumer Protection Solutions. The increases were partially offset by a $42 million, or 63%, decrease from the Corporate and Other segment due to the sale of FFG (partially through reinsurance), which had $65 million of fee income (generated from mutual fund operations included in such sale) in the first quarter of 2001.
58
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses increased by $181 million, or 3%, from $5,981 million in 2001 to $6,162 million in 2002.
Policyholder benefits increased by $190 million, or 6%, from $3,239 million in 2001 to $3,429 million in 2002. The increase was primarily due to the effects of the acquisitions and dispositions described above. The increases were also partially offset by a $84 million, or 6%, decrease from Assurant Health, primarily due to higher mix of individual health insurance business, which generally has a lower expected loss ratio relative to small employer group business, disciplined pricing and product design changes.
Selling, underwriting and general expenses increased by $118 million, or 5%, from $2,497 million in 2001 to $2,615 million in 2002. Assurant Employee Benefits contributed $106 million of this increase, primarily due to the DBD and CORE acquisitions. This increase was offset by a $65 million decrease in the Corporate and Other segment due to the sale of FFG. Selling, underwriting and general expenses in Assurant Health increased by $50 million, primarily due to an increase in the amortization of DAC and due to costs associated with higher employee compensation and investments in technology. Also, selling, underwriting and general expenses in Assurant PreNeed increased by $22 million, primarily due to increase in amortization of DAC and VOBA as a result of an increase in sales of single pay policies and increases in general expenses.
Amortization of goodwill was $0 in 2002 compared to $113 million in 2001, as a result of our adoption of FAS 142 as described above.
Interest expense decreased from $14 million in 2001 to $0 in 2002. In April 2001, we used a portion of the FFG sale proceeds to repay $225 million of outstanding debt owed to Fortis Finance N.V. (Fortis Finance), a wholly owned subsidiary of Fortis.
Distributions on preferred securities of subsidiary trusts in 2002 remained unchanged from 2001 at $118 million.
Net Income |
Net income decreased by $1,099 million from a profit of $98 million in 2001 to a loss of $1,001 million in 2002.
Income taxes increased by $2 million, or 2%, from $108 million in 2001 to $110 million in 2002. The effective tax rate for 2002 was 29.7% compared to 52.4% in 2001. The change in the effective tax rate primarily related to the elimination of amortization of goodwill in 2002.
When we adopted FAS 142 in 2002, we recognized a cumulative effect (expense) of change in accounting principle of $1,261 million in 2002 as compared to $0 recognized in 2001.
Year Ended December 31, 2001 Compared to December 31, 2000 |
Total Revenues |
Total revenues decreased by $25 million, or 0.4%, from $6,212 million in 2000 to $6,187 million in 2001.
Net earned premiums and other considerations increased by $98 million, or 2%, from $5,144 million in 2000 to $5,242 million in 2001. Excluding the $42 million increase as a result of the acquisitions and dispositions described above, net earned premiums and other considerations increased by $56 million due to a $126 million increase at Assurant Solutions in 2001, a $23 million increase in 2001 in dental products issued by Assurant Employee Benefits and a $13 million increase at Assurant PreNeed. Offsetting these increases was a $129 million decrease in 2001 in net earned premiums and other considerations in Assurant Health due to declining membership in its small employer group health insurance product line.
Net investment income increased by $21 million, or 3%, from $691 million in 2000 to $712 million in 2001. The increase was primarily due to an increase in investment yields in 2001. The yield on average invested assets and cash was 6.86% for the year ended December 31, 2001, compared to 6.55% for the year ended December 31, 2000. This reflected higher yields on fixed maturity securities and commercial mortgage loans due in part to a higher interest rate environment.
59
Net realized losses on investments increased by $74 million, or 164%, from $45 million in 2000 to $119 million in 2001. In 2001, we had other-than-temporary impairments on fixed maturity securities of $78 million, as compared to $5 million in 2000. Impairments of available for sale securities in excess of $10 million in 2001 consisted of a $22 million writedown of fixed maturity investments in Enron.
Amortization of deferred gains on disposal of businesses increased by $58 million, from $10 million in 2000 to $68 million in 2001, mainly due to the recognition of nine months of amortization of the FFG deferred gain compared to $0 in 2000.
Gain on disposal of business increased by $50 million from $12 million in 2000 to $62 million in 2001. The increase was due to $62 million of gains recognized on the sale of FFGs mutual fund management operations in 2001, as compared to $12 million of gains recognized on the sale of ACSIA in 2000.
Fees and other income decreased by $178 million, or 45%, from $400 million in 2000 to $222 million in 2001. Excluding the $211 million decrease as a result of the acquisitions and dispositions described above, fees and other income increased by $33 million largely as a result of increased fees generated by our mortgage servicing business and fees from administering debt protection programs in Assurant Solutions.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses decreased by $37 million, or less than 1%, from $6,018 million in 2000 to $5,981 million in 2001.
Policyholder benefits increased by $31 million, or 1%, from $3,208 million in 2000 to $3,239 million in 2001. Excluding the $11 million decrease as a result of the acquisitions and dispositions described above, policyholder benefits increased by $42 million due to a $115 million increase in policyholder benefits at Assurant Solutions as a result of growth in its business. Assurant Employee Benefits contributed an additional increase in policyholder benefits of $36 million due to corresponding growth in its dental and disability product businesses. Offsetting these increases was a $192 million decrease in policyholder benefits in Assurant Health as a result of improved loss experience and decreases in its small employer group health insurance business.
Selling, underwriting and general expenses decreased by $71 million, or 3%, from $2,568 million in 2000 to $2,497 million in 2001. Excluding the $216 million decrease as a result of the acquisitions and dispositions described above, selling, underwriting and general expenses increased by $145 million, mainly due to a $140 million increase in selling, underwriting and general expenses at Assurant Solutions attributable to additional commission expenses associated with growth in sales of its warranty and extended service contract products and a $25 million increase at Assurant Health primarily due to additional spending to achieve loss ratio improvements, investments in technology and higher employee compensation. The Corporate and Other segment offset the increase by $43 million, primarily due to two months of selling, underwriting and general expenses in 2000 associated with our LTC operations which were sold to John Hancock on March 1, 2000.
Amortization of goodwill increased by $6 million, or 6%, from $107 million in 2000 to $113 million in 2001.
Interest expense decreased by $11 million, or 44%, from $25 million in 2000 to $14 million in 2001 mainly due to less debt outstanding during 2001 compared to 2000. In April 2001, we used a portion of the FFG sale proceeds to repay $225 million of debt owed to Fortis Finance.
Distributions on preferred securities of subsidiary trusts increased by $8 million, or 7%, from $110 million in 2000 to $118 million in 2001, mainly due to twelve months of interest related to trust originated preferred securities, which were issued in March 2000.
Net Income |
Net income increased by $8 million, or 9%, from $90 million in 2000 to $98 million in 2001.
Income taxes increased by $4 million, or 4%, from $104 million in 2000 to $108 million in 2001. The increase was consistent with the 6% increase in income before income taxes.
60
Assurant Solutions |
Overview |
The table below presents information regarding Assurant Solutions results of operations:
For the | ||||||||||||||||||||||
Nine Months | ||||||||||||||||||||||
Ended | For the | |||||||||||||||||||||
September 30, | Year Ended December 31, | |||||||||||||||||||||
|
|
|||||||||||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | ||||||||||||||||||
|
|
|
|
|
||||||||||||||||||
(in millions) | ||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||
Net earned premiums and other considerations
|
$ | 1,737 | $ | 1,514 | $ | 2,077 | $ | 1,906 | $ | 1,780 | ||||||||||||
Net investment income
|
142 | 153 | 205 | 218 | 212 | |||||||||||||||||
Fees and other income
|
99 | 88 | 119 | 98 | 68 | |||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Total revenues
|
1,978 | 1,755 | 2,401 | 2,222 | 2,060 | |||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Benefits, losses and expenses:
|
||||||||||||||||||||||
Policyholder benefits
|
(632 | ) | (545 | ) | (755 | ) | (640 | ) | (525 | ) | ||||||||||||
Selling, underwriting and general expenses
|
(1,200 | ) | (1,059 | ) | (1,449 | ) | (1,444 | ) | (1,304 | ) | ||||||||||||
|
|
|
|
|
||||||||||||||||||
Total benefits, losses and expenses
|
(1,832 | ) | (1,604 | ) | (2,204 | ) | (2,084 | ) | (1,829 | ) | ||||||||||||
|
|
|
|
|
||||||||||||||||||
Segment income before income tax
|
146 | 151 | 197 | 138 | 231 | |||||||||||||||||
Income taxes
|
(46 | ) | (50 | ) | (65 | ) | (40 | ) | (76 | ) | ||||||||||||
|
|
|
|
|
||||||||||||||||||
Segment income after tax
|
$ | 100 | $ | 101 | $ | 132 | $ | 98 | $ | 155 | ||||||||||||
|
|
|
|
|
||||||||||||||||||
Net earned premiums and other considerations
by major product groupings:
|
||||||||||||||||||||||
Specialty Property Solutions(1)
|
$ | 527 | $ | 411 | $ | 552 | $ | 452 | $ | 413 | ||||||||||||
Consumer Protection Solutions(2)
|
1,210 | 1,103 | 1,525 | 1,454 | 1,367 | |||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Total
|
$ | 1,737 | $ | 1,514 | $ | 2,077 | $ | 1,906 | $ | 1,780 | ||||||||||||
|
|
|
|
|
(1) | Specialty Property Solutions includes a variety of specialized property insurance programs that are coupled with unique administrative capabilities. |
(2) | Consumer Protection Solutions includes an array of debt protection administration services, credit insurance programs and warranties and extended service contracts. |
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002 |
Total Revenues |
Total revenues increased by $223 million, or 13%, from $1,755 million for the nine months ended September 30, 2002, to $1,978 million for the nine months ended September 30, 2003.
Net earned premiums and other considerations increased by $223 million, or 15%, from $1,514 million for the nine months ended September 30, 2002, to $1,737 million for the nine months ended September 30, 2003. This increase was primarily due to $116 million of additional net earned premiums and other considerations attributable to our special property solutions products, including approximately $97 million from our creditor-placed and voluntary homeowners insurance and manufactured housing homeowners insurance lines as a result of new clients and increased sales through growth in existing clients. Consumer protection solutions also contributed $107 million of growth in net earned premiums and other considerations primarily from growth in our warranty and extended service contracts business.
Net investment income decreased by $11 million, or 7%, from $153 million for the nine months ended September 30, 2002 to $142 million for the nine months ended September 30, 2003. The average portfolio
61
Fees and other income increased by $11 million, or 13%, from $88 million for the nine months ended September 30, 2002, to $99 million for the nine months ended September 30, 2003, primarily from the continuing transition of our credit insurance business to our debt protection administration business.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses increased by $228 million, or 14%, from $1,604 million for the nine months ended September 30, 2002, to $1,832 million for the nine months ended September 30, 2003.
Policyholder benefits increased by $87 million, or 16%, from $545 million for the nine months ended September 30, 2002 to $632 million for the nine months ended September 30, 2003. This increase was due in part to a growth in our specialty property solutions products, including our creditor-placed and voluntary homeowners insurance and our manufactured housing homeowners insurance lines and approximately $18 million in losses attributable to Hurricane Isabel and the Midwest hail storms and tornadoes. Our consumer protection products also contributed $29 million in cost and losses, primarily related to the increase in business from our warranty and extended service contracts business.
Selling, underwriting and general expenses increased by $141 million, or 13%, from $1,059 million for the nine months ended September 30, 2002, to $1,200 million for the nine months ended September 30, 2003. Commissions, taxes, licenses and fees increased by $128 million primarily due to an additional $89 million of commissions, taxes, licenses and fees in our consumer protection solutions products, primarily warranty and extended service contract products and an additional $38 million of commissions, taxes, licenses and fees in our specialty property solutions products, primarily the manufactured housing homeowners insurance and creditor-placed and voluntary homeowners insurance lines. General expenses increased by $13 million, primarily from start-up costs related to new clients in the creditor-placed homeowners insurance area.
Segment Income After Tax |
Segment income after tax decreased by $1 million, or 1%, from $101 million for the nine months ended September 30, 2002, to $100 million for the nine months ended September 30, 2003. Excluding the decrease in investment income of $8 million after-tax, segment income after-tax increased by $7 million, or 7%.
Income taxes decreased by $4 million, or 8%, from $50 million for the nine months ended September 30, 2002, to $46 million for the nine months ended September 30, 2003. This decrease was largely due to the decrease in segment income before income tax of $5 million.
Year Ended December 31, 2002 Compared to December 31, 2001 |
Total Revenues |
Total revenues increased by $179 million, or 8%, from $2,222 million in 2001 to $2,401 million in 2002.
Net earned premiums and other considerations increased by $171 million, or 9%, from $1,906 million in 2001 to $2,077 million in 2002. The increase was primarily due to approximately $100 million of additional net earned premiums from our specialty property solutions products, including approximately $86 million from the growth of our creditor-placed and voluntary homeowners insurance, flood insurance and manufactured housing related property coverages. Consumer protection solutions contributed an additional $71 million to the increase in net earned premiums primarily due to the growth of $39 million attributable to our warranty and extended service contracts business and $58 million from an accidental death and dismemberment product, which we started selling in 2001 and stopped selling in 2002. These increases were partly offset by the decrease in credit insurance products as the transition from credit insurance products to debt protection administration programs continued and fees from debt protection administration programs did not fully compensate for the
62
Net investment income decreased by $13 million, or 6%, from $218 million in 2001 to $205 million in 2002. The average portfolio yield dropped 51 basis points from 6.36% in 2001 to 5.85% in 2002 due to the lower interest rate environment. This decrease was partially offset by the reinvestment of tax advantaged investments, such as preferred stock, low-income housing tax credit investments and tax-exempt municipal bonds, into higher yield taxable investments. Average allocated invested assets remained relatively flat.
Fees and other income increased by $21 million, or 21%, from $98 million in 2001 to $119 million in 2002, including $13 million in additional fee income resulting from our credit insurance business transitioning to debt protection administration services.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses increased by $120 million, or 6%, from $2,084 million in 2001 to $2,204 million in 2002.
Policyholder benefits increased by $115 million, or 18%, from $640 million in 2001 to $755 million in 2002. Consumer protection solutions benefits contributed $98 million of this increase due primarily to $36 million from the warranty and extended service contracts business and $24 million from an accidental death and disability product. The increase was partly offset by a decrease in benefits in credit insurance products, which related to the decrease in premiums resulting from the transition to debt protection administration products. The growth of our specialty property solutions product lines also contributed a further $17 million to the increase in policyholder benefits in 2002, including approximately $11 million of losses related to Hurricane Lili and Arizona wildfires. In 2001, we had approximately $10 million in losses related to tropical storm Allison.
Selling, underwriting and general expenses increased by $5 million, or less than 1%, from $1,444 million in 2001 to $1,449 million in 2002. Commissions, taxes, licenses and fees contributed $21 million to the increase. The increase was primarily in our specialty property solutions business from the growth in the creditor-placed homeowners and manufactured housing homeowners insurance products. This increase was offset by a decrease in general expenses of $16 million primarily due to a non-recurring cost incurred in 2001.
Segment Income After Tax |
As a result of the foregoing, segment income after tax increased by $34 million, or 35%, from $98 million in 2001 to $132 million in 2002.
Income taxes increased $25 million, or 62%, from $40 million in 2001 to $65 million in 2002. The increase was primarily due to a 43% increase in segment income before income tax. The majority of the remaining increase was due to an increase in our effective tax rate primarily due to our decision to reduce our ownership of tax-advantaged investments.
Year Ended December 31, 2001 Compared to December 31, 2000 |
Total Revenues |
Total revenues increased by $162 million, or 8%, from $2,060 million in 2000 to $2,222 million in 2001.
Net earned premiums and other considerations increased by $126 million, or 7%, from $1,780 million in 2000 to $1,906 million in 2001. The increase was primarily due to $87 million of additional earned premiums in our consumer protection solutions products, including approximately $134 million from our warranty and extended service contract products mainly resulting from the addition of a new client in late 2000. This increase was largely offset by a decrease in our credit insurance products as result of the transition from use of our credit insurance products to debt protection administration programs.
63
Net earned premiums in our specialty property solutions business increased by $39 million from 2000 to 2001, primarily from new business growth in our creditor-placed homeowners insurance and manufactured housing homeowners insurance product lines.
Net investment income increased by $6 million, or 3%, from $212 million in 2000 to $218 million in 2001. The average portfolio yield dropped 30 basis points from 6.66% in 2000 to 6.36% in 2001 due to the lower interest rate environment. Average allocated invested assets increased by approximately 5% in 2001.
Fees and other income increased by $30 million, or 44%, from $68 million in 2000 to $98 million in 2001. The increase was primarily due to an increase of $6 million in administrative services fees in the mortgage services area and $9 million due to growth in the warranty and extended service contracts business. An additional $8 million increase was recorded as a result of customers transitioning to our debt protection administration services.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses increased by $255 million, or 14%, from $1,829 million in 2000 to $2,084 million in 2001.
Policyholder benefits increased by $115 million, or 22%, from $525 million in 2000 to $640 million in 2001. Consumer protection solutions benefits increased by $87 million primarily related to the growth in our warranty and extended service contract products. Specialty property solutions benefits increased by $27 million in 2001 primarily due to new clients and growth in business at existing clients in the creditor-placed homeowners insurance and manufactured housing homeowners insurance product lines.
Selling, underwriting and general expenses increased by $140 million, or 11%, from $1,304 million in 2000 to $1,444 million in 2001. Commissions, taxes, licenses and fees increased by $67 million, or 8%. The increase was attributable to $59 million of commissions from growth in the warranty and extended service contracts business, offset by a decrease of approximately $14 million in commissions payable on distribution of credit insurance products due to the decrease in net earned premiums in this product line. General expenses increased $72 million, or 15%, from 2000 to 2001 for the following reasons. In 2001, we made a strategic decision to exit certain lines of business that were determined not to be core products. Additionally, we decided to close two separate sites to eliminate duplicate costs and consolidate them in our home office with existing staff. We incurred non-recurring expenses of $37 million in 2001, including $14 million in employee separation costs related to these decisions. Furthermore, our expenses increased by $22 million in 2001 due to additional costs related to growth in our creditor-placed homeowners insurance business.
Segment Income After Tax |
Segment income after tax decreased by $57 million, or 37%, from $155 million in 2000 to $98 million in 2001. Assurant Solutions overall results in 2001 were affected by our decision to exit certain lines of business and close separate sites and also by the increase in expenses related to the growth in the creditor-placed homeowners insurance product. The majority of the remaining decrease was attributable to the transition from credit insurance to debt protection administration services.
Income taxes decreased by $36 million, or 47%, from $76 million in 2000 to $40 million in 2001. The decrease was due primarily to the decrease in segment income before income tax of $93 million in 2001.
64
Assurant Health
The table below presents information regarding
Assurant Healths results of operations:
Overview
For the
Nine Months
Ended
For the
September 30,
Year Ended December 31,
2003
2002
2002
2001
2000
(in millions except membership data)
$
1,476
$
1,365
$
1,834
$
1,838
$
1,967
36
42
55
58
58
24
16
23
14
11
1,536
1,423
1,912
1,910
2,036
(965
)
(909
)
(1,222
)
(1,306
)
(1,498
)
(429
)
(400
)
(546
)
(496
)
(471
)
(1,394
)
(1,309
)
(1,768
)
(1,802
)
(1,969
)
142
114
144
108
67
(49
)
(39
)
(49
)
(37
)
(23
)
$
93
$
75
$
95
$
71
$
44
65.4
%
66.6
%
66.6
%
71.1
%
76.2
%
28.6
%
29.0
%
29.4
%
26.8
%
23.8
%
92.9
%
94.8
%
95.2
%
97.3
%
99.5
%
755
670
670
600
500
365
360
355
420
585
1,120
1,030
1,025
1,020
1,085
(1) | The loss ratio is equal to policyholder benefits divided by net earned premiums and other considerations. |
(2) | The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and other considerations and fees and other income. |
(3) | The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and other considerations and fees and other income. |
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002 |
Total Revenues |
Total revenues increased by $113 million, or 8%, from $1,423 million for the nine months ended September 30, 2002, to $1,536 million for the nine months ended September 30, 2003.
Net earned premiums and other considerations increased by $111 million, or 8%, from $1,365 million for the nine months ended September 30, 2002, to $1,476 million for the nine months ended September 30, 2003. The increase was primarily due to our individual health insurance business, which experienced membership growth, premium rate increases and favorable lapse experience on renewal business. Net earned premiums attributable to our small employer group health insurance business remained virtually unchanged. We instituted premium rate increases in select small group markets to sufficiently price for the underlying medical costs of existing business and for anticipated future medical trends.
65
Net investment income decreased by $6 million, or 14%, from $42 million for the nine months ended September 30, 2002, to $36 million for the nine months ended September 30, 2003. There was a 100 basis point decrease in yield on the investment portfolio from 6.5% (annualized) for the nine months ended September 30, 2002, to 5.5% (annualized) for the nine months ended September 30, 2003, due to the lower interest rate environment. Offsetting the decrease in yield was a 10% increase in average allocated invested assets for the nine months ended September 30, 2003, over the comparable prior year period.
Fees and other income increased by $8 million, or 50%, from $16 million for the nine months ended September 30, 2002, to $24 million for the nine months ended September 30, 2003, due to additional insurance policy fees and higher fee-based product sales in individual markets, such as sales of our non-insurance health access discount cards.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses increased by $85 million, or 6%, from $1,309 million for the nine months ended September 30, 2002, to $1,394 million for the nine months ended September 30, 2003.
Policyholder benefits increased by $56 million, or 6%, from $909 million for the nine months ended September 30, 2002, to $965 million for the nine months ended September 30, 2003. This increase was consistent with the increase in net earned premiums. Primarily a result of our risk management activities, the loss ratio improved by 120 basis points from 66.6% for the nine months ended September 30, 2002, to 65.4% for the nine months ended September 30, 2003.
Selling, underwriting and general expenses increased by $29 million, or 7%, from $400 million for the nine months ended September 30, 2002, to $429 million for the nine months ended September 30, 2003. Commissions increased by only $2 million reflecting a change in the mix of business to products, durations and distribution channels with lower agent compensation in 2003. Amortization of deferred acquisition costs increased by $17 million due to higher sales of individual health insurance products beginning in 2000. General expenses increased by $11 million mainly due to additional spending on technology, higher employee compensation and additional spending to achieve loss ratio improvements to improve claims experience. The expense ratio improved by 40 basis points from 29% for the nine months ended September 30, 2002 to 28.6% for the nine months ended September 30, 2003.
Segment Income After Tax |
Segment income after tax increased by $18 million, or 24%, from $75 million for the nine months ended September 30, 2002 to $93 million for the nine months ended September 30, 2003.
Income taxes increased by $10 million, or 26%, from $39 million for the nine months ended September 30, 2002, to $49 million for the nine months ended September 30, 2003. The increase was consistent with the 25% increase in segment income before income tax during the nine months ended September 30, 2003.
Year Ended December 31, 2002 Compared to December 31, 2001
Total Revenues |
Total revenues remained virtually unchanged from 2001 to 2002, at $1,910 million in 2001 as compared to $1,912 million in 2002.
Net earned premiums and other considerations also remained stable from 2001 to 2002, at $1,838 million in 2001 as compared to $1,834 million in 2002, with an increase of $142 million in 2002 in the net earned premiums attributable to our individual health insurance products being offset by a decrease of $146 million during such year in net earned premiums attributable to our small employer group health insurance products. Net earned premiums attributable to our individual health insurance business increased due to membership growth, premium rate increases and favorable lapse experience on renewal business. Net earned premiums attributable to our small employer group health insurance business decreased due to declining membership,
66
Net investment income decreased by $3 million, or 5%, from $58 million in 2001 to $55 million in 2002. There was a 100 basis point decrease in yield on the investment portfolio from 7.4% in 2001 to 6.4% in 2002 mainly due to the lower interest rate environment. Partially offset by the decrease in yield was a 2% increase in average allocated invested assets in 2002.
Fees and other income increased by $9 million, or 64%, from $14 million in 2001 to $23 million in 2002 due to additional insurance policy fees and higher fee-based product sales in our individual health insurance business.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses decreased by $34 million, or 2%, from $1,802 million in 2001 to $1,768 million in 2002.
Policyholder benefits decreased by $84 million, or 6%, from $1,306 million in 2001 to $1,222 million in 2002. This decrease was principally due to a higher mix of individual health insurance business which had a lower loss ratio relative to small employer group health insurance business, primarily due to disciplined pricing and product design changes. The loss ratio improved 450 basis points from 71.1% in 2001 to 66.6% in 2002 due to the higher mix of individual health insurance business, increased premium rates and product design changes.
Selling, underwriting and general expenses increased by $50 million, or 10%, from $496 million in 2001 to $546 million in 2002. Taxes, licenses and fees increased by $5 million in 2002, or 13%, due to a change in the mix of business by state and legal entity, and the loss of favorable consolidated premium tax return benefits triggered by the disposition of FFG. The amortization of DAC increased by $21 million in 2002, or 49%, due to higher sales of individual health insurance products beginning in 2000. General expenses increased by $34 million in 2002, or 13%, due to investments in technology, higher employee compensation and additional spending to achieve loss ratio improvements. Partially offsetting these increases was a $10 million, or 7%, decrease in commissions due to a higher mix of first year individual health insurance business. Individual health insurance policy acquisition costs are deferred and amortized in subsequent years.
The expense ratio increased by 260 basis points from 26.8% in 2001 to 29.4% in 2002. This increase was primarily attributable to the higher commissions on the mix of business in individual health insurance, investments in technology, higher employee compensation and additional spending to achieve loss ratio improvements.
Segment Income After Tax |
Segment income after tax increased by $24 million, or 34%, from $71 million in 2001 to $95 million in 2002.
Income taxes increased by $12 million, or 32%, from $37 million in 2001 to $49 million in 2002. The increase was consistent with the 33% increase in segment income before income tax in 2002.
Year Ended December 31, 2001 Compared to December 31, 2000 |
Total Revenues |
Total revenues decreased by $126 million, or 6%, from $2,036 million in 2000 to $1,910 million in 2001.
Net earned premiums and other considerations decreased by $129 million, or 7%, from $1,967 million in 2000 to $1,838 million in 2001. A decrease of $248 million in 2001 in the net earned premiums attributable to our small employer group health insurance products was partially offset by an increase of $119 million in net earned premiums attributable to our individual health insurance products in 2001. Net earned premiums for
67
Net investment income remained unchanged at $58 million in 2001. A 20 basis point increase in yield on the investment portfolio from 7.2% in 2000 to 7.4% in 2001 offset a decrease in average allocated invested assets in 2001.
Fees and other income increased by $3 million, or 27%, from $11 million in 2000 to $14 million in 2001.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses decreased by $167 million, or 8%, from $1,969 million in 2000 to $1,802 million in 2001.
Policyholder benefits decreased by $192 million, or 13%, from $1,498 million in 2000 to $1,306 million in 2001. This decrease was due to a reduction in persons insured, an increasing mix of individual health insurance business and improved small employer group health insurance loss experience. The loss ratio improved 510 basis points from 76.2% in 2000 to 71.1% in 2001 due to increased premium rates, product design changes and the increased mix of individual health insurance business.
Selling, underwriting and general expenses increased by $25 million, or 5%, from $471 million in 2000 to $496 million in 2001. The increase was driven by an increase in general expenses of $35 million, primarily due to additional spending to achieve loss ratio improvements, investments in technology and higher employee compensation. Offsetting this increase was a decrease in commissions, taxes, licenses and fees of $15 million in 2001, principally due to the decrease in small employer group health insurance products sold.
The expense ratio increased 300 basis points from 23.8% in 2000 to 26.8% in 2001 due to investments in technology and additional spending to achieve loss ratio improvements.
Segment Income After Tax |
Segment income after tax increased by $27 million, or 61%, from $44 million in 2000 to $71 million in 2001.
Income taxes increased by $14 million, or 61%, from $23 million in 2000 to $37 million in 2001. The increase was consistent with the 61% increase in segment income before income tax in 2001.
68
Assurant Employee Benefits
The table below presents information regarding
Assurant Employee Benefits results of operations:
Overview
For the
Nine Months
Ended
For the
September 30,
Year Ended December 31,
2003
2002
2002
2001
2000
(in millions)
$
920
$
930
$
1,233
$
934
$
903
105
109
148
144
136
37
56
74
39
8
1,062
1,095
1,455
1,117
1,047
(668
)
(718
)
(945
)
(738
)
(702
)
(319
)
(320
)
(422
)
(316
)
(280
)
(987
)
(1,038
)
(1,367
)
(1,054
)
(982
)
75
57
88
63
65
(26
)
(20
)
(31
)
(22
)
(23
)
$
49
$
37
$
57
$
41
$
42
72.6
%
77.2
%
76.6
%
79.0
%
77.7
%
33.3
%
32.5
%
32.3
%
32.5
%
30.7
%
83.5
%
85.9
%
79.9
%
84.3
%
88.5
%
$
404
$
420
$
553
$
257
$
234
321
298
400
398
387
195
212
280
279
282
$
920
$
930
$
1,233
$
934
$
903
(1) | The loss ratio is equal to policyholder benefits divided by net earned premiums and other considerations. |
(2) | The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and other considerations and fees and other income. |
(3) | The premium persistency ratio is equal to the year-to-date (not annualized) rate at which existing business for all issue years at the beginning of the period remains in force at the end of the period. Persistency is typically higher mid-year than at year-end. The calculations for the year ended December 31, 2002 and the nine months ended September 30, 2002 exclude DBD. |
We acquired DBD on December 31, 2001 and CORE on July 12, 2001; therefore, the results of DBD and CORE are included in our Assurant Employee Benefits segment financial results beginning in 2002 and July 2001, respectively.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002
Total Revenues |
Total revenues decreased by $33 million, or 3%, from $1,095 million for the nine months ended September 30, 2002, to $1,062 million for the nine months ended September 30, 2003.
69
Net earned premiums and other considerations decreased by $10 million, or 1%, from $930 million for the nine months ended September 30, 2002, to $920 million for the nine months ended September 30, 2003. The decrease was primarily due to a $16 million decline in group dental net premiums, driven by lower sales and the non-renewal of a large account. Also contributing to the decrease was the non-renewal of certain unprofitable business and less new business due to continued pricing discipline. This decrease was partially offset by growth in group disability premiums of $23 million, driven by reinsurance assumed from our Disability Reinsurance Management Services, Inc. (DRMS) pool as described in Business Operating Business Segments Assurant Employee Benefits. This resulted in an aggregate premium persistency of 83.5% for the nine months ended September 30, 2003 compared to 85.9% for the nine months ended September 30, 2002. Premium persistency measures the proportionate premium levels remaining after nine months of lapse activity. The premium persistency ratio encompasses the effects of rate increases, plan design changes and benefit volume changes.
Net investment income decreased by $4 million, or 4%, from $109 million for the nine months ended September 30, 2002, to $105 million for the nine months ended September 30, 2003. Our average portfolio yield declined 80 basis points from 7.2% (annualized) for the nine months ended September 30, 2002, to 6.4% (annualized) for the nine months ended September 30, 2003, due to the lower interest rate environment. However, average allocated invested assets increased by 5%.
Fees and other income decreased by $19 million, or 34%, from $56 million for the nine months ended September 30, 2002, to $37 million for the nine months ended September 30, 2003. The decrease was primarily due to lower fee revenue from CORE due to our sale of PRA.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses decreased by $51 million, or 5%, from $1,038 million for the nine months ended September 30, 2002, to $987 million for the nine months ended September 30, 2003.
Policyholder benefits decreased by $50 million, or 7%, from $718 million for the nine months ended September 30, 2002, to $668 million for the nine months ended September 30, 2003. This decrease was driven by favorable development in group disability claims and lower claims activity due to a reduction in group life and dental earned premiums. In addition, during the third quarter of 2003, we completed actuarial reserve adequacy studies for the group long-term disability, group life and group dental products, which reflected that, in the aggregate, these reserves were redundant by $18 million (pre-tax). Therefore, reserves of $18 million were reduced in the third quarter of 2003 to reflect these estimates.
The loss ratio improved by 460 basis points from 77.2% for the nine months ended September 30, 2002 to 72.6% for the nine months ended September 30, 2003. Excluding the reserve release discussed above, the loss ratio would have been 74.6% for the nine months ended September 30, 2003, which would have been a 260 basis point improvement over the nine months ended September 30, 2002. This improvement was driven by favorable disability experience, partially offset by unfavorable life experience.
The expense ratio increased by 80 basis points from 32.5% for the nine months ended September 30, 2002, to 33.3% for the nine months ended September 30, 2003. The increase was driven by one-time unusual items, including $2 million in severance costs related to CORE and a $4 million writedown of capitalized software costs.
Segment Income After Tax |
Segment income after tax increased by $12 million, or 32%, from $37 million for the nine months ended September 30, 2002, to $49 million for the nine months ended September 30, 2003.
Income taxes increased by $6 million, or 30%, from $20 million for the nine months ended September 30, 2002, to $26 million for the nine months ended September 30, 2003. The increase was consistent with the 32% increase in reported segment income before income tax.
70
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 |
Total Revenues |
Total revenues increased by $338 million, or 30%, from $1,117 million in 2001 to $1,455 million in 2002, substantially all of which was attributable to the acquisition of DBD.
Net earned premiums and other considerations increased by $299 million, or 32%, from $934 million in 2001 to $1,233 million in 2002. Excluding the $299 million increase in net earned premiums due to the acquisition of DBD, net earned premiums were unchanged at $934 million from 2001 to 2002, primarily because new business was offset by non-renewal of certain unprofitable business. An additional contributing factor was increased pressure on ancillary employee benefits provided by employer groups due to increased medical costs. Premium persistency (excluding the DBD acquisition) decreased by 440 basis points from 84.3% for 2001 to 79.9% for 2002 because of disciplined underwriting and reduced employment in renewed groups.
Net investment income increased by $4 million from $144 million in 2001 to $148 million in 2002 mainly due to the DBD acquisition. This increase was offset in part by a decrease in investment yields by 36 basis points from 7.52% in 2001 to 7.16% in 2002 due to the lower interest rate environment.
Fees and other income increased by $35 million, or 90%, from $39 million in 2001 to $74 million in 2002 primarily due to a full year of fee revenue from CORE, which was acquired on July 12, 2001. CORE fee revenue was $66 million in 2002, as compared to the half-year of revenue recorded in 2001 of $31 million.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses increased by $313 million, or 30%, from $1,054 million in 2001 to $1,367 million in 2002.
Policyholder benefits increased by $207 million, or 28%, from $738 million in 2001 to $945 million in 2002. Excluding the $197 million increase related to the acquisition of DBD, policyholder benefits increased by $10 million, or 1%, driven by growth in group dental premiums. Our loss ratio improved 240 basis points from 79.0% in 2001 to 76.6% in 2002. Excluding the effect of the DBD acquisition, the loss ratio in 2002 was 80.1%, which was higher than in 2001 due to slight deterioration in group dental and group life experience.
Selling, underwriting and general expenses increased by $106 million, or 34%, from $316 million in 2001 to $422 million in 2002 primarily due to the DBD and CORE acquisitions. The expense ratio was virtually unchanged between 2001 and 2002.
Segment Income After Tax |
Segment income after tax increased by $16 million, or 39%, from $41 million in 2001 to $57 million in 2002.
Income taxes increased by $9 million, or 41%, from $22 million in 2001 to $31 million in 2002. The increase was consistent with the 40% increase in segment income before income tax.
Year Ended December 31, 2001 Compared to December 31, 2000 |
Total Revenues |
Total revenues increased by $70 million, or 7%, from $1,047 million in 2000 to $1,117 million in 2001.
Net earned premiums and other considerations increased by $31 million, or 3%, from $903 million in 2000 to $934 million in 2001. Net earned premiums attributable to dental products increased $23 million in 2001 primarily due to increased sales of recently developed products with PPOs and lower-cost plan options. Group disability products contributed a further $10 million increase in 2001 to net earned premiums while net earned premiums attributable to our group life products decreased by $2 million in 2001. The stable premium
71
Net investment income increased by $8 million, or 6%, from $136 million in 2000 to $144 million in 2001. Average allocated invested assets increased by 5% and investment yields increased by 15 basis points from 7.37% in 2000 to 7.52% in 2001.
Fees and other income increased by $31 million from $8 million in 2000 to $39 million in 2001 mainly due to fee income earned by CORE in 2001.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses increased by $72 million, or 7%, from $982 million in 2000 to $1,054 million in 2001.
Policyholder benefits increased by $36 million, or 5%, from $702 million in 2000 to $738 million in 2001. The increase resulted from revenue growth in the dental and disability product lines, as well as unfavorable group life mortality experience compared to 2000, when we experienced positive mortality results. The loss ratio increased 130 basis points from 77.7% in 2000 to 79.0% in 2001. The increased loss ratio was primarily due to unfavorable group life mortality experience as compared to 2000, as explained above.
Selling, underwriting and general expenses increased by $36 million, or 13%, from $280 million in 2000 to $316 million in 2001. The increase was primarily due to the acquisition of CORE, which contributed $31 million to such expenses.
The expense ratio increased 180 basis points from 30.7% in 2000 to 32.5% in 2001. Excluding the effect of the CORE acquisition, the expense ratio was virtually unchanged between 2000 and 2001.
Segment Income After Tax |
Segment income after tax decreased by $1 million, or 2%, from $42 million in 2000 to $41 million in 2001.
Income taxes also decreased by $1 million or 4%, from $23 million in 2000 to $22 million in 2001, which was consistent with the decrease in segment income before income tax in 2001.
72
Assurant PreNeed
The table below presents information regarding
Assurant PreNeeds results of operations:
Overview
For the
Nine Months
For the
Ended
Year Ended
September 30,
December 31,
2003
2002
2002
2001
2000
(in millions)
$
401
$
408
$
538
$
507
$
277
140
139
184
179
128
4
3
5
3
2
545
550
727
689
407
(392
)
(389
)
(507
)
(485
)
(279
)
(110
)
(101
)
(143
)
(121
)
(76
)
(502
)
(490
)
(650
)
(606
)
(355
)
43
60
77
83
52
(15
)
(21
)
(27
)
(29
)
(18
)
$
28
$
39
$
50
$
54
$
34
$
216
$
223
$
293
$
278
$
60
185
185
245
229
217
$
401
$
408
$
538
$
507
$
277
We acquired AMLIC on October 1, 2000, and therefore the results of AMLIC are included in our Assurant PreNeed segment financial results beginning October 1, 2000.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002 |
Total Revenues |
Total revenues decreased by $5 million, or 1%, from $550 million for the nine months ended September 30, 2002 to $545 million for the nine months ended September 30, 2003.
Net earned premiums and other considerations decreased by $7 million, or 2%, from $408 million for the nine months ended September 30, 2002, to $401 million for the nine months ended September 30, 2003. The decline was primarily due to a $7 million decline in our AMLIC channel caused by a 25% drop in new sales from SCI, AMLICs principal customer.
Net investment income increased by $1 million, or 1%, from $139 million for the nine months ended September 30, 2002, compared to $140 million for the nine months ended September 30, 2003. A 10% increase in average allocated invested assets was offset by a 45 basis point decrease in the annualized investment yield of 7.02% at September 30, 2002 to 6.57% at September 30, 2003. The increase in allocated invested assets was due to a larger in force block of business. This rate decline reduced net investment income over the comparable prior year period. This decline in yields was due to the lower interest rate environment and the restructuring of the portfolio in 2002 to improve credit quality.
73
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses increased by $12 million, or 2%, from $490 million for the nine months ended September 30, 2002 to $502 million for the nine months ended September 30, 2003.
Policyholder benefits increased by $3 million, or 1%, from $389 million for the nine months ended September 30, 2002, to $392 million for the nine months ended September 30, 2003. This increase was due to the normal growth in the in force block of business.
Selling, underwriting and general expenses increased by $9 million, or 9%, from $101 million for the nine months ended September 30, 2002 to $110 million for the nine months ended September 30, 2003. Amortization of DAC and VOBA expense increased by $4 million for the nine months ended September 30, 2003, principally due to a larger in force block of business and increased sales of single pay policies versus plans paid over a three-, five- or ten-year period. The acquisition costs on single pay policies are amortized in the year of issue. This caused the increase in expense levels in the nine months ended September 30, 2003 over the comparable prior year period. Offsetting this increase was a decrease of $3 million in commission, taxes, licenses and fees due to a decrease in overall new sales. General expenses increased by $7 million during the nine months ended September 30, 2003 from the comparable prior year period.
Segment Income After Tax |
Segment income after tax decreased by $11 million, or 28%, from $39 million for the nine months ended September 30, 2002, to $28 million for the nine months ended September 30, 2003. This decrease was caused primarily by smaller spreads between investment income earned and the fixed benefit credited to the policyholder, higher Consumer Price Index growth and general expenses.
Income taxes decreased by $6 million, or 29%, from $21 million for the nine months ended September 30, 2002, to $15 million for the nine months ended September 30, 2003, which was consistent with the 28% decrease in reported segment results before tax.
Year Ended December 31, 2002 Compared to December 31, 2001 |
Total Revenues |
Total revenues increased by $38 million, or 6%, from $689 million in 2001 to $727 million in 2002.
Net earned premiums and other considerations increased by $31 million, or 6%, from $507 million in 2001 to $538 million in 2002. The increase was driven by a $15 million increase in net earned premiums in 2002 in our AMLIC channel due to an increase in the average size of the policies sold and increased earned premiums from the independent channel due to increased sales through expansion of pre-need counselors. Policy size increased due to a change in packaging of funerals sold by SCI.
Net investment income increased by $5 million, or 3%, from $179 million in 2001 to $184 million in 2002. A 5% increase in average allocated invested assets in 2002 resulting from the growth in in force policies resulted in additional investment income in 2002. Offsetting the increase in invested assets was a 34 basis point decrease in yield on the investment portfolio from 7.25% in 2001 to 6.91% in 2002 due to the lower interest rate environment and restructuring of the investment portfolio to enhance credit quality. The decline in yields reduced investment income in 2002.
Fees and other income increased by $2 million, or 66%, from $3 million in 2001 to $5 million in 2002.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses increased by $44 million, or 7%, from $606 million in 2001 to $650 million in 2002.
Policyholder benefits increased by $22 million, or 5%, from $485 million in 2001 to $507 million in 2002. The increase in policyholder benefits was consistent with the increase in business written, partially offset by other factors. A portion of our pre-funded funeral insurance policies uses a Consumer Price Index rate as a
74
Selling, underwriting and general expenses increased by $22 million or 18% from $121 million in 2001 to $143 million in 2002. The primary reason for the increase was an increase in amortization of DAC and VOBA of $12 million in 2002, as a result of the increased sales of single pay policies versus plans paid over a three-, five- and ten-year period. The acquisition costs on single pay policies are amortized in the year of issue, thus causing the increase in expense levels in 2002 over 2001. All other expenses increased by $10 million in 2002 from 2001 due primarily to the increase in premiums.
Segment Income After Tax |
Segment income after tax decreased by $4 million, or 7%, from $54 million in 2001 to $50 million in 2002. This was caused primarily by smaller spreads between our investment yields and rates we credited to our policyholders. Also, profits were lower due to higher utilization of the early pay off feature described above and higher mortality, offset by the lower Consumer Price Index credited growth.
Income taxes decreased by $2 million, or 7%, from $29 million in 2001 to $27 million in 2002 which was largely consistent with the 7% decrease in segment income before income tax in 2002.
Year Ended December 31, 2001 Compared to December 31, 2000 |
Total Revenues |
Total revenues increased by $282 million, or 69%, from $407 million in 2000 to $689 million in 2001.
Net earned premiums and other considerations increased by $230 million, or 83%, from $277 million in 2000 to $507 million in 2001. Excluding the increase in net earned premiums of $218 million due to the acquisition of AMLIC, net earned premiums increased by $12 million primarily due to growth in our independent channels in force block of business and to increased sales from the signing of new large third-party marketing distributors. In late 2000, we began pursuing large third-party marketers as an additional source of distribution, diversifying our traditional channels of captive field representatives and independent agents specializing in pre-funded funeral insurance products.
Investment income increased by $51 million, or 40%, from $128 million in 2000 to $179 million in 2001. Excluding the net increase to investment income of $49 million due to the acquisition of AMLIC, investment income increased by $2 million. This was primarily due to an increase in average invested assets.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses increased by $251 million, or 71%, from $355 million in 2000 to $606 million in 2001.
Policyholder benefits increased by $206 million, or 74%, from $279 million in 2000 to $485 million in 2001. Excluding the increase in policyholder benefits of $196 million as a result of the acquisition of AMLIC, the policyholder benefits in our independent channel increased by $10 million in 2001, or 4%, consistent with the 6% increase in net earned premiums in 2001.
Selling, underwriting and general expenses increased by $45 million, or 59%, from $76 million in 2000 to $121 million in 2001. The increase was primarily due to the acquisition of AMLIC.
Segment Income After Tax |
Segment income after tax increased by $20 million, or 59%, from $34 million in 2000 to $54 million in 2001. Increases of $20 million after tax contribution was due to the AMLIC acquisition.
75
Income taxes increased by $11 million, or 61%, from $18 million in 2000 to $29 million in 2001. The increase in income tax expense was consistent with the 60% increase in segment income before income tax in 2001.
Corporate and Other
Overview |
The Corporate and Other segment includes activities of the holding company, financing expenses, realized gains (losses) on investments, interest income earned from short-term investments held and interest income from excess surplus of insurance subsidiaries not allocated to other segments. The Corporate and Other segment also includes (i) the results of operations of FFG (a business we sold on April 2, 2001) and (ii) LTC (a business we sold on March 1, 2000), for the periods prior to their disposition and amortization of deferred gains associated with the portions of the sale of FFG and LTC sold through reinsurance agreements as described above.
The table below presents information regarding Corporate and Others results of operations:
For the | ||||||||||||||||||||||
Nine Months | For the | |||||||||||||||||||||
Ended | Year Ended | |||||||||||||||||||||
September 30, | December 31, | |||||||||||||||||||||
|
|
|||||||||||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | ||||||||||||||||||
|
|
|
|
|
||||||||||||||||||
(in millions) | ||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||
Net earned premiums and other considerations
|
$ | | $ | | $ | | $ | 58 | $ | 217 | ||||||||||||
Net investment income
|
34 | 29 | 40 | 112 | 157 | |||||||||||||||||
Net realized gains (losses) on investments
|
15 | (92 | ) | (118 | ) | (119 | ) | (45 | ) | |||||||||||||
Amortization of deferred gain on disposal of
businesses
|
52 | 60 | 80 | 68 | 10 | |||||||||||||||||
Gain on disposal of businesses
|
| 11 | 11 | 62 | 12 | |||||||||||||||||
Fees and other income
|
17 | 19 | 25 | 67 | 311 | |||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Total revenues
|
118 | 27 | 38 | 248 | 662 | |||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Benefits, losses and expenses:
|
||||||||||||||||||||||
Policyholder benefits
|
| | | (70 | ) | (204 | ) | |||||||||||||||
Selling, underwriting and general expenses
|
(42 | ) | (36 | ) | (55 | ) | (120 | ) | (437 | ) | ||||||||||||
Interest expense
|
| | | (14 | ) | (25 | ) | |||||||||||||||
Distributions on preferred securities of
subsidiary trusts
|
(88 | ) | (88 | ) | (118 | ) | (118 | ) | (110 | ) | ||||||||||||
|
|
|
|
|
||||||||||||||||||
Total benefits, losses and expenses
|
(130 | ) | (124 | ) | (173 | ) | (322 | ) | (776 | ) | ||||||||||||
|
|
|
|
|
||||||||||||||||||
Segment income before income tax
|
(12 | ) | (97 | ) | (135 | ) | (74 | ) | (114 | ) | ||||||||||||
Income taxes
|
6 | 44 | 61 | 21 | 36 | |||||||||||||||||
|
|
|
|
|
||||||||||||||||||
Segment income after tax
|
$ | (6 | ) | $ | (53 | ) | $ | (74 | ) | $ | (53 | ) | $ | (78 | ) | |||||||
|
|
|
|
|
As of September 30, 2003, we had approximately $410 million (pre-tax) of deferred gains that had not yet been amortized. We expect that we will be amortizing deferred gains from dispositions through 2031. The deferred gains are being amortized in a pattern consistent with the expected future reduction of the in force blocks of business ceded to The Hartford and John Hancock. This reduction is expected to be more rapid in the first few years after sale and to be slower as the liabilities in the block decrease.
76
The Corporate and Other segments financial results were most affected by the April 2, 2001 sale of FFG. Below are the results of FFG that have been included in the Corporate and Other segment from January 1, 2001 through March 31, 2001, and for 2000:
For the Year | ||||||||||
Ended | ||||||||||
December 31, | ||||||||||
|
||||||||||
2001 | 2000 | |||||||||
|
|
|||||||||
(in millions) | ||||||||||
Revenues:
|
||||||||||
Net earned premiums
|
$ | 49 | $ | 196 | ||||||
Net investment income
|
32 | 169 | ||||||||
Fees and other income
|
65 | 304 | ||||||||
|
|
|||||||||
Total revenues
|
146 | 669 | ||||||||
|
|
|||||||||
Benefits, losses and expenses:
|
||||||||||
Policyholder benefits
|
(48 | ) | (211 | ) | ||||||
Selling, underwriting and general expenses
|
(85 | ) | (360 | ) | ||||||
|
|
|||||||||
Total benefits, losses and expenses
|
(133 | ) | (571 | ) | ||||||
|
|
|||||||||
Reportable income results before income
tax
|
13 | 98 | ||||||||
Income taxes
|
(5 | ) | (33 | ) | ||||||
|
|
|||||||||
Reportable income results after tax
|
$ | 8 | $ | 65 | ||||||
|
|
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002 |
Total Revenues |
Total revenues increased by $91 million, or 337%, from $27 million for the nine months ended September 30, 2002, to $118 million for the nine months ended September 30, 2003.
Net investment income increased by $5 million, or 17%, from $29 million for the nine months ended September 30, 2002, to $34 million for the nine months ended September 30, 2003.
Net realized gains on investments improved by $107 million from net realized losses on investments of $92 million for the nine months ended September 30, 2002, to net realized gains of $15 million for the nine months ended September 30, 2003. Net realized gains/losses on investments are comprised of both other-than-temporary impairments and realized capital gains/losses on sales of securities. For the nine months ended September 30, 2003, we had other-than-temporary impairments of $17 million, as compared to $57 million for the nine months ended September 30, 2002. There were no individual impairments in excess of $10 million for the nine months ended September 30, 2003. Impairments on available for sale securities in excess of $10 million during the nine months ended September 30, 2002 consisted of a $12 million writedown of fixed maturity investments in AT&T Canada, an $11 million writedown of fixed maturity investments in MCI WorldCom and an $18 million writedown of fixed maturity investments in NRG Energy. Excluding the effect of other-than-temporary impairments, we recorded an increase in net realized gains of $66 million.
Amortization of deferred gain on disposal of businesses decreased by $8 million, or 13%, from $67 million for the nine months ended September 30, 2002, to $52 million for the nine months ended September 30, 2003. This decrease was consistent with the run-off of the business ceded to The Hartford and John Hancock.
Gain on disposal of businesses decreased by $11 million, or 100%, from $11 million for the nine months ended September 30, 2002, to $0 for the nine months ended September 30, 2003. On June 28, 2002, we sold our investment in NHP, which resulted in pre-tax gains of $11 million for the nine months ended September 30, 2002.
77
Fees and other income decreased by $2 million, or 11% from $19 million for the nine months ended September 30, 2002, to $17 million for the nine months ended September 30, 2003.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses increased by $6 million, or 5%, from $124 million for the nine months ended September 30, 2002, to $130 million for the nine months ended September 30, 2003.
Selling, underwriting and general expenses increased by $6 million, or 17%, from $36 million for the nine months ended September 30, 2002, to $42 million for the nine months ended September 30, 2003.
Distributions on preferred securities of subsidiary trusts during the nine months ended September 30, 2003 remained unchanged from the comparable prior year period at $88 million.
Segment Loss After Income Tax |
Segment loss after income tax improved by $47 million, or 87%, from a loss of $53 million for the nine months ended September 30, 2002, to a loss of $6 million for the nine months ended September 30, 2003.
Income taxes decreased by $38 million, or 86%, from an income tax benefit of $44 million for the nine months ended September 30, 2002, to an income tax benefit of $6 million for the nine months ended September 30, 2003. During the nine months ended September 30, 2002, we recognized the release of approximately $9 million of previously provided tax accruals which were no longer considered necessary based on the resolution of certain tax matters.
Year Ended December 31, 2002 Compared to December 31, 2001 |
Total Revenues |
Total revenues decreased by $210 million, or 85%, from $248 million in 2001 to $38 million in 2002.
Net earned premiums and other considerations decreased by $58 million, or 100%, from $58 million in 2001 to $0 million in 2002 due to the sale of FFG.
Net investment income decreased by $72 million, or 64%, from $112 million in 2001 to $40 million in 2002. Excluding the $32 million reduction in investment income from the sale of FFG, net investment income decreased in 2002 as a result of a decrease in invested assets because we paid down debt and acquired CORE and DBD.
Net realized losses on investments decreased by $1 million, or 1%, from $119 million in 2001 to $118 million in 2002. In 2002, we had other-than-temporary impairments of $85 million, as compared to $78 million in 2001. Impairments of available for sale securities in excess of $10 million in 2002 consisted of an $18 million writedown of fixed maturity investments in NRG Energy, a $12 million writedown of fixed maturity investments in AT&T Canada and an $11 million writedown of fixed maturity investments in MCI WorldCom. Impairments of available for sale securities in excess of $10 million in 2001 consisted of a $22 million writedown of fixed maturity investments in Enron.
Amortization of deferred gain on disposal of businesses increased by $12 million, or 18%, from $68 million in 2001 to $80 million in 2002, mainly due a to full year of amortization of the deferred gain on the sale of FFG as compared to nine months of amortization in 2001.
Gains on disposal of businesses decreased by $51 million, or 82%, from $62 million in 2001 to $11 million in 2002. This decrease was due to the sale of FFGs mutual fund operations. Also, on June 28, 2002, we sold our investment in NHP, which resulted in pre-tax gains of $11 million in 2002.
Fees and other income decreased by $42 million, or 63%, from $67 million in 2001 to $25 million in 2002. Excluding the $65 million reduction in other income due to the sale of FFG, fees and other income increased by $23 million in 2002 mainly due to approximately $15 million of income associated with a settlement true-
78
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses decreased by $149 million, or 46%, from $322 million in 2001 to $173 million in 2002.
Policyholder benefits decreased by $70 million, or 100%, from $70 million in 2001 to $0 in 2002. The decrease was entirely due to the sale of FFG.
Interest expense decreased by $14 million, or 100%, from $14 million in 2001 to $0 in 2002. We used a portion of the FFG sale proceeds to repay $225 million of debt owed to Fortis Finance.
Selling, underwriting and general expenses decreased by $65 million, or 54%, from $120 million in 2001 to $55 million in 2002. Excluding the $85 million reduction in selling, underwriting and general expenses attributable to the sale of FFG, these expenses increased by $20 million from 2001 to 2002 primarily due to increased overhead costs at the holding company.
Distributions on preferred securities of subsidiary trusts in 2002 remained unchanged from 2001 at $118 million.
Segment Loss After Tax |
Segment loss after tax increased by $21 million, or 40%, from a $53 million loss in 2001 to a $74 million loss in 2002, primarily due to the sale of FFG.
Income taxes increased by $40 million, or 190%, from $21 million in 2001 to $61 million in 2002. Excluding the $4 million reduction in income tax expenses due to the sale of FFG, income tax benefit increased by $44 million in 2002. The change in the income tax benefit was largely consistent with the increase in segment losses before income tax. In 2002, we also recognized the release of approximately $13 million of previously provided tax accruals, which were no longer considered necessary based on the resolution of certain domestic tax matters.
Year Ended December 31, 2001 Compared to December 31, 2000 |
Total Revenues |
Total revenues decreased by $414 million, or 63%, from $662 million in 2000 to $248 million in 2001.
Net earned premiums and other considerations decreased by $159 million, or 73%, from $217 million in 2000 to $58 million in 2001. The decrease was primarily due to the sale of FFG.
Net investment income decreased by $45 million, or 29%, from $157 million in 2000 to $112 million in 2001. Excluding the net decrease to investment income of $147 million due to the sale of FFG, net investment income increased by $102 million.
Net realized losses on investments increased by $74 million, or 164%, from $45 million in 2000 to $119 million in 2001. In 2001, we had other-than-temporary impairments on fixed maturity securities of $78 million, as compared to $5 million in 2000. There were no impairments in excess of $10 million in 2000. Impairments of available for sale securities in excess of $10 million in 2001 consisted of a $22 million writedown of fixed maturity investments in Enron.
Amortization of deferred gain on disposal of businesses increased by $58 million from $10 million in 2000 to $68 million in 2001, due primarily to the recognition of nine months of amortization of the FFG deferred gain as compared to $0 in 2000.
Gains on disposal of businesses increased by $50 million from $12 million in 2000 to $62 million in 2001. The increase was due to $62 million of gains recognized on the sale of FFGs mutual fund management operations in 2001, as compared to $12 million of gains recognized on the sale of ACSIA in 2000.
79
Fees and other income decreased by $244 million, or 78%, from $311 million in 2000 to $67 million in 2001. Excluding the net decrease in fees and other income of $237 million in 2001 due to the sale of FFG, fees and other income decreased by $7 million in 2001.
Total Benefits, Losses and Expenses |
Total benefits, losses and expenses decreased by $454 million, or 59%, from $776 million in 2000 to $322 million in 2001.
Policyholder benefits decreased by $134 million, or 66%, from $204 million in 2000 to $70 million in 2001. The decrease was primarily due to the sale of FFG.
Selling, underwriting and general expenses decreased by $317 million, or 73%, from $437 million in 2000 to $120 million in 2001. Excluding the net decrease of $275 million in 2001 attributable to the sale of FFG, these expenses decreased by $43 million primarily due to two months of selling, underwriting and general expenses in 2000 associated with LTC operations sold to John Hancock on March 1, 2000.
Interest expense decreased by $11 million, or 44%, from $25 million in 2000 to $14 million in 2001. This decrease was mainly due to the repayment of $225 million of debt in April 2001 owed to Fortis Finance.
Distributions on preferred securities of subsidiary trusts increased by $8 million, or 7%, from $110 million in 2000 to $118 million in 2001. The increase was primarily due to the reflection of twelve months of distributions related to the trust capital securities.
Segment Loss After Tax |
Segment loss after tax improved by $25 million, or 32%, from a $78 million loss in 2000 to a $53 million loss in 2001.
Income taxes decreased $15 million, or 42%, from a benefit of $36 million in 2000 to a benefit of $21 million in 2001. Excluding the net $29 million reduction in income tax expense due to the sale of FFG, income tax increased by $14 million. This increase was largely consistent with the increase in pre-tax gains on disposal of businesses in 2001.
Investments
The following table shows the carrying value of our investments by type of security as of the dates indicated:
As of | As of | As of | |||||||||||||||||||||||
September 30, | December 31, | December 31, | |||||||||||||||||||||||
2003 | 2002 | 2001 | |||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||
Fixed maturities
|
$ | 8,848 | 83 | % | $ | 8,036 | 80 | % | $ | 7,630 | 79 | % | |||||||||||||
Equity securities
|
433 | 4 | 272 | 3 | 247 | 3 | |||||||||||||||||||
Commercial mortgage loans on real estate
|
909 | 8 | 842 | 8 | 869 | 9 | |||||||||||||||||||
Policy loans
|
69 | 1 | 69 | 1 | 68 | 1 | |||||||||||||||||||
Short-term investments
|
329 | 3 | 684 | 7 | 627 | 7 | |||||||||||||||||||
Other investments
|
126 | 1 | 126 | 1 | 159 | 1 | |||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||
Total investments
|
$ | 10,714 | 100 | % | $ | 10,029 | 100 | % | $ | 9,600 | 100 | % | |||||||||||||
|
|
|
|
|
|
Of our fixed maturity securities shown above, 70% and 75% (based on total fair value) were invested in securities rated A or better as of September 30, 2003 and December 31, 2002, respectively. As interest rates decrease, the market value of fixed maturity securities increases.
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The following table provides the cumulative net
unrealized gains (pre-tax) on fixed maturity securities and
equity securities as of the dates indicated:
As of
As of
As of
September 30, 2003
December 31, 2002
December 31, 2001
(in millions)
$
8,284
$
7,631
$
7,471
564
405
159
$
8,848
$
8,036
$
7,630
$
419
$
265
$
243
14
7
4
$
433
$
272
$
247
Net unrealized gains on fixed maturity securities increased by $159 million, or 39%, from December 31, 2002 to September 30, 2003. The increase in net unrealized gains was primarily due to the decline in investment grade corporate securities yield spreads. Spreads on investment grade corporate securities fell by approximately 85 basis points between December 31, 2002 and September 30, 2003.
Net unrealized gains on fixed maturity securities increased by $246 million, or 155%, from December 31, 2001 to December 31, 2002. This reflected the impact of declining market interest rates. Yields on 10-year U.S. Treasury bonds decreased by 121 basis points from 5.03% at December 31, 2001 to 3.82% at December 31, 2002.
Net unrealized gains on equity securities
increased by $7 million, or 100%, from December 31,
2002 to September 30, 2003 and by $3 million, or 75%,
from December 31, 2001 to December 31, 2002.
Reserves
The following table presents reserve information
as of the dates indicated:
As of
As of
As of
September 30,
December 31,
December 31,
2003
2002
2001
(in millions)
$
6,125
$
5,807
$
5,547
3,194
3,208
3,267
3,462
3,374
3,250
$
12,781
$
12,389
$
12,064
Future policy benefits and expenses increased by $318 million, or 5%, from December 31, 2002 to September 30, 2003 and by $260 million, or 5%, from December 31, 2001 to December 31, 2002. The main contributing factor to these increases was growth in underlying business.
Unearned premiums decreased by $14 million, or less than 1%, from December 31, 2002 to September 30, 2003 and by $59 million, or 2%, from December 31, 2001 to December 31, 2002.
Claims and benefits payable increased by $88 million, or 3%, from December 31, 2002 to September 30, 2003 and increased by $124 million, or 4%, from December 31, 2001 to December 31, 2002. The main contributing factor to these increases was growth in underlying business.
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The following table provides reserve information by our major lines of business for the years ended December 31, 2002 and 2001:
December 31, 2002 | December 31, 2001 | |||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
Future | Future | |||||||||||||||||||||||||
policy | Claims and | policy | Claims and | |||||||||||||||||||||||
benefits and | Unearned | benefits | benefits and | Unearned | benefits | |||||||||||||||||||||
expenses | premiums | payable | expenses | premiums | payable | |||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||
Long Duration Contracts:
|
||||||||||||||||||||||||||
Pre-funded funeral life insurance policies and
investment-type annuity contracts
|
$ | 1,991 | $ | 3 | $ | 15 | $ | 1,764 | $ | 2 | $ | 12 | ||||||||||||||
Life insurance no longer offered
|
693 | 1 | 5 | 704 | 1 | 5 | ||||||||||||||||||||
Universal life and annuities no longer offered
|
334 | 1 | 12 | 359 | 1 | 20 | ||||||||||||||||||||
FFG and LTC disposed businesses
|
2,619 | 48 | 139 | 2,565 | 46 | 120 | ||||||||||||||||||||
All other
|
170 | 75 | 167 | 155 | 64 | 147 | ||||||||||||||||||||
Short Duration Contracts:
|
||||||||||||||||||||||||||
Group term life
|
| 11 | 457 | | 15 | 438 | ||||||||||||||||||||
Group disability
|
| 4 | 1,299 | | 4 | 1,204 | ||||||||||||||||||||
Medical
|
| 43 | 202 | | 34 | 210 | ||||||||||||||||||||
Dental
|
| 8 | 44 | | 9 | 47 | ||||||||||||||||||||
Property and warranty
|
| 1,135 | 536 | | 1,081 | 501 | ||||||||||||||||||||
Credit life and disability
|
| 1,074 | 445 | | 1,313 | 484 | ||||||||||||||||||||
Extended service contracts
|
| 803 | 16 | | 695 | 31 | ||||||||||||||||||||
All other
|
| 2 | 37 | | 2 | 31 | ||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||
Total policy liabilities
|
$ | 5,807 | $ | 3,208 | $ | 3,374 | $ | 5,547 | $ | 3,267 | $ | 3,250 | ||||||||||||||
|
|
|
|
|
|
For a description of our reserving methodology, see Note 14 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus.
Long Duration
The following discusses the reserving process for our major long duration product line.
Pre-funded Funeral Life Insurance |
Reserves for future policy benefits are recorded as the present value of future benefits to policyholders and related expenses less the present value of future net premiums. Reserve assumptions are selected using best estimates for expected investment yield, inflation, mortality and withdrawal rates. These assumptions reflect current trends, are based on Company experience and include provision for possible unfavorable deviation. An unearned premium reserve is also recorded which represents the balance of the excess of gross premiums over net premiums that is still to be recognized in future years income in a constant relationship to insurance in force.
Loss recognition testing is performed annually. Such testing involves the use of best estimate assumptions to determine if the net liability position (all liabilities less DAC) exceeds the minimum liability needed. Any premium deficiency would first be addressed by removing the provision for adverse deviation. To the extent a premium deficiency still remains, it would be recognized immediately by a charge to the statement of
82
Historically, loss recognition testing has not resulted in an adjustment to DAC or reserves. Such adjustments would occur only if economic or mortality conditions significantly deteriorated.
Short Duration
For short duration contracts, claims and benefits payable reserves are recorded when insured events occur. The liability is based on the expected ultimate cost of settling the claims. The claims and benefits payable reserves include (1) case base reserves for known but unpaid claims as of the balance sheet date; (2) IBNR reserves for claims where the insured event has occurred but has not been reported to us as of the balance sheet date; and (3) loss adjustment expense reserves for the expected handling costs of settling the claims. Periodically, we review emerging experience and make adjustments to our case reserves and assumptions where necessary. Below are further discussions on the reserving process for our major short duration products.
Group Term Life and Group Disability |
Case or claim reserves are set for active individual claims on group disability policies and for disability waiver of premium benefits on group term life policies. Assumptions considered in setting such reserves include disabled life mortality and claim termination rates (the rates at which disabled claimants come off claim, either through recovery or death), claim management practices, awards for social security and other benefit offsets and yield rates earned on assets supporting the reserves. Group long-term disability and group term life waiver of premium reserves are discounted because the payment pattern and ultimate cost are fixed and determinable on an individual claim basis.
Factors considered when setting IBNR reserves include patterns in elapsed time from claim incidence to claim reporting, and elapsed time from claim reporting to claim payment.
Key sensitivities for group long-term disability claim reserves include the discount rate and claim termination rates. If the discount rate were reduced (or increased) by 100 basis points, reserves at September 30, 2003 would be approximately $52 million higher (or lower). If claim termination rates were 10% lower (or higher) than currently assumed, reserves at September 30, 2003 would be approximately $38 million higher (or lower).
The discount rate is also a key sensitivity for group term life waiver of premium reserves. If the discount rate were reduced (or increased) by 100 basis points, reserves at September 30, 2003 would be approximately $13 million higher (or lower).
As set forth in Note 14 of the Notes to Consolidated Financial Statements for the years ended December 31, 2002, 2001 and 2000, Group Disability incurred losses related to prior years were approximately $3 million, $7 million and $10 million less than the reserves that were previously estimated for the years ended December 31, 2002, 2001 and 2000, respectively. The downward revisions were less than 1% of prior-year reserves. Group Disability reserves are long-term in nature, and the reserves are estimated based on claims incurred in several prior years. The Group Disability reserve redundancies described above, and the related downward revisions in our Group Disability reserve estimates, arose as a result of our actual claim recovery rates exceeding those assumed in our beginning-of-year case reserves, after taking into account an offset of one less year of discounting reflected in our end-of-year case reserves. The difference in actual versus best estimate recovery rates reflects an experience gain, which is recognized in the period the gain is realized. One less year of discounting reflects the mechanics of discounted reserves, which are recognized in the period such unwinding occurs.
As set forth in Note 14 of the Notes to Consolidated Financial Statements for the years ended December 31, 2002, 2001 and 2000, Group Term Life incurred losses related to prior years were approximately $29 million, $35 million and $38 million less than the reserves that were previously estimated for the years ended December 31, 2002, 2001 and 2000, respectively. A significant portion of the Group Term Life
83
A portion of the Group Term Life reserve redundancies described above, and the related downward revision in our Group Term Life reserve estimates, were caused by actual mortality rates being lower than assumed in our beginning-of-year reserves and recovery rates being higher than assumed in our beginning-of-year waiver of premium reserves. The remaining redundancy and related downward revision were due to shorter-than-expected lags between incurred claim dates and paid claim dates. These amounts were offset by one less year of discounting reflected in the Companys end-of-year waiver of premium reserves. The differences in actual versus best estimate mortality, recovery and paid claim lag rates reflect experience gains, which are recognized in the period the gains emerge. One less year of discounting reflects the mechanics of discounted reserves, which are reflected in the period such unwinding occurs.
For both Group Disability and Group Term Life, none of the changes in incurred claims from prior years, and the related downward revisions in our Group Disability and Group Term Life estimated reserves, were attributable to any change in our reserve methods or assumptions.
Medical |
IBNR reserves represent the largest component of reserves estimated for claims and benefits payable in our Medical line of business, and we use a number of methods in their estimation, including the loss development method and the projected claim method for recent claim periods. We use several methods in our Medical line of business because of the limitations of relying exclusively on a single method.
A key sensitivity is the loss development factors used. Loss development factors selected take into consideration claims processing levels, claims under case management, medical inflation, seasonal effects, medical provider discounts and product mix. A 1% reduction (or increase) to the loss development factors for the most recent four months would result in approximately $25 million higher (or lower) reserves at September 30, 2003. Our historical claims experience indicates that approximately 85% of medical claims are paid within four months of the incurred date.
As set forth in Note 14 of the Notes to Consolidated Financial Statements for the years ended December 31, 2002, 2001 and 2000, actual losses incurred in our Medical business related to prior years were $43 million, $48 million and $38 million less than previously estimated for the years ended December 31, 2002, 2001 and 2000, respectively. Due to the short-tail nature of this business, these developments relate to claims incurred in the preceding year (i.e., in 2001, 2000 and 1999 respectively). The redundancies in our Medical line of business, and the related downward revisions in our Medical reserve estimates, were caused by our claims developing more favorably than expected. Our actual claims experience reflected lower medical provider utilization and lower medical inflation than assumed in our prior-year pricing and reserving processes. The differences in actual versus best estimate paid claim lag rates, medical provider utilization and medical inflation reflect experience gains, which are recognized in the period the gains emerge.
None of the changes in incurred claims from prior years in our Medical line of business, and the related downward revisions in our Medical estimated reserves, were attributable to any change in our reserve methods or assumptions.
Property and Warranty
Our Property and Warranty line of business includes creditor-placed homeowners, manufactured housing homeowners, credit property, credit unemployment and warranty insurance and some longer-tail coverages (e.g. asbestos, environmental, other general liability and personal accident). Our Property and Warranty loss reserves consist of case reserves and bulk reserves. Bulk reserves consist of IBNR and development on case reserves. The method we most often use in setting our Property and Warranty bulk reserves is the loss development method. Under this method, we estimate ultimate losses for each accident period by multiplying the current cumulative losses by the appropriate loss development factor. We then calculate the bulk reserve as the difference between the estimate of ultimate losses and the current case-incurred losses (paid losses plus
84
We may use other methods depending on data credibility and product line. We use the estimates generated by the various methods to establish a range of reasonable estimates. In arriving at the best estimate, we consider reserve stability and conservatism. At December 31, 2002, our Property and Warranty reserve estimates ranged from $209 million to $270 million. From this range, our actuaries selected a best estimate of $249 million.
As set forth in Note 14 of the Notes to Consolidated Financial Statements for the periods ended December 31, 2002, 2001 and 2000, actual losses incurred in our Property and Warranty lines of business related to prior years were $1 million, $22 million and $24 million less than previously estimated for the years ended December 31, 2002, 2001 and 2000, respectively. The redundancies in our Property and Warranty lines of business, and the related downward revisions in our estimated reserves in 2001 and 2000, occurred mostly in our credit unemployment and credit property insurance coverages, whereas the other coverages showed immaterial adjustments to prior years incurred losses. These changes reflect experience gains from actual claim frequencies being more favorable than best estimate claim frequencies, and differences in actual versus best estimate paid claim lag rates. Such gains are recognized in the period the gains emerge. The drop in redundancy from 2001 to 2002 largely reflected a shift in the mix of business away from the credit property and unemployment product lines. In addition, an increase in the claim frequency of unemployment contributed to additional development in 2002 and thus lower reserve redundancies in the credit unemployment product line.
For the longer-tail Property and Warranty coverages (e.g. asbestos, environmental, other general liability and personal accident), there were no changes in estimated amounts for incurred claims in prior years for all years.
None of the changes in incurred claims from prior years, and the related downward revisions in estimated reserves, were attributable to any change in our reserve methods or assumptions.
Most of our credit insurance business is written on a retrospective commission basis, which permits Assurant Solutions to adjust commissions based on claims experience. Thus, any adjustment to prior years incurred claims in this line of business is largely offset by a change in contingent commissions.
Reinsurance
The following table sets forth our reinsurance recoverables as of the dates indicated:
As of | As of | As of | ||||||||||
September 30, | December 31, | December 31, | ||||||||||
2003 | 2002 | 2001 | ||||||||||
|
|
|
||||||||||
(in millions) | ||||||||||||
Reinsurance recoverables
|
$ | 4,530 | $ | 4,650 | $ | 4,752 |
Reinsurance recoverables decreased by $120 million, or 3%, from December 31, 2002 to September 30, 2003 and by $102 million, or 2%, from December 31, 2001 to December 31, 2002. We have used reinsurance to exit certain businesses, such as the dispositions of FFG and LTC. The reinsurance recoverables relating to these dispositions amounted to $2,373 million at December 31, 2002 and $2,294 million at December 31, 2001.
85
In the ordinary course of business, we are
involved in both the assumption and cession of reinsurance with
non-affiliated companies. The following table provides details
of the reinsurance recoverables balance for the years ended
December 31:
2002
2001
(in millions)
$
2,452
$
2,348
1,277
1,496
744
752
177
156
$
4,650
$
4,752
We utilize ceded reinsurance for loss protection and capital management, business dispositions and, in Assurant Solutions, for client risk and profit sharing.
Loss Protection and Capital Management
As part of our overall risk and capacity management strategy, we purchase reinsurance for certain risks underwritten by our various business segments, including significant individual or catastrophic claims, and to free up capital to enable us to write additional business.
For those product lines where there is exposure to catastrophes, we closely monitor and manage the aggregate risk exposure by geographic area, and we have entered into reinsurance treaties to manage exposure to these types of events.
Under indemnity reinsurance transactions in which we are the ceding insurer, we remain liable for policy claims if the assuming company fails to meet its obligations. To limit this risk, we have control procedures to evaluate the financial condition of reinsurers and to monitor the concentration of credit risk to minimize this exposure. The selection of reinsurance companies is based on criteria related to solvency and reliability and, to a lesser degree, diversification as well as developing strong relationships with our reinsurers for the sharing of risks.
Business Dispositions
We have used reinsurance to exit certain businesses, such as the dispositions of FFG and LTC. Reinsurance was used in these cases to facilitate the transactions because the businesses shared legal entities with business segments that we retained. Assets backing liabilities ceded relating to these businesses are held in trusts, and the separate accounts relating to FFG are still reflected in our balance sheet.
The reinsurance recoverable from The Hartford was $1,680 million and $1,748 million as of December 31, 2002 and 2001, respectively. The reinsurance recoverable from John Hancock was $693 million and $546 million as of December 31, 2002 and 2001, respectively. We would be responsible to administer this business in the event of a default by reinsurers. In addition, under the reinsurance agreement, The Hartford is obligated to contribute funds to increase the value of the separate accounts relating to the business sold if such value declines. If The Hartford fails to fulfill these obligations, we will be obligated to make these payments.
Assurant Solutions Segment Client Risk and Profit Sharing
The Assurant Solutions segment writes business produced by its clients, such as mortgage lenders and servicers and financial institutions, and reinsures all or a portion of such business to insurance subsidiaries of the clients. Such arrangements allow significant flexibility in structuring the sharing of risks and profits on the underlying business.
A substantial portion of Assurant Solutions reinsurance activities are related to agreements to reinsure premiums and risk related to business generated by certain clients to the clients captive insurance companies or to reinsurance subsidiaries in which the clients have an ownership interest. Through these arrangements, our insurance subsidiaries share some of the premiums and risk related to client-generated business with these clients. When the reinsurance companies are not authorized to do business in our insurance subsidiarys
86
Liquidity and Capital Resources
Assurant, Inc. is a holding company, and as such, has limited direct operations of its own. Our holding company assets consist primarily of the capital stock of our subsidiaries. Accordingly, our future cash flows depend upon the availability of dividends and other statutorily permissible payments from our subsidiaries, such as payments under our tax allocation agreement and under management agreements with our subsidiaries. The ability to pay such dividends and to make such other payments will be limited by applicable laws and regulations of the states in which our subsidiaries are domiciled, which subject our subsidiaries to significant regulatory restrictions. The dividend requirements and regulations vary from state to state and by type of insurance provided by the applicable subsidiary. These laws and regulations require, among other things, our insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay to the holding company. Solvency regulations, capital requirements and rating agencies are some of the factors used in determining the amount of capital used for dividends. For 2003, the maximum amount of distributions our subsidiaries could pay under applicable laws and regulations without prior regulatory approval was $290 million. As a result of, among other things, statutory accounting for our sales of businesses, we believe that our maximum will be significantly lower for 2004. For a discussion of the various restrictions on our ability and the ability of our subsidiaries to pay dividends, please see Regulation, Description of Share Capital and Description of Indebtedness.
Dividends and other interest income paid by our subsidiaries totaled $18.5 million for the nine months ended September 30, 2003, $78.2 million for the nine months ended September 30, 2002, $186.5 million for the year ended December 31, 2002 and $615.4 million for the year ended December 31, 2001. Figures for 2001 were higher due to a gain on the sale of FFG. We used these cash inflows primarily to pay expenses, to make interest payments on indebtedness and to make dividend payments to our stockholders.
The primary sources of funds for our subsidiaries consist of premiums and fees collected, the proceeds from the sales and maturity of investments and investment income. Cash is primarily used to pay insurance claims, agent commissions, operating expenses and taxes. We generally invest our subsidiaries excess funds in order to generate income.
Historically, Fortis has maintained a $1 billion commercial paper facility that we have been able to access for up to $750 million. We use commercial paper to cover any cash shortfalls, which may occur from time to time. We had no commercial paper borrowings during the first nine months of 2003 or during the year ended December 31, 2002. In 2001, $217 million in commercial paper was issued and redeemed. There was no outstanding commercial paper at year-end 2001. In connection with our separation from Fortis, we will no longer have access to this facility. Our subsidiaries do not maintain commercial paper or other borrowing facilities at the subsidiary level.
We have entered into two senior bridge credit facility arrangements. See Description of Indebtedness. We also intend to enter into a $500 million senior revolving credit facility and establish a commercial paper program, which we expect to be available for working capital and other general corporate purposes. We will receive a $744 million capital contribution from Fortis Insurance N.V. immediately prior to or simultaneously with the closing of the offering contemplated by this prospectus and will use the proceeds of that capital contribution to repay the $650 million of outstanding indebtedness under the $650 million senior bridge credit facility and $94 million of outstanding indebtedness under the $1,100 million senior bridge credit facility. Simultaneously with the closing of the offering contemplated by this prospectus, we will also repay a portion of the $1,100 million senior bridge credit facility with $31 million in cash. We will also seek to incur other long-
87
Our qualified pension plan was under-funded by $95 million at December 31, 2002. In 2003, we made contributions to the pension fund of $19 million in April and $39.6 million in September. In accordance with ERISA, there is no expected minimum funding requirement for 2004 or 2005. Our nonqualified plans, which are unfunded, had a projected benefit obligation of $64 million at December 31, 2002. The expected company payments to retirees under these plans are approximately $4 million per year in 2004 and 2005. Also, our post-retirement plans (other than pension), which are unfunded, had an accumulated post-retirement benefit obligation of $46 million at December 31, 2002. In September 2003, we contributed $5.9 million towards pre-funding these benefits. In addition, the expected company payments to retirees and dependents under the postretirement plan are approximately $1.5 million per year in 2004 and 2005. See Note 16 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus.
We estimate that our capital expenditures in connection with our name change and rebranding initiative will be approximately $10 million, which we will expense in 2004. We are not currently planning to make any other significant capital expenditures in 2004 or 2005.
We anticipate that we will pay to participants in the Fortis Appreciation Incentive Rights Plan (to be renamed the Assurant Appreciation Incentive Rights Plan) an aggregate of approximately $25 million in connection with the cash-out of all outstanding Fortis, Inc. incentive rights. See Management Management Compensation and Incentive Plans Assurant Appreciation Incentive Rights Plan.
In managements opinion, our subsidiaries cash flow from operations together with our income and gains from our investment portfolio will provide sufficient liquidity to meet our needs in the ordinary course of business.
Cash Flows
We monitor cash flows at both the consolidated and subsidiary levels. Cash flow forecasts at the consolidated and subsidiary levels are provided on a monthly basis, and we use trend and variance analyses to project future cash needs making adjustments to the forecasts when needed.
The table below shows our recent net cash flows:
For the
Nine Months
For the
Ended
Year Ended
September 30,
December 31,
Net cash provided by (used in):
2003
2002
2002
2001
2000
(in millions)
$
590
$
208
$
395
$
536
$
533
(516
)
(320
)
(361
)
(175
)
(28
)
(182
)
(42
)
(43
)
(380
)
(429
)
$
(108
)
$
(154
)
$
(9
)
$
(19
)
$
76
Cash Flows for the Nine Months Ended September 30, 2003 and September 30, 2002. The key changes of the net cash outflow of $108 million for the nine months ended September 30, 2003 were net purchases of fixed maturity securities of $1,571 million and dividends paid of $182 million, as compared to net purchases of fixed maturity securities of $962 million and dividends paid of $42 million for the nine months ended September 30, 2002.
Cash Flows for the Years Ended December 31, 2002, 2001 and 2000. The key changes of the net cash outflow of $9 million for the year ended December 31, 2002 were net purchases of fixed maturity securities of $1,153 million and maturities of these securities of $861 million. Key changes of the net cash outflow of $19 million for the year ended December 31, 2001 were the sale of FFG for $385 million in cash and changes in our revenues and expenses from operating activities as described above. Key changes of the net cash inflow of $76 million for the year ended December 31, 2000 were $550 million of proceeds received from the issuance
88
At September 30, 2003, we had total debt outstanding of $1,470 million, as compared to $1,471 million at December 31, 2002, $1,471 million at December 31, 2001 and $1,475 million at December 31, 2000. This debt consisted of trust capital securities, which we classify as mandatorily redeemable preferred securities of subsidiary trusts, and a small amount of mandatorily redeemable preferred stock. See Description of Share Capital and Certain Relationships and Related Transactions for a description of the terms of these securities.
The table below shows our cash outflows for distributions and dividends for the periods indicated:
For the | |||||||||||
Nine Months | For the Year Ended | ||||||||||
Ended | December 31, | ||||||||||
September 30, |
|
||||||||||
Security | 2003 | 2002 | 2001 | 2000 | |||||||
|
|
|
|
|
|||||||
(in thousands) | |||||||||||
Mandatorily redeemable preferred securities of
subsidiary trusts and interest paid
|
$ | 97,151 | $117,114 | $133,667 | $112,816 | ||||||
Mandatorily redeemable preferred stock dividends
|
715 | 1,052 | 1,053 | 947 | |||||||
Class A Common Stock dividends
|
139,310 | | 67,000 | | |||||||
Class B and C Common Stock dividends
|
41,877 | 41,876 | 42,298 | 21,111 | |||||||
|
|
|
|
||||||||
Total
|
$ | 279,053 | $160,042 | $244,018 | $134,874 | ||||||
|
|
|
|
See Capitalization.
In connection with the conversion of our Class B and Class C Common Stock into Common Stock, we will pay accrued dividends aggregating approximately $19 million from September 1, 2003 to the settlement date for the offer to purchase and consent solicitation, which is expected to be on or about the closing date of the offering contemplated by this prospectus.
Commitments and Contingencies
We have obligations and commitments to third parties as a result of our operations. These obligations and commitments, as of December 31, 2002, are detailed in the table below by maturity date as of the dates indicated:
As of December 31, | |||||||||||||||||||||||||
|
|||||||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | Thereafter | ||||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||
Contractual obligations: | |||||||||||||||||||||||||
|
|||||||||||||||||||||||||
Mandatorily redeemable preferred securities of
subsidiary trusts
|
$ | | $ | | $ | 150 | $ | | $ | | $ | 1,296 | |||||||||||||
Mandatorily redeemable preferred stock
|
| | | | | 24 | |||||||||||||||||||
Operating leases
|
40 | 35 | 32 | 27 | 23 | 53 | |||||||||||||||||||
Commitments: | |||||||||||||||||||||||||
|
|||||||||||||||||||||||||
Investment purchases
|
|||||||||||||||||||||||||
Outstanding:
|
|||||||||||||||||||||||||
unsettled trades
|
24 | | | | | | |||||||||||||||||||
commercial mortgage loans on real estate
|
29 | | | | | | |||||||||||||||||||
other investments
|
4 | | | 2 | 30 | | |||||||||||||||||||
Total obligations and commitments
|
$ | 97 | $ | 35 | $ | 182 | $ | 29 | $ | 53 | $ | 1,373 | |||||||||||||
|
|
|
|
|
|
89
In December 2003 and January 2004, we redeemed all of the mandatorily redeemable preferred securities of subsidiary trusts for a redemption price equal to their aggregate liquidation amount plus accrued and unpaid interest to the date of redemption and aggregate premium of approximately $204 million, all of which has been expensed in the fourth quarter of 2003. We entered into the senior bridge credit facilities described under Description of Indebtedness in connection with these redemptions.
Letters of Credit |
In the normal course of business, letters of credit are issued primarily to support reinsurance arrangements. These letters of credit are supported by commitments with financial institutions. We had approximately $108 million and $109 million of letters of credit outstanding as of September 30, 2003 and December 31, 2002, respectively.
Additionally, as of September 30, 2003, we had an unused $50 million letter of credit facility.
Quantitative and Qualitative Disclosures about Market Risk
As a provider of insurance products, effective risk management is fundamental to our ability to protect both our customers and stockholders interests. We are exposed to potential loss from various market risks, in particular interest rate risk and credit risk. Additionally we are exposed to inflation risk and to a small extent to foreign currency risk.
Interest rate risk is the possibility the fair value of liabilities will change more or less than the market value of investments in response to changes in interest rates, including changes in the slope or shape of the yield curve and changes in spreads due to credit risks and other factors.
Credit risk is the possibility that counterparties may not be able to meet payment obligations when they become due. We assume counterparty credit risk in many forms. A counterparty is any person or entity from which cash or other forms of consideration are expected to extinguish a liability or obligation to us. Primarily, our credit risk exposure is concentrated in our fixed income investment portfolio and, to a lesser extent, in our reinsurance recoverables.
Inflation risk is the possibility that a change in domestic price levels produces an adverse effect on earnings. This typically happens when only one of invested assets or liabilities is indexed to inflation.
Foreign exchange risk is the possibility that changes in exchange rates produce an adverse effect on earnings and equity when measured in domestic currency. This risk is largest when assets backing liabilities payable in one currency are invested in financial instruments of another currency. Our general principle is to invest in assets that match the currency in which we expect the liabilities to be paid.
Interest Rate Risk |
Interest rate risk arises as we invest substantial funds in interest-sensitive fixed income assets, such as fixed maturity investments, mortgage-backed and asset-backed securities and commercial mortgage loans, primarily in the United States and Canada. There are two forms of interest rate riskprice risk and reinvestment risk. Price risk occurs when fluctuations in interest rates have a direct impact on the market valuation of these investments. As interest rates rise, the market value of these investments falls, and conversely, as interest rates fall, the market value of these investments rises. Reinvestment risk occurs when fluctuations in interest rates have a direct impact on expected cash flows from mortgage-backed and asset-backed securities. As interest rates fall, an increase in prepayments on these assets results in earlier than expected receipt of cash flows forcing us to reinvest the proceeds in an unfavorable lower interest rate environment, and conversely as interest rates rise, a decrease in prepayments on these assets results in later than expected receipt of cash flows forcing us to forgo reinvesting in a favorable higher interest rate environment. As of September 30, 2003, we held $8,848 million of fixed maturity securities at fair market value and $909 million of commercial mortgages at amortized cost for a combined total of 91.1% of total invested assets. As of December 31, 2002, we held $8,036 million of fixed maturity securities at fair market
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We expect to manage interest rate risk by selecting investments with characteristics such as duration, yield, currency and liquidity tailored to the anticipated cash outflow characteristics of our insurance and reinsurance liabilities.
Our group long-term disability reserves are also sensitive to interest rates. Group long-term disability reserves are discounted to the valuation date at the valuation interest rate. The valuation interest rate is determined by taking into consideration actual and expected earned rates on our asset portfolio, with adjustments for investment expenses and provisions for adverse deviation.
The interest rate sensitivity of our fixed maturity security assets is assessed using hypothetical test scenarios that assume several positive and negative parallel shifts of the underlying yield curves. We have assumed that both the United States and Canadian yield curves have a 100% correlation and, therefore, move together. The individual securities are repriced under each scenario using a valuation model. For investments such as mortgage-backed and asset-backed securities, a prepayment model was used in conjunction with a valuation model. Our actual experience may differ from the results noted below particularly due to assumptions utilized or if events occur that were not included in the methodology. The following table summarizes the results of this analysis for bonds, mortgage-backed and asset-backed securities held in our investment portfolio:
Interest Rate Movement Analysis
|
||||||||||||||||||||
-100 | -50 | 0 | 50 | 100 | ||||||||||||||||
|
|
|
|
|
||||||||||||||||
(in millions) | ||||||||||||||||||||
Total market value
|
$ | 8,527 | $ | 8,279 | $ | 8,036 | $ | 7,805 | $ | 7,582 | ||||||||||
% Change in market value from base case
|
6.1 | % | 3.0 | % | 0.0 | % | (2.9 | )% | (5.6 | )% | ||||||||||
$ Change in market value from base case
|
$ | 491 | $ | 243 | $ | | $ | (231 | ) | $ | (454 | ) |
Credit Risk |
We have exposure to credit risk primarily as a holder of fixed income securities and by entering into reinsurance cessions.
Our risk management strategy and investment policy is to invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to any one issuer. We attempt to limit our credit exposure by imposing fixed maturity portfolio limits on individual issuers based upon credit quality. Currently our portfolio limits are 1.5% for issuers rated AA-and above, 1% for issuers rated A- to A+, 0.75% for issuers rated BBB- to BBB+ and 0.38% for issuers rated BB- to BB+. These portfolio limits are further reduced for certain issuers with whom we have credit exposure on reinsurance agreements. We use the lower of Moodys or Standard & Poors ratings to determine an issuers rating. See BusinessInvestments.
91
The following table presents our fixed maturity
investment portfolio by ratings of the nationally recognized
securities rating organizations as of December 31, 2002:
Percentage of
Rating
Fair Value
Total
(in millions)
$
6,013
75
%
$
1,526
19
%
$
338
4
%
$
159
2
%
$
8,036
100
%
We are also exposed to the credit risk of our reinsurers. When we reinsure, we are still liable to our insureds regardless of whether we get reimbursed by our reinsurer. As part of our overall risk and capacity management strategy, we purchase reinsurance for certain risks underwritten by our various business segments as described above under Reinsurance.
For at least 50% of our $4,649 million of reinsurance recoverables at December 31, 2002, we are protected from the credit risk by using some type of risk mitigation mechanism such as a trust, letter of credit or by withholding the assets in a modified coinsurance or co-funds-withheld arrangement. For example, reserves of $1,679 million and $693 million as of December 31, 2002 relating to two large coinsurance arrangements with The Hartford and John Hancock, respectively, related to sales of businesses. If the value of the assets in these trusts decreases, The Hartford and John Hancock, as the case may be, will be required to put more assets in the trusts. We may be dependent on the financial condition of The Hartford and John Hancock, whose A.M. Best ratings are currently A+ and A++, respectively. For recoverables that are not protected by these mechanisms, we are dependent solely on the credit of the reinsurer. Occasionally, the credit worthiness of the reinsurer becomes questionable. See Risk Factors Risks Related to Our Company Reinsurance may not be available or adequate to protect us against losses, and we are subject to the credit risk of reinsurers. We believe that a majority of our reinsurers are rated A- or better by A.M. Best.
Inflation Risk |
Inflation risk arises as we invest substantial funds in nominal assets, which are not indexed to the level of inflation, whereas the underlying liabilities are indexed to the level of inflation. Approximately 15% of Assurant PreNeeds insurance policies with reserves of approximately $394 million as of September 30, 2003 have death benefits that are guaranteed to grow with the Consumer Price Index. In times of rapidly rising inflation the credited death benefit growth on these liabilities increases relative to the investment income earned on the nominal assets resulting in an adverse impact on earnings. We have partially mitigated this risk by purchasing a contract with payments tied to the Consumer Price Index. See Derivatives.
In addition, we have inflation risk in our individual and small employer group health insurance businesses to the extent that medical costs increase with inflation and we have not been able to increase premiums to keep pace with inflation.
Foreign Exchange Risk |
We are exposed to some foreign exchange risk arising from our international operations mainly in Canada. We also have limited foreign exchange risk exposure to currencies other than the Canadian dollar, primarily British pounds and Danish krone. Total invested assets denominated in these other currencies were less than 1% of our total invested assets at December 31, 2002.
Foreign exchange risk is mitigated by matching our liabilities under insurance policies that are payable in foreign currencies with investments that are denominated in such currency. We have not established any hedge to our foreign currency exchange rate exposure.
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We assess our foreign exchange risk by examining the foreign exchange rate exposure of the excess of invested assets over the statutory reserve liabilities denominated in foreign currency. Two stress scenarios are examined.
The first scenario assumes a hypothetical 10% immediate change in the foreign exchange rate.
The second scenario assumes a more severe 2.33 standard deviation event (comparable to a one in 100 probability under a normal distribution).
The modelling techniques we use to calculate our exposure does not take into account correlation among foreign currency exchange rates or correlation among various markets. Our actual experience may differ from the results noted below particularly due to correlation assumptions utilized or if events occur that were not included in the methodology, such as significant illiquidity or other market events.
The following table summarizes the results of this analysis:
Adverse impact on the excess of investment assets over the statutory reserve | ||||||||||||||||||||
liabilities denominated in foreign currency | ||||||||||||||||||||
As of December 31, 2002 | ||||||||||||||||||||
|
||||||||||||||||||||
Excess of invested | ||||||||||||||||||||
assets over | Adverse impact of | |||||||||||||||||||
Total invested | Statutory reserve | statutory reserve | Adverse impact of | a 2.33 standard | ||||||||||||||||
assets | liabilities | liabilities | a 10% change in | deviation change in | ||||||||||||||||
(in foreign | (in foreign | (in foreign | exchange rate | exchange rate | ||||||||||||||||
Country | currency) | currency) | currency) | (in $)* | (in $) | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
(in millions) | ||||||||||||||||||||
Canada
|
CAD 497.0 | CAD 343.6 | CAD 153.4 | $ | (8.8 | ) | $ | (10.2 | ) |
* | 10% depreciation of CAD would cause a $8.9 million loss in the excess of investment assets over the statutory reserve liabilities. |
Derivatives |
Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices or the prices of securities or commodities. Derivative financial instruments may be exchange-traded or contracted in the over-the-counter market and include swaps, futures, options and forward contracts.
Under insurance statutes, our insurance companies may use derivative financial instruments to hedge actual or anticipated changes in their assets or liabilities, to replicate cash market instruments or for certain income-generating activities. These statutes generally prohibit the use of derivatives for speculative purposes. We generally do not use derivative financial instruments.
On August 1, 2003, we purchased a contract to partially hedge the inflation risk exposure inherent in some of our pre-funded funeral insurance policies.
93
BUSINESS
Overview
We pursue a differentiated strategy of building leading positions in specialized market segments for insurance products and related services in North America and selected other markets. We provide:
| creditor-placed homeowners insurance; | |
| manufactured housing homeowners insurance; | |
| debt protection administration; | |
| credit insurance; | |
| warranties and extended service contracts; | |
| individual health and small employer group health insurance; | |
| group dental insurance; | |
| group disability insurance; | |
| group life insurance; and | |
| pre-funded funeral insurance. |
The markets we target are generally complex, have a relatively limited number of competitors and, we believe, offer attractive profit opportunities. In these markets, we leverage the experience of our management team and apply our expertise in risk management, underwriting and business-to-business management, as well as our technological capabilities in complex administration and systems. Through these activities, we seek to generate above-average returns by building on specialized market knowledge, well-established distribution relationships and economies of scale.
As a result of our strategy, we are a leader in many of our chosen markets and products. In our Assurant Solutions business, we have leadership positions or are aligned with clients who are leaders in creditor-placed homeowners insurance based on servicing volume, manufactured housing homeowners insurance based on number of homes built and debt protection administration based on credit card balances outstanding. In our Assurant Employee Benefits business, we are a leading writer of group dental plans sponsored by employers based on the number of subscribers and based on the number of master contracts in force. In our Assurant PreNeed business, we are the largest writer of pre-funded funeral insurance measured by face amount of new policies sold. We believe that our leadership positions give us a sustainable competitive advantage in our chosen markets.
We currently have four decentralized operating business segments to ensure focus on critical activities close to our target markets and customers, while simultaneously providing centralized support in key functions. Each operating business segment has its own experienced management team with the autonomy to make decisions on key operating matters. These managers are eligible to receive incentive-based compensation based in part on operating business segment performance and in part on company-wide performance, thereby encouraging strong business performance and cooperation across all our businesses. At the operating business segment level, we stress disciplined underwriting, careful analysis and constant improvement and product redesign. At the corporate level, we provide support services, including investment, asset/liability matching and capital management, leadership development, information technology support and other administrative and finance functions, enabling the operating business segments to focus on their target markets and distribution relationships while enjoying the economies of scale realized by operating these businesses together. Also, our overall strategy and financial objectives are set and continuously monitored at the corporate level to ensure that our capital resources are being properly allocated.
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We organize and manage our specialized businesses
through four operating business segments:
For the
Operating Business
Principal Products and
Principal Distribution
Nine Months Ended
Segment
Services
Channels
September 30, 2003
Assurant Solutions
Total
revenues:
$1,978 million
Specialty
Property
Creditor-placed homeowners
insurance (including tracking services)
Mortgage lenders and servicers
Segment income before
income
tax:
$146 million
Manufactured housing
homeowners insurance
Manufactured housing lenders,
dealers and vertically integrated builders
Consumer
Protection
Debt protection
administration
Credit insurance
Warranties and extended service
contracts
-Appliances
-Automobiles
and
recreational
vehicles
-Consumer
electronics
-Wireless devices
Financial institutions
(including credit card issuers) and retailers
Consumer electronics and appliance
retailers
Vehicle dealerships
Total
revenues:
$1,536 million
Individual Health
PPO
Short-term
medical
insurance
Student medical insurance
Independent agents
National accounts
Internet
Segment income before
income
tax:
$142 million
Small Employer Group Health
PPO
Independent agents
Assurant Employee Benefits
Group dental
insurance
-Employer-paid
-Employee-paid
Group
disability
insurance
Group term life insurance
Employee benefit advisors
Brokers
DRMS(1)
Total revenues:
$1,062 million
Segment income before income
tax:
$75 million
Pre-funded
funeral
insurance
SCI
Independent funeral homes
Total revenues:
$545 million
Segment income before income
tax:
$43 million
(1) | DRMS refers to Disability Reinsurance Management Services, Inc., one of our wholly owned subsidiaries that provides a turnkey facility to other insurers to write principally group disability insurance. |
95
We also have a corporate and other segment, which includes activities of the holding company, financing expenses, realized gains (losses) on investments, interest income earned from short-term investments held and interest income from excess surplus of insurance subsidiaries not allocated to other segments. The Corporate and Other segment also includes (i) the results of operations of FFG (a business we sold on April 2, 2001) and (ii) LTC (a business we sold on March 1, 2000), for the periods prior to their disposition, and amortization of deferred gains associated with the portions of the sales of FFG and LTC sold through reinsurance agreements as described above. See Managements Discussion and Analysis of Financial Condition and Results of OperationsCorporate and Other.
For the nine months ended September 30, 2003, we generated total revenues of $5,239 million and net income of $263 million. For the year ended December 31, 2002, we generated total revenues of $6,532 million, net income before cumulative effect of change in accounting principle of $260 million and net loss of $1,001 million (after giving effect to a cumulative change in accounting principle of $1,261 million). As of September 30, 2003, we had total assets of approximately $22,873 million, including separate accounts. Our A.M. Best financial strength ratings are either A (Excellent) or A-(Excellent) for all of our domestic operating insurance subsidiaries. A rating of A is the second highest of ten ratings categories and the highest within the category based on modifiers (i.e., A and A- are Excellent) and a rating of A- is the second highest of ten ratings categories and the lowest within the category based on modifiers. We view the A.M. Best ratings as most relevant for the purpose of managing our businesses because these ratings relate to capital management at our insurance subsidiaries. These ratings reflect A.M. Bests opinions of our ability to pay policyholder claims, are not applicable to the securities offered in this prospectus and are not a recommendation to buy, sell or hold any security, including our common stock.
Competitive Strengths
We believe our competitive strengths include:
| Leadership Positions in Specialized Markets; | |
| Strong Relationships with Key Clients and Distributors; | |
| History of Product Innovation and Ability to Adapt to Changing Market Conditions; | |
| Disciplined Approach to Underwriting and Risk Management; | |
| Prudent Capital Management; | |
| Diverse Business Mix and Excellent Financial Strength; and | |
| Experienced Management Team with Proven Track Record and Entrepreneurial Culture. |
Leadership Positions in Specialized Markets. We are a market leader in many of our chosen markets. We hold a leading position or are aligned with clients who are leaders in creditor-placed homeowners insurance based on servicing volume, manufactured housing homeowners insurance based on number of homes built and credit insurance and debt protection administration based on credit card balances outstanding. In addition, we are market leaders in group dental plans sponsored by employers based on the number of subscribers and based on the number of master contracts in force, as well as a market leader in pre-funded funeral insurance based on face amount of new policies sold. We seek to participate in markets in which there are a limited number of competitors and that allow us to achieve a market leading position by capitalizing on our market expertise and capabilities in complex administration and systems, as well as on our established distribution relationships. We believe that our leadership positions provide us with the opportunity to generate high returns in these niche markets.
Strong Relationships with Key Clients and Distributors. As a result of our expertise in business-to-business management, we have created strong relationships with our distributors and clients in each of the niche markets we serve. In our Assurant Solutions segment, we have strong long-term relationships in the United States with six out of the ten largest mortgage lenders and servicers based on servicing volume, including JPMorgan Chase Bank, Washington Mutual and Wells Fargo Bank, four out of the seven largest
96
History of Product Innovation and Ability to Adapt to Changing Market Conditions. We are able to adapt quickly to changing market conditions by tailoring our product and service offerings to the specific needs of our clients. This flexibility has developed, in part, as a result of our entrepreneurial focus and the encouragement of management autonomy at each business segment. By understanding the dynamics of our core markets, we design innovative products and services to seek to sustain profitable growth and market leading positions. For instance, we believe we were one of the first providers of credit insurance to migrate towards fee-based debt protection solutions for our financial institution clients. This has allowed us to meet the evolving needs of our clients. It also has allowed us to continue generating profitable business despite a significant regulatory change that permitted financial institutions to offer debt protection products similar to credit insurance as part of their basic loan agreements with customers without being subject to insurance regulations. Other examples of our innovative products include: warranty products in our property business designed specifically for vertically integrated manufacturers of manufactured homes; specialty products, such as short-term health insurance, to address specific developments in the health insurance market and Medical Savings Account (MSA) features in our individual health products, which we were one of the first companies to offer. In addition, we developed our creditor-placed homeowners insurance business when we perceived a niche market opportunity.
Disciplined Approach to Underwriting and Risk Management. Our businesses share best practices of disciplined underwriting and risk management. We focus on generating profitability through careful analysis of risks and draw on our experience in core specialized markets. Examples of tools we use to manage our risk include our tele-underwriting program, which enables our trained underwriters to interview individual health insurance applicants over the telephone, as well as our electronic billing service in Assurant Employee Benefits, which enables us to collect more accurate data regarding eligibility of insureds. Also, at Assurant Solutions, in order to align our clients interests with ours and to help us to better manage risk exposure, a significant portion of Assurant Solutions consumer protection solutions contracts are written on a retrospective commission basis, which permits Assurant Solutions to adjust commissions based on claims experience. Under this contingent commission arrangement, compensation to the financial institutions and other agents distributing our products is predicated upon the actual losses incurred compared to premiums earned after a specific net allowance to Assurant Solutions. We also continually seek to improve and redesign our product offerings based on our underwriting experience. In addition, we closely monitor regulatory and market developments and adapt our approach as we deem necessary to achieve our underwriting and risk management goals. In Assurant Health, for example, we have exited states in which we were not achieving acceptable profitability and have re-entered states where the insurance environments have become more favorable. We are focused on loss containment, and we purchase reinsurance as a risk management tool to diversify risk and protect against unexpected events, such as catastrophes. We believe that our disciplined underwriting and risk management philosophy have enabled us to realize above average financial returns while focusing on our strategic objectives.
Prudent Capital Management. We focus on generating above-average returns on a risk-adjusted basis from our operating activities. We invest capital in our operating business segments when we identify attractive
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Diverse Business Mix and Excellent Financial Strength. We have four operating business segments across distinct areas of the insurance market. These businesses are generally not affected in the same way by economic and operating trends, which we believe allows us to maintain a greater level of financial stability than many of our competitors across business and economic cycles. In addition, as of September 30, 2003, we had $22,873 million of total assets, including separate accounts, and $2,753 million of stockholders equity. Our domestic operating insurance subsidiaries have financial strength ratings of A (Excellent) or A- (Excellent) from A.M. Best, six of our domestic operating insurance subsidiaries have financial strength ratings of A2 (Good) or A3 (Good) from Moodys and seven of our domestic operating insurance subsidiaries have financial strength ratings of A (Strong) or A-(Strong) from S&P. We employ a conservative investment policy and our portfolio primarily consists of high grade fixed income securities. As of September 30, 2003, we had $10,714 million of investments, consisting primarily of investment grade bonds with an average rating of A. We believe our solid capital base and overall financial strength allow us to distinguish ourselves from our competitors and continue to enable us to attract clients that are seeking long-term financial stability.
Experienced Management Team with Proven Track Record and Entrepreneurial Culture. We have a talented and experienced management team both at the corporate level and at each of our business segments. Our management team is led by our President and Chief Executive Officer, J. Kerry Clayton, who has been with our Company or its predecessors for 33 years. Our senior officers have an average tenure of approximately 16 years with our Company and close to 24 years in the insurance and related risk management business. Our management team has successfully managed our business and executed on our specialized niche strategy through numerous business cycles and political and regulatory challenges. Our management team also shares a set of corporate values and promotes a common corporate culture that we believe enables us to leverage business ideas, risk management expertise and focus on regulatory compliance across our businesses. At the same time, we reward and encourage entrepreneurship at each business segment, accomplished in part by our long history of utilizing performance-based compensation systems.
Growth Strategy
Our objective is to achieve superior financial performance by enhancing our leading positions in our specialized niche insurance and related businesses. We intend to achieve this objective by continuing to execute the following strategies in pursuit of profitable growth:
| Enhance Market Position in Our Business Lines; | |
| Develop New Distribution Channels and Strategic Alliances; | |
| Deploy Capital and Resources to Maintain Flexibility and Establish or Enhance Market Leading Positions; |
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| Maintain Disciplined Pricing Approach; and | |
| Continue to Manage Capital Prudently. |
Enhance Market Position in Our Business Lines. We have leading market positions in several of our business lines. We have been selective in developing our product and service offerings and will continue to focus on providing products and services to those markets that we believe offer attractive growth opportunities. We will also seek to continue penetrating our target markets and expand our market positions by developing and introducing new products and services that are tailored to the specific needs of our clients. For example, we are developing products that are targeted to purchasers of recreational vehicles, cell phones and other consumer products. In addition, we will continue to market our products to our existing client base and seek to identify clients in new target markets such as Brazil, Mexico, Argentina and other countries with emerging middle class populations.
Develop New Distribution Channels and Strategic Alliances. We have a strong, multi-channel distribution network already in place with leading market participants. These relationships have been critical to our market penetration and growth. We will continue to be selective in developing new distribution channels as we seek to expand our market share, enter new geographic markets and develop new niche businesses. For example, we recently entered into a strategic alliance with GE Consumer Products, which will enable us to sell and administer extended service contracts for consumer electronics, major appliances and other consumer goods to General Electrics customers.
Deploy Capital and Resources to Maintain Flexibility and Establish or Enhance Market Leading Positions. We seek to deploy our capital and resources in a manner that provides us with the flexibility to grow internally through product development, new distribution relationships and investments in technology, as well as to pursue acquisitions. As we expand through internal growth and acquisitions, we intend to leverage our expertise in risk management, underwriting and business-to-business management, as well as our technological capabilities in running complex administration systems and support services.
Maintain Disciplined Pricing Approach. We intend to maintain our disciplined pricing approach by seeking to focus on profitable products and markets and by pursuing a flexible approach to product design. We continuously evaluate the profitability of our products, and we will continue to pursue pricing strategies and adjust our mix of businesses by geography and by product so that we can maintain attractive pricing and margins. We seek to price our products at levels in order to achieve our target profit objectives.
Continue to Manage Capital Prudently. We intend to manage our capital prudently relative to our risk exposure to maximize profitability and long-term growth in stockholder value. Our capital management strategy is to maintain financial strength through conservative and disciplined risk management practices. We do this through product design, strong underwriting and risk selection and prudent claims management and pricing. In addition, we will maintain our conservative investment portfolio management philosophy and properly manage our invested assets in order to match the duration of our insurance product liabilities. We will continue to manage our business segments with the appropriate level of capital required to obtain the ratings necessary to operate in their markets and to satisfy various regulatory requirements. We will also continue to evaluate ways to reduce costs in each of our business lines, including by streamlining the number of legal entities through which we operate.
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Operating Business Segments
Our business is comprised of four operating
business segments: Assurant Solutions; Assurant Health; Assurant
Employee Benefits; and Assurant PreNeed. We also have a
Corporate and Other segment. Our business segments and the
related net earned premiums and other considerations and fees
and other income and segment income before income tax generated
by those segments are as follows for the periods indicated:
Net Earned Premiums and Other
Considerations and Fees and Other Income by Business
Segment
For the Nine Months
For the Year
Ended
Ended
September 30, 2003
December 31, 2002
Percentage
Percentage
$ (in millions)
of Total
$ (in millions)
of Total
$
551
12
%
$
583
10
%
1,285
27
1,613
27
1,836
39
2,196
37
772
16
894
15
728
16
963
16
1,500
32
1,857
31
957
20
1,307
22
405
9
543
9
17
24
1
$
4,715
100
%
$
5,927
100
%
Segment Income (Loss) Before Income Tax by Business Segment
For the Nine Months | For the Year | ||||||||||||||||
Ended | Ended | ||||||||||||||||
September 30, 2003 | December 31, 2002 | ||||||||||||||||
|
|
||||||||||||||||
Percentage | Percentage | ||||||||||||||||
$ (in millions) | of Total | $ (in millions) | of Total | ||||||||||||||
|
|
|
|
||||||||||||||
Assurant Solutions
|
$ | 146 | 37 | % | $ | 197 | 53 | % | |||||||||
Assurant Health
|
142 | 36 | 143 | 39 | |||||||||||||
Assurant Employee Benefits
|
75 | 19 | 88 | 24 | |||||||||||||
Assurant PreNeed
|
43 | 11 | 77 | 21 | |||||||||||||
Corporate and Other
|
(12 | ) | (3 | ) | (135 | ) | (37 | ) | |||||||||
|
|
|
|
||||||||||||||
Total Business Segments
|
$ | 394 | 100 | % | $ | 370 | 100 | % | |||||||||
|
|
|
|
The amount of our total revenues, segment income before and after income tax and total assets by segment and the amount of our revenues and long-lived assets by geographic region is set forth in Note 19 to our consolidated financial statements.
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Assurant Solutions
Assurant Solutions, which we began operating with the acquisition of American Security Group in 1980, has leadership positions or is aligned with clients who are leaders in creditor-placed homeowners insurance and related mortgage tracking services based on servicing volume, manufactured housing homeowners insurance based on number of homes built and debt protection administration based on credit card balances outstanding. We develop, underwrite and market our specialty insurance products and services through collaborative relationships with our clients (financial institutions, retailers, manufactured housing and automobile dealers, utilities and other entities) to their customers. We serve our clients throughout North America, the Caribbean and selected countries in South America and Europe.
Our principal business lines within our Assurant Solutions segment have experienced growth in varying degrees. Growth in premiums in the homeowners market has been driven by increased home purchase activity due to the low interest rate environment, appreciation in home values, an increasing percentage of the population purchasing homes generally and mortgage industry consolidation. The manufactured housing market has been more challenging because of a more restrictive lending environment with fewer lenders extending credit and increasingly strict underwriting standards being applied since the late 1990s. Finally, the domestic consumer credit insurance market has been contracting due to an adverse regulatory environment; however, this decline has been offset somewhat by accelerating growth in the debt protection market. This adverse regulatory environment has included, in the last few years, many state regulatory interpretations that impose rigorous agent licensing requirements for employees of lenders who offer credit insurance products as well as federal legislation which dissuades, and various state laws that either dissuade or prohibit, financial institutions from financing single premium credit or other credit insurance on consumer or home loans secured by real estate. At a recent industry conference, a study was presented that projected growth in the U.S. debt protection market from $500 million in 2000 to $5 billion in 2005. In addition, as the global economy and consumer discretionary spending grow, the international market for consumer insurance is expected to grow. We believe that we are well positioned to benefit from the growth in our key business lines with our broad product and service offerings.
In Assurant Solutions, we provide specialty property and consumer protection products and services. In our specialty property solutions division, our strategy is to further develop our creditor-placed homeowners and manufactured housing homeowners insurance products and related services in order to maintain our leadership position or relationships with clients who are leaders and to gain market share in the mortgage and manufactured housing industries, as well as to develop our renters insurance product line. In our consumer protection solutions division, we intend to continue to focus on being a low-cost provider of debt protection administration services, to leverage our administrative infrastructure with our large customer base clients and to manage the switch from credit insurance programs to debt protection programs in the United States.
The following table provides net earned premiums
and other considerations, fees and other income and other
operating data for Assurant Solutions for the periods indicated:
For the Nine
For the Year
Months Ended
Ended
September 30,
December 31,
2003
2002
2002
2001
2000
(in millions)
$
527
$
411
$
552
$
452
$
413
1,210
1,103
1,525
1,454
1,367
1,737
1,514
2,077
1,906
1,780
99
88
119
98
68
$
1,836
$
1,602
$
2,196
$
2,004
$
1,848
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Products and Services
Specialty Property Solutions. We underwrite a variety of creditor-placed and voluntary homeowners insurance as well as property coverages on manufactured housing, specialty automobiles, including antique automobiles, recreational vehicles, including motorcycles and watercraft, and leased and financed equipment. We also offer complementary programs such as flood insurance, renters insurance and various other property coverages. We are a leading provider of creditor-placed and other collateral protection insurance programs based on number of homes built. These other collateral protection insurance programs may include those that protect a lenders interest in homes, manufactured homes and automobiles. We also offer administration services for some of the largest mortgage lenders and servicers, manufactured housing lenders, dealers and vertically integrated builders and equipment leasing institutions in the United States. Many of our products and services are sold in conjunction with the sale or lease of the underlying property, vehicle or equipment by our clients. Our market strategy is to establish relationships with institutions who are leaders in their chosen markets and therefore can effectively and efficiently distribute our products and services to large customer bases. By aligning with these leaders, we benefit not only from their internally generated growth, but also from the growth they experience as acquirers of other companies or books of business in their respective markets.
The homeowners insurance product line is our largest line in our specialty property solutions division and accounted for approximately 13.3% of Assurant Solutions net earned premiums for the nine months ended September 30, 2003. The primary program within this line is our creditor-placed homeowners insurance. Creditor-placed homeowners insurance generally consists of fire and dwelling insurance that we provide to ensure collateral protection to a mortgage lender in the event that a homeowner fails to purchase or renew homeowners insurance on a mortgaged dwelling. In our typical arrangements with our mortgage lender and servicer clients, we agree that we will monitor the clients mortgage loan portfolio over time to verify the existence of homeowners insurance protecting the lenders interest in the underlying properties. We have developed a proprietary insurance tracking and administration process to verify the existence of insurance on a mortgaged property. In situations where such mortgaged property does not have appropriate insurance and after notification to the mortgageholder of the failure to have such insurance, we issue creditor-placed insurance policies to ensure the mortgaged property is protected. We believe our technology and insurance processing expertise enable us to provide efficient and high quality tracking and administration services. We believe that we are a leader in insurance and mortgage tracking services based on the number of mortgage loans tracked.
We also provide fee-based services to our mortgage lender and servicer clients in the creditor-placed homeowners insurance administration area, which services are complementary to our insurance products. Our ability to offer these services is a critical factor in establishing relationships with our clients. The vast majority of our mortgage lender and servicer clients outsource their insurance processing to us. These fee-based services include receipt of the insurance-related mail, matching of insurance information to specific loans, payment of insurance premiums on escrowed accounts, insurance-related customer service, loss draft administration and other related services. Our extensive use of technology includes specialized optical character recognition software, automated workflow processes and electronic data interchange processes. We use optical character recognition software and automated workflow processes to extract insurance data from various insurance forms. This information is used to update a clients insurance records and servicing system. This automation expedites the updating of the insurance information. We use electronic data interchange processes to update information on a clients tracking system as well to pay insurance premiums on escrow accounts. This process reduces paper inflow and also improves the accuracy rate and obviates the need for human intervention.
The second largest specialty property line in our specialty property solutions division is homeowners insurance for owners of manufactured homes, which accounted for approximately 9.4% of Assurant Solutions net earned premiums for the nine months ended September 30, 2003. We primarily distribute our manufactured housing insurance programs utilizing three marketing channels. Our primary channel is the nations leading manufactured housing retailers based on number of homes built. Through our proprietary premium rating technology, which is integrated with our clients sales process, we are able to offer our property coverages at the time the home is being sold, thus enhancing our ability to penetrate the new home point-of-
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We also provide voluntary homeowners insurance and voluntary manufactured housing homeowners insurance, which generally provide comprehensive coverage for the structure, contents and liability, as well as coverage for floods.
Consumer Protection Solutions. We offer a broad array of credit insurance programs, debt protection services and product warranties and extended service contracts, all of which are consumer-related, both domestically and in selected international markets. Consumer protection products and services accounted for approximately 69.7% of Assurant Solutions net earned premiums for the nine months ended September 30, 2003. Credit insurance and debt protection programs generally offer a consumer a convenient option to protect a credit card or installment loan in the event of a disability, unemployment or death so that the amount of coverage purchased equals the amount of outstanding debt. Under the credit insurance program, the loan or credit card balance is paid off in the case of death and, in the case of unemployment or disability, payments are made on the loan until the covered holder is employed again or medically able to return to work. Under the terms and conditions of a debt protection agreement, the monthly interest due from a customer may be waived or the monthly payments may be paid for a covered life event, such as disability, unemployment or family leave. Most often in the case of the death of a covered account holder, the debt is extinguished under the debt protection program. Coverage is generally available to all consumers without the underwriting restrictions that apply to term life insurance, such as medical examinations and medical history reports. We are the exclusive provider of debt protection administration services and credit insurance for four of the six largest general purpose credit card issuers in the United States based on credit card balances outstanding.
Almost all of the largest credit card issuing institutions in the United States have switched from offering credit insurance to their credit card customers to offering their own banking-approved debt protection programs. Assurant Solutions has been able to maintain all of its major credit card clients as they switched from our credit insurance programs to their debt protection programs. We earn fee income rather than net earned premiums from our debt protection administration services. In addition, margins are lower in debt protection administration than in traditional credit insurance programs. However, because debt protection is not an insurance product, certain costs, such as regulatory costs and costs of capital, are expected to be eliminated as the transition from credit insurance to debt protection administration services continues. The fees from debt protection administration do not fully compensate for the decrease in credit insurance premiums. In addition, we continue to provide credit insurance programs for many of the leading retailers, consumer finance companies and other institutions who are involved in consumer lending transactions. For the first nine months of 2003 compared to the same period in 2002, our net earned premiums in the U.S. credit insurance business decreased by approximately $103 million while debt protection fee income increased by $18 million. However, the decrease in credit insurance net earned premiums is not analogous to the increase in debt protection fee income because in the credit insurance business we bear insurance risk and pay claims, whereas in the debt protection business we bear no insurance risk and we collect fees for the administrative services we render.
We also underwrite, and provide administration services on, warranties and extended service contracts on appliances, consumer electronics, including personal computers, cellular phones and other wireless devices, and vehicles, including automobiles, recreational vehicles and boats. Our strategy is to provide our clients with all aspects of the warranty or extended service contract, including:
| program design; | |
| marketing strategy; |
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| technologically advanced administration; | |
| claims handling; and | |
| customer service. |
We believe that we maintain a unique differentiated position in the marketplace as a provider of both the required administrative infrastructure and insurance underwriting capabilities.
On September 26, 2003, Assurant Solutions entered into an agreement with General Electric to become the obligor and insurer of all extended service contracts issued directly by entities of GE Consumer Products and their clients. In addition, Assurant Solutions will become the administrator of service contracts covering personal computer products as well as a variety of lawn and garden products.
Marketing and Distribution
Assurant Solutions markets its insurance programs and administration services directly to:
| large financial institutions; | |
| mortgage lenders and servicers; | |
| credit card issuers; | |
| finance companies; | |
| automobile retailers; | |
| consumer electronics retailers; | |
| manufactured housing lenders, dealers and vertically integrated builders; and | |
| other institutions. |
Assurant Solutions enters into exclusive and other distribution agreements, typically with terms of one to five years, and develops interdependent systems with its clients that permit Assurant Solutions information systems to interface with its clients systems in order to exchange information in a seamless and integrated manner. For example, in our manufactured housing business, Assurant Solutions has developed a technology that interfaces its policy management system into its clients loan administration platforms. These interdependent systems result in more automated and efficient data tracking and processing. Through its long-standing relationships, Assurant Solutions has access to numerous potential policyholders and, in collaboration with its clients can tailor its products to suit various market segments. Assurant Solutions maintains a dedicated sales force that establishes and maintains relationships with its clients. Assurant Solutions has a disciplined multiple step business development process that is employed by its direct sales force. This multiple step business development process is a sales methodology for contacting, negotiating and consummating business relationships with new clients and enhancing business relationships with existing clients. Assurant Solutions maintains a specialized consumer acquisition marketing services group that manages its direct marketing efforts on behalf of its clients.
In the United States, we have strong distribution relationships with six out of the ten largest mortgage lenders and servicers based on servicing volume, four out of the seven largest manufactured housing builders based on number of homes built, four out of the six largest general purpose credit card issuers based on credit card balances outstanding and six out of the ten largest consumer electronics and appliances retailers based on combined product sales, with an average relationship of at least 10 years.
Underwriting and Risk Management
We, along with Assurant Solutions predecessors, have over 50 years of experience in providing specialty insurance programs and therefore maintain extensive proprietary actuarial databases and catastrophe models. These databases and catastrophe models enable us to better identify and quantify the expected loss experience of particular products and are employed in the design of our products and the establishment of rates.
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We have a disciplined approach to the management of our property product lines. We vigilantly monitor pricing adequacy on a product by region, state, risk and producer. Subject to regulatory considerations, we seek to make timely commission, premium and coverage modifications where we determine them to be appropriate. In addition, we maintain a segregated risk management area for property exposures whose emphasis includes catastrophic exposure management, reinsurance purchasing and analytical review of profitability based on various catastrophe models. We do not underwrite in our creditor-placed homeowners insurance line, as our contracts with our clients require that we automatically issue these policies, after notice, when a policyholders homeowners policy lapses or is terminated.
A distinct characteristic of our credit insurance programs is that the majority of these products have relatively low exposures. This is because policy size is equal to the size of the installment loan or credit card balance. Thus, loss severity for most of this business is low relative to other insurance companies writing more traditional lines of insurance. For those product lines where there is exposure to catastrophes (for example, our homeowners policies), we closely monitor and manage our aggregate risk exposure by geographic area and have entered into reinsurance treaties to manage our exposure to these types of events.
Also, a significant portion of Assurant Solutions consumer protection solutions contracts are written on a retrospective commission basis, which permits Assurant Solutions to adjust commissions based on claims experience. Under this contingent commission arrangement, compensation to the financial institutions and other clients is predicated upon the actual losses incurred compared to premiums earned after a specific net allowance to Assurant Solutions, which we believe aligns our clients interests with ours and helps us to better manage risk exposure.
In Assurant Solutions, our claims processing is highly automated and combines the efficiency of centralized claims handling, customer service centers and the flexibility of field representatives. This flexibility adds significant savings and efficiencies to the claims-handling process. Our claims department also provides automated feedback to help with risk assessment and pricing. In our specialty property solutions division, we complement our automated claims processing with field representatives who manage the claims process on the ground where and when needed.
Assurant Health
Assurant Health, which we began operating with the acquisition of Time Holdings, Inc. (now Fortis Insurance Company) in 1978, is a writer of individual and short-term major medical health insurance. We also provide small employer group health insurance to employer groups primarily of two to 50 employees in size, and health insurance plans to full-time college students. Our predecessor company first issued medical insurance coverage to individuals in 1912. We serve approximately 1.1 million people throughout the United States. We were one of the first companies to offer an MSA feature as part of our individual health products and we continue to be a provider of MSA-linked individual health policies. MSAs are tax-sheltered savings accounts earmarked for medical expenses and are established in conjunction with one of our PPO or indemnity products.
We expect growth in our Assurant Health segment to be driven by inflation and increases in the cost of providing medical care as well as growth in demand for individual and small group medical products. We generally expect medical cost inflation to be a principal driver of growth in this segment; however, reduced funding of health insurance by employers and the increasing attractiveness and flexibility of MSAs could create opportunities for the individual medical insurance market to expand. We believe that the number of persons covered by individually purchased health insurance as well as the number of small employer groups in the United States will increase primarily as a result of the recently passed Medicare Prescription & Modernization Act, which includes a provision for Health Savings Accounts (HSAs) that we believe will increase health insurance options available to consumers and make health insurance more affordable.
In Assurant Health, we intend to continue to concentrate on developing our product capabilities in the individual health insurance market. From 2000 through September 2003, we have increased the relative percentage of individual health insurance products to our total health insurance products from approximately 30% of premium dollars to approximately 50% of premium dollars. We have pursued a variety of distribution
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The following table provides net earned premiums
and other considerations, fees and other income and other
operating data for Assurant Health for the periods and as of the
dates indicated:
For the
Nine Months
For the Year
Ended
Ended
September 30,
December 31,
2003
2002
2002
2001
2000
(in millions, except membership data)
$
756
$
646
$
880
$
738
$
619
720
719
954
1,100
1,348
1,476
1,365
1,834
1,838
1,967
24
16
23
14
11
$
1,500
$
1,381
$
1,857
$
1,852
$
1,978
65.4
%
66.6
%
66.6
%
71.1
%
76.2
%
28.6
%
29.0
%
29.4
%
26.8
%
23.8
%
92.9
%
94.8
%
95.2
%
97.3
%
99.5
%
755
670
670
600
500
365
360
355
420
585
1,120
1,030
1,025
1,020
1,085
(1) | The loss ratio is equal to policyholder benefits divided by net earned premiums and other considerations. |
(2) | The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and other considerations and fees and other income. |
(3) | The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and other considerations and fees and other income. |
Products and Services |
Individual Health Insurance Products. Assurant Healths individual health insurance products are sold to individuals, primarily between the ages of 18 and 64 years, and their families who do not have employer-sponsored coverage. Due to increasingly stringent federal and state restrictions relating to insurance policies sold directly to individuals, we emphasize the sale of individual products through associations and trusts that act as the master policyholder for such products. Our association and trust products offer greater flexibility in pricing, underwriting and product design compared to products sold directly to individuals on a true individual policy basis.
Substantially all of the individual health insurance products we sell are PPO plans, which offer the member the ability to select any health care provider, with benefits reimbursed at a higher level when care is received from a participating network provider. Coverage is typically subject to co-payments or deductibles and coinsurance, with member cost sharing for covered services limited by lifetime policy maximums of $2 million or $3 million, with options to purchase between $6 million and $8 million. Product features often included in these plans are inpatient pre-certification and benefits for preventative services. These products are
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At September 30, 2003 and December 31, 2002, we had total in force medical policies of 291,200 and 264,100, respectively, covering approximately 585,000 and 520,000 individuals, respectively. Approximately 14% and 16% of the individual health insurance products we sold in 2002 and the nine months ended September 30, 2003, respectively, included an MSA.
Assurant Health markets additional products to the individual market: short-term medical insurance and student health coverage plans. The short-term medical insurance product is ideal for individuals who are between jobs or seeking interim coverage before their major medical coverage becomes effective. Short-term medical insurance products are generally sold to individuals with gaps in coverage for six months or less. Student health coverage plans are medical insurance plans sold to full-time college students who are not covered by their parents health insurance, are no longer eligible for dependant coverage or are seeking a more comprehensive alternative to a college-sponsored plan.
Small Employer Health Insurance Products. Our small employer market primarily includes companies with two to 50 employees, although larger employer coverage is available. Our average group size, as of September 30, 2003, was approximately five employees. In the case of our small employer group medical insurance, we underwrite the entire group and examine the medical risk factors of the individuals in the group for forecasting and reserving purposes.
Substantially all of the small employer health insurance products that we sold in 2002 and the first nine months of 2003 were PPO products. At September 30, 2003 and December 31, 2002, we had total in force medical policies for small employer groups of 37,000 and 37,400, respectively, covering approximately 365,000 and 355,000 individuals, respectively.
We recently introduced Health Reimbursement Accounts (HRAs) , which are employer-funded accounts provided to employees for reimbursement of qualifying medical expenses. We also offer certain ancillary products to meet the demands of small employers for life insurance, short-term disability insurance and dental insurance. In addition, beginning in January 2004, we began offering HSA products to individuals and small employer groups.
Marketing and Distribution |
Our health insurance products are principally marketed to an extensive network of independent agents by Assurant Health distributors. Approximately 150,000 agents had access to Assurant Health products during the 2002 calendar year. We also market our products to individuals through a variety of exclusive and non-exclusive national account relationships and direct distribution channels. In addition, we market our products through NorthStar Marketing, a wholly owned affiliate that proactively seeks business directly from independent agents. Since 2000, Assurant Health has had an exclusive national marketing agreement with IPSI, a wholly-owned subsidiary of State Farm, pursuant to which IPSI captive agents market Assurant Healths individual health products. The term of this agreement with IPSI will expire in July 2004, but may be extended if agreed to by both parties. In addition, Assurant Health has exclusive distribution relationships with USAA and Mutual of Omaha to market Assurant Healths individual health products. The agreement that provides for our arrangement with USAA terminates in July 2005, but may be extended for a one-year period if agreed to by both parties. The agreement that provides for our arrangement with Mutual of Omaha terminates in February 2007 but may be extended if agreed to by both parties. All of these arrangements have four-year terms from their commencement dates and are generally terminable upon our bankruptcy or similar proceeding or a breach of a material provision by us. Additionally, some of these arrangements permit termination after a specified notice period. We also have a solid relationship with Health Advocates Alliance, the association through which we provide many of our individual health insurance products through Assurant Healths agreement with Health Advocates Alliances administrator National Administration Company, Inc. The term of this agreement with National Administration Company will expire in September 2006, but will be
107
Underwriting and Risk Management |
Assurant Healths underwriting and risk management capabilities include pricing discipline, policy underwriting, renewal optimization, development and retention of provider networks and claims processing.
In establishing premium rates for our health care plans, we use underwriting criteria based upon our accumulated actuarial data, with adjustments for factors such as claims experience and member demographics to evaluate anticipated health care costs. Our pricing considers the expected frequency and severity of claims and the costs of providing the necessary coverage, including the cost of administering policy benefits, sales and other administrative costs. State rate regulation significantly affects pricing. Our health insurance operations are subject to a variety of legislative and regulatory requirements and restrictions covering a range of trade and claim settlement practices. State insurance regulatory authorities have broad discretion in approving a health insurers proposed rates. In addition, HIPAA requires certain guaranteed issuance and renewability of health insurance coverage for individuals and small employer groups and limits exclusions based on existing conditions.
In our individual health insurance business, we medically underwrite our applicants and have implemented new programs to improve our underwriting process. These include our tele-underwriting program, which enables individual insurance applicants to be interviewed over the telephone by trained underwriters. Gathering information directly from prospective clients over the telephone greatly reduces the need for costly and time-consuming medical exams and physician reports. We believe this approach leads to lower costs, improved productivity, faster application processing times and improved underwriting information. Our individual underwriting considers not only an applicants medical history, but also lifestyle factors such as avocations and alcohol and drug and tobacco use. Our individual health insurance products generally permit us to rescind coverage if an insured has falsified his or her application.
In our small employer group health insurance business, we underwrite the group on the basis of demographic factors such as age, gender, occupation and geographic location and concentration of the group. In addition, we examine individual-level medical risk factors for forecasting and reserving purposes.
Assurant Health offers a broad choice of PPO network options in each of its markets and enrolls members in the network that Assurant Health believes reduces our price paid for health care services while providing high quality care. Assurant Health enrolls indemnity customers in selected PPO networks to obtain discounts on provider services that would otherwise not be available. In situations where a customer does not obtain services from a contracted provider, Assurant Health applies various usual and customary fees, which limit the amount paid to providers within specific geographic areas.
Provider network contracts are a critical dimension in controlling medical costs since there is often a significant difference between a network negotiated rate and the non-discounted rate. To this end, we retain provider networks through a variety of relationships, which include leased networks that contract directly with individual health care providers, proprietary contracts and Private Health Care Systems, Inc. (PHCS). PHCS is a national private company that maintains a provider network, which consisted of approximately 3,600 hospitals and approximately 400,000 physicians as of September 30, 2003. Assurant Health was a co-founder of PHCS, and as of December 16, 2003 we owned approximately 25% of the company. PHCS has a staff solely dedicated to provider relations.
We seek to manage claim costs in our PPO plans by selecting provider networks that have negotiated favorable arrangements with physicians, hospitals and other health care professionals and requiring participation in our various medical management programs. In addition, we manage costs through extensive underwriting, pricing and product design decisions intended to influence the behavior of our insureds. We
108
We utilize a broad range of focused traditional cost containment and care management processes across our various product lines to manage risk and to lower costs. These include case management, disease management and pharmacy benefits management programs. Our case management philosophy is built on helping our insureds confront a complex care system to find the appropriate care in a timely and cost effective manner. We believe this approach builds positive relationships with our providers and insureds and helps us achieve cost savings.
Effective July 1, 2003, Assurant Health transitioned its pharmacy benefits management function to Medco Health Solutions, formerly known as Merck-Medco. Medco Health Solutions has established itself as a leader in its industry with more than 57,000 participating pharmacies nationwide. Through Medco Health Solutions advanced technology platforms, Assurant Health is able to access information about customer utilization patterns on a more timely basis to improve its risk management capabilities. In addition to the technology-based advantages, Medco Health Solutions allows us to purchase our pharmacy benefits at competitive prices. Our agreement with Medco Health Solutions expires June 30, 2007. Assurant Health also utilizes copays and deductibles to reduce prescription drug costs.
We employ approximately 525 claims employees in locations throughout the United States dedicated to Assurant Health. We have an appeals process pursuant to which policyholders can appeal claims decisions made.
Assurant Employee Benefits
Assurant Employee Benefits, which we began operating with the acquisition of Mutual Benefit Life Group Division (now Fortis Benefits Insurance Company) in 1991, is a market leader in group dental benefit plans sponsored by employers and funded through payroll deduction based on number of subscribers and based on the number of master contracts in force. We are also a leading provider of disability and term life insurance products and related services to small and medium-sized employers based on number of master contracts in force.
In our core benefits business, we focus on employer-sponsored programs for employers with typically between 20 and 1,000 employees. We are willing to write programs for employers with more than 1,000 covered employees when they meet our risk profile. At September 30, 2003, substantially all of our coverages in force and 77% of our annualized premiums in force were for employers with less than 1,000 employees. We have a particularly strong emphasis on employers with under 250 employees, which represented approximately 97% and 60% of our in force coverages and premiums, respectively, as of September 30, 2003. Our average in force case size was 56 enrolled employees as of September 30, 2003.
We believe that the small employer market is growing, and that there is no dominant player in the small group market. We believe that growth in our Assurant Employee Benefits segment will be principally driven by increases in the numbers of employees enrolled in our plans, inflation and increases in the cost of providing dental care and, for our group disability and term life business, increases in salaries. We believe that increased penetration of our target employer base could generate growth for this segment. According to the 2003 National Compensation Survey conducted by the Bureau of Labor Statistics, U.S. Department of Labor, in March 2003, 41% of full-time non-agricultural private industry employees lack employer provided or sponsored life insurance coverage, 55% lack short-term disability coverage, 64% lack long-term disability coverage and 60% lack dental coverage. During 2002, according to National Association of Dental Plans and Life Insurance Marketing Research Association studies, approximately $7.2 billion in annualized premiums of group dental, disability and life insurance was sold in the United States. Exclusive of group dental, for which historical data from these sources is not available, the average annual growth rate in sales of the remaining group products for 2000 through 2002 was 5.4% per year. We believe that our broad product and distribution coverage and our expertise in small case underwriting will position us favorably as these markets continue to grow.
In Assurant Employee Benefits, we intend to build upon our position in the employee-paid dental lines, where we have seen higher profits than in the employer-paid lines, in order to expand and grow our portfolio of other employee-paid product offerings and service capabilities. We are also focusing our efforts on achieving greater bottom line profitability for our disability product offerings.
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Trends in the U.S. employment market and, in particular, in the cost of the medical benefits component of total compensation, are leading an increasing number of employers to offer new benefits on a voluntary basis. That is, after originally vetting the insurer and typically selecting the particular plan features to be offered, the employer offers the new benefits to employees at their election and at their cost, administered through payroll deduction. Because these products can be economically distributed on this group basis and are convenient to purchase and maintain, they are appealing to employees who might have little opportunity or inclination to purchase similar coverage on an individual basis.
We believe that voluntary products represent a sizeable growth opportunity. In addition, the specialized skills involved in soliciting employees to enroll and in administering and managing these employer-sponsored group products, provide prospects for differentiation to companies that focus on this opportunity. Soliciting employees to enroll in employer-sponsored health plans requires effective communication and interaction with the target employee. We have reorganized our home office and sales operations to reflect the strategic importance of this area. As part of this reorganization, we have divided our sales force into those who sell voluntary products and those who sell true group products with each division collaborating with the other to help meet the needs of shared brokers and clients. Voluntary and true group representatives collaborate with each other in developing relationships with and providing service to the intermediaries selected by our targeted customers, many of whom are not specialists in either voluntary or true group coverages. In addition, we have subdivided our home office underwriting areas between voluntary and true group product lines, with each side providing underwriting service to the respective group representatives. We are also investing substantial resources in enhanced enrollment and specialized administrative capabilities for the voluntary market.
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The following table provides net earned premiums and other considerations, fees and other income and other operating data for Assurant Employee Benefits for the periods and as of the dates indicated:
For the Nine | |||||||||||||||||||||||
Months | For the Year | ||||||||||||||||||||||
Ended | Ended | ||||||||||||||||||||||
September 30, | December 31, | ||||||||||||||||||||||
|
|
||||||||||||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | |||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
(in millions, except master contract data) | |||||||||||||||||||||||
Net earned premiums and other considerations:
|
|||||||||||||||||||||||
Group dental
|
$ | 404 | $ | 420 | $ | 553 | $ | 255 | $ | 234 | |||||||||||||
Group disability
|
321 | 298 | 400 | 398 | 387 | ||||||||||||||||||
Group life
|
195 | 212 | 280 | 281 | 282 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
Total
|
920 | 930 | 1,233 | 934 | 903 | ||||||||||||||||||
Fees and other income
|
37 | 56 | 74 | 39 | 8 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
Total
|
$ | 957 | $ | 986 | $ | 1,307 | $ | 973 | $ | 911 | |||||||||||||
|
|
|
|
|
|||||||||||||||||||
Operating statistics:
|
|||||||||||||||||||||||
Loss ratio(1)
|
72.6 | % | 77.2 | % | 76.6 | % | 79.0 | % | 77.7 | % | |||||||||||||
Expense ratio(2)
|
33.3 | % | 32.5 | % | 32.3 | % | 32.5 | % | 30.7 | % | |||||||||||||
Premium persistency ratio(3)
|
83.5 | % | 85.9 | % | 79.9 | % | 84.3 | % | 88.5 | % | |||||||||||||
Number of direct master contracts (rounded to the
nearest 100):
|
|||||||||||||||||||||||
Group dental
|
29,500 | 30,400 | 30,300 | 12,500 | 12,500 | ||||||||||||||||||
Group disability
|
25,700 | 27,700 | 27,300 | 28,700 | 30,100 | ||||||||||||||||||
Group life
|
25,000 | 25,600 | 25,600 | 25,500 | 25,500 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
Total
|
80,200 | 83,700 | 83,200 | 66,700 | 68,100 | ||||||||||||||||||
|
|
|
|
|
(1) | The loss ratio is equal to policyholder benefits divided by net earned premiums and other considerations. |
(2) | The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and other considerations and fees and other income. |
(3) | The premium persistency ratio is equal to the year-to-date (not annualized) rate at which existing business for all issue years at the beginning of the period remains in force at the end of the period. Persistency is typically higher mid-year than at year-end. The calculations for the year ended December 31, 2002 and the nine months ended September 30, 2002 exclude DBD. |
The results of DBD, which we acquired on December 31, 2001, and the results of CORE, which we acquired on July 12, 2001, are included in the financial results of the Assurant Employee Benefits segment beginning in 2002 and July 2001, respectively. DBD at the time of acquisition was a leading provider of voluntary (employee-paid) indemnity dental and prepaid dental coverage for employee groups. CORE at the time of acquisition was a leading national provider of employee absence management services and a major provider of disability reinsurance management services to middle-market insurance carriers.
Products and Services |
Group Dental. Dental benefit plans provide for the funding of necessary or elective dental care. We provide both employee-paid and employer-paid plans. Plans may involve a traditional indemnity, or fee-for-service, arrangement, a PPO, a managed care, or prepaid, arrangement, or some combination of these programs with employee choice. In a PPO plan, insureds may select any dental provider, but benefits are reimbursed at a higher level when they visit a provider who participates in the PPO. Coverage is subject to
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Success in the group dental business requires strong provider network development and management skills, a focus on expense management and a claim system capable of efficiently and accurately adjudicating high volumes of transactions. We own and operate a PPO, Dental Health Alliance, L.L.C., which as of October 1, 2003 had approximately 26,700 referable locations and approximately 18,500 participating dentists nationwide. In addition, we have a marketing arrangement with an independent PPO that adds another approximately 1,700 referable locations and approximately 1,400 participating dentists nationwide. We have also developed local managed care networks in 24 states, which, as of October 1, 2003, collectively involved approximately 13,400 referable locations and approximately 8,700 participating dentists. The number of referable locations in our dental PPO and managed care networks has grown by approximately 35% and 10%, respectively, from January 1, 2000 to October 1, 2003.
In addition to fully insured dental benefits, we also offer administrative services only (ASO) for self-funded dental plans. Under this arrangement, the employer or plan sponsor pays Assurant Employee Benefits a fee for providing these services. The self-funded plan is responsible for the claim liability. ASO dental is a viable product option for employers with 100 or more employees. As of October 1, 2003, our block of this business consisted of approximately 200 groups and approximately 96,000 covered employees and, for the nine months ended September 30, 2003, generated $4.5 million of fee revenue.
As of September 30, 2003 and December 31, 2002, we had approximately 29,500 and 30,300 group dental plans insured or administered through this segment, respectively, covering or involving in each case approximately 1.4 million members.
Group Disability Insurance. Group disability insurance provides partial replacement of lost earnings for insured employees who become disabled and otherwise qualify for benefits. Our group disability products include both short-term and long-term disability insurance. Group long-term disability insurance provides employees with insurance coverage for loss of income in the event of extended work absences due to sickness or injury. Most policies begin providing benefits following 90 or 180 day waiting periods, and benefits are limited to specified maximums as a percentage of income. Group short-term disability insurance provides coverage for temporary loss of income due to injury or sickness, often effective immediately for accidents and after one week of sickness, for up to 26 weeks, also limited to specified maximums as a percentage of income. As a reflection of both the breadth of our disability product lines and our desire to diversify our risks, we market our disability products across all major industry segments.
Disability Reinsurance Management Services, Inc., our wholly owned subsidiary, provides insurance carriers that wish to supplement their core product offerings a turnkey facility with which to write group disability insurance. Services we provide to the insurers for a fee include product development, state insurance regulatory filings, underwriting, claims management or any of the other functions typically performed by an insurers back office. The risks written by DRMS various clients are reinsured into a pool, with the clients generally retaining shares ranging from 0% to 50% of the risks they write. At times, the ceding insurer may also be a reinsurer of one or more of the pools. DRMS administers various aspects of the pools. As the largest reinsurer in the pools, our licensed insurance subsidiaries reinsure a substantial majority of the insurance risk that is ceded by the client. Since DRMS clients operate in niches not often reached through our traditional distribution, our participation in the pools enables us, through a form of alternate distribution, to reach customers to whom we would not otherwise have access. In this reinsurance arrangement, we manage through DRMS both underwriting and the claims adjudication process; therefore, we have more control of critical risk management processes than is normally available in reinsurance arrangements.
As of September 30, 2003 and December 31, 2002, we had approximately 38,000 and 39,100 group disability plans in force, reinsured or administered on an ASO basis, covering approximately 2.8 million and 3.0 million enrolled employees, respectively.
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Group Term Life Insurance. Group term life insurance is one of the principal means by which working people in the United States provide for their families against the risk of premature death and often the means whereby they obtain lesser amounts of coverage for their spouses, children or domestic partners. Group term life insurance provides coverage to employees, with limited coverage also available to their dependents, for a specified period. Our policies are generally the standard or basic term life insurance offered by employers. Group term life insurance consists primarily of renewable term life insurance with the amount of coverage frequently linked to employees earnings, flat amounts or a combination of the two. Employers generally provide a base or foundation level of coverage for their employees and offer the opportunity for employees to increase their coverage to meet specific needs. Also, basic term life insurance is often supplemented with an accidental death or dismemberment policy or rider, which provides additional benefits in the indicated events. Because there are few ways to differentiate an insurer in the area of traditional group term life insurance, we often sell this product line as a complement to our other core employee benefit insurance products.
As of September 30, 2003 and December 31, 2002, we had approximately 25,000 and 25,600 group life plans in force, covering approximately 1.8 million and 2 million enrolled employees, respectively.
Marketing and Distribution
We distribute the products of Assurant Employee Benefits primarily through approximately 160 group sales representatives, located in 40 offices in or near major U.S. metropolitan areas. These representatives work through independent employee benefits advisors, including brokers and other intermediaries, to reach our customers, who are primarily small to medium-sized employers. DRMS employs an independent distribution arm tailored to its needs.
Our marketing efforts concentrate on:
| the identification of the employee benefit needs of our targeted customers; | |
| the development of tailored products and services designed to meet those needs; | |
| the alignment of our Company with select brokers and other intermediaries who value our approach to the market; and | |
| the promotion of our Companys brand. |
To operate successfully in the small to medium-sized employer marketplace requires a large and broadly distributed sales force with relationships with the brokers and other intermediaries who act as advisors to those employers in connection with their benefits programs. In many cases, these employers and their advisors rely on us for expertise in matching their needs to the collection of solutions available through group benefit programs. Success also requires systems and work practices suited to a high transaction volume business and the ability to provide a high level of customer service to a large number of clients operating in almost all industries found in the U.S. economy.
Underwriting and Risk Management
True group products are normally offered to employees on a guaranteed issue basis, meaning that if the group is an acceptable risk, the insurer generally foregoes individual medical underwriting and agrees in advance to accept all applications for insurance from members of the eligible class up to a formula-determined limit. Individual medical underwriting is required on applications for amounts in excess of this limit, or in connection with untimely applications. Our sales representatives and underwriters evaluate the risk characteristics of each prospective insured group and design appropriate plans of insurance. They utilize various techniques such as deductibles, co-payments, guarantee issue limits and waiting periods to control the risk we assume. Voluntary products introduce additional risks due to the fact that employees have some awareness of the risk of loss they personally face, and those employees who believe themselves to be more at risk will be more likely to elect coverage. In order to control these risks, we customize our plan designs to seek to mitigate adverse selection problems. We also require that a minimum percentage of eligible employees elect a voluntary coverage.
We base the pricing of our products on the expected pay-out of benefits that we calculate using assumptions for mortality, morbidity, interest, expenses and persistency, depending upon the specific product
113
Generally, we are not obligated to accept any risk or group of risks from, or to issue a policy or group of policies to, any employer or intermediary. Requests for coverage are reviewed on their merits and generally a policy is not issued unless the particular risk or group has been examined and approved by our underwriters. Group products are typically written with an initial rate guarantee of two years for disability and life insurance and one year for other group products. They are also written on a guaranteed renewable basis with the right, upon expiration of the guarantee, to re-price to reflect the aggregate experience of our block of business and, where credible, the experience of the group.
Reflecting both our ability to satisfy a broad
range of customers and our desire to prudently diversify our
risk, the business underwritten by our Assurant Employee
Benefits segment is widely dispersed across geographic areas as
well as the industries insured. At September 30, 2003, our
top ten states measured by percentage of in force annual
premiums contributed approximately 54.8% of our total annualized
premiums in force, as detailed below:
Percentage of
Total
Annualized
Premiums in
State
Force
11.6
%
7.1
6.2
5.2
4.9
4.7
4.3
4.0
3.4
3.4
54.8
%
Similarly, at September 30, 2003, our top
ten industry segments measured by percentage of in force annual
premiums, as aggregated by the first two digits of their
standard industry code (SIC)
, contributed approximately
49.8% of our total annualized premiums in force, as detailed
below:
Percentage of
Total
Annualized
Premiums in
SIC Code
Force
9.1
%
8.4
6.0
5.4
4.4
4.2
4.1
2.9
2.7
2.6
49.8
%
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Profitability in all of our product lines is affected by deviations of actual claims experience from expected claims experience, investment returns, persistency and our ability to control our administrative expenses. Also important is the general state of the economy; for example, during a recession the incidence of disability claims tends to increase.
Our efforts are focused on facilitating claimants return to work through a variety of means, including physical therapy, vocational rehabilitation and retraining and workplace accommodation to support the insured. We believe that we were the first U.S. insurance company to develop and market disability insurance contracts aimed explicitly at facilitating recovery of functionality and vocational rehabilitation when disabilities occur. In support of this effort, we also employ or contract with a staff of doctors, nurses and vocational rehabilitation specialists. We also utilize a broad range of outside medical and vocational experts for independent evaluations and local vocational services. Finally, we have an investigations unit focused on individuals who have or may be capable of returning to work but continue to claim benefits. Our dental business utilizes a highly automated claims system focused on rapid handling of claims, with 64% of claims adjudicated within seven calendar days for claims received from January 1, 2003 to and including September 30, 2003.
We employ approximately 800 claims employees in locations throughout the United States dedicated to the Assurant Employee Benefits segment. We have a comprehensive claims review process, including an appeals process pursuant to which policyholders can appeal claims decisions made.
Assurant PreNeed
Assurant PreNeed, which we began operating with the acquisition of United Family Life Insurance Company in 1980, is the market leader in the United States in pre-funded funeral insurance based on face amount of new policies sold. Pre-funded funeral insurance provides whole life insurance death benefits or annuity benefits used to fund costs incurred in connection with pre-arranged funerals. We distribute our pre-funded funeral insurance products through two separate channels, our independent channel and our AMLIC channel. Our pre-funded funeral insurance products provide benefits to cover the costs incurred in connection with pre-arranged funeral contracts and are distributed primarily through funeral homes and sold mainly to consumers over the age of 65, with an average issue age of 72. Our pre-funded funeral insurance products are typically structured as whole life insurance policies in the United States and as annuity products in Canada. Our independent channels target market is comprised of the 23,000 funeral firms in the United States and Canada, of which approximately 2,000 are active customers.
With our acquisition of AMLIC in 2000, we have become the market leader in the area of pre-funded funeral insurance based on face amount of policies sold. Through our AMLIC channel, we provide the insurance products and support services for the pre-need activities of SCI, the largest funeral provider in North America based on total revenues. As of September 30, 2003, SCI operated approximately 1,300 funeral service locations in North America. This commission-based arrangement is anchored by an exclusive ten-year marketing agreement, which commenced on October 1, 2000.
According to public filings, published statistics and our own internal estimates, we believe the U.S. market for insurance funded pre-need policies in 2002 was approximately $2.0 billion based on the face amount of policies sold. According to Connings Industry Insight, an industry publication, the pre-funded funeral insurance industry grew by approximately 2.9% annually from 1992 to 2000. We believe the pre-need market will continue to grow at approximately this level in the future. Growth in pre-need sales has been traditionally driven by distribution with a high correlation between new sales of pre-funded funeral insurance and the number of pre-need counselors marketing the product and expansion in sales and marketing capabilities. In addition, as alternative distribution channels are identified, such as targeting affinity groups and employers, we believe growth in this market could accelerate above projected rates. We believe that the pre-need market is characterized by an aging population combined with low penetration of the over-65 market. In addition, this segment generally provides relatively steady cash flows.
In Assurant PreNeed, our strategy in our independent channel is to increase sales potential by strengthening our distribution relationships. We do this by offering marketing support and programs to our
115
The following table provides net earned premiums and other considerations, fees and other income and other operating data for Assurant PreNeed for the periods and as of the dates indicated:
For the Nine | |||||||||||||||||||||||
Months | For the Year | ||||||||||||||||||||||
Ended | Ended | ||||||||||||||||||||||
September 30, | December 31, | ||||||||||||||||||||||
|
|
||||||||||||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | |||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Net earned premiums and other considerations:
|
|||||||||||||||||||||||
AMLIC
|
$ | 216 | $ | 223 | $ | 293 | $ | 278 | $ | 60 | |||||||||||||
Independent
|
185 | 185 | 245 | 229 | 217 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
Total
|
$ | 401 | $ | 408 | $ | 538 | $ | 507 | $ | 277 | |||||||||||||
Fees and other income
|
$ | 4 | $ | 3 | $ | 5 | $ | 3 | $ | 2 | |||||||||||||
|
|
|
|
|
|||||||||||||||||||
Total
|
$ | 405 | $ | 411 | $ | 543 | $ | 510 | $ | 279 | |||||||||||||
|
|
|
|
|
|||||||||||||||||||
New face sales (life and annuity) net of
reinsurance:
|
|||||||||||||||||||||||
AMLIC
|
$ | 237 | $ | 306 | $ | 392 | $ | 372 | $ | 76 | |||||||||||||
Independent and other
|
234 | 241 | 319 | 258 | 233 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
Total
|
$ | 471 | $ | 547 | $ | 711 | $ | 630 | $ | 309 | |||||||||||||
|
|
|
|
|
|||||||||||||||||||
Policies in force
|
1.71 | 1.69 | 1.69 | 1.67 | 1.61 | ||||||||||||||||||
Policyholder liabilities
|
$ | 2,926 | $ | 2,675 | $ | 2,717 | $ | 2,499 | $ | 2,297 |
We acquired AMLIC on October 1, 2000, and therefore the results of AMLIC are included in our Assurant PreNeed segment financial results beginning in October 2000.
Products |
Pre-Funded Funeral Insurance Policies. Pre-funded funeral insurance provides whole life insurance death benefits or annuity benefits to fund the costs incurred in connection with pre-arranged funeral contracts, or, in a minority of situations, pre-arranged funerals without a pre-arranged funeral contract, which costs typically include funeral firm merchandise and services. Our pre-funded funeral insurance products are typically structured as whole life insurance policies in the United States. In Canada, for regulatory reasons, our pre-funded funeral insurance products are typically structured as annuity contracts for newly issued business. A pre-arranged funeral contract is an arrangement between a funeral firm and an individual whereby the funeral firm agrees to perform the selected funeral upon the individuals death. The consumer then purchases an insurance policy intended to cover the cost of the pre-arranged funeral, and the funeral home generally becomes the irrevocable assignee, or, in certain cases, the beneficiary, of the insurance policy proceeds. However, the insured may name a beneficiary other than the funeral home. The funeral home agrees to provide the selected funeral at death in exchange for the policy proceeds. Because the death benefit under many of our policies is designed to grow over time, the funeral firm that is the assignee of such a policy has managed some or all of its funeral inflation risk. Consumers have the choice of making their policy payments as a single lump-sum payment or through multi-payment plans that spread payments out over a period of three
116
Marketing and Distribution |
We distribute our pre-funded funeral insurance products through two distribution channels: the independent channel, which distributes through approximately 2,000 funeral homes and selected third-party general agencies, and our AMLIC channel, which distributes through an exclusive relationship with approximately 1,300 SCI-owned locations in North America. Our policies are sold by licensed insurance agents or enrollers who in some cases may also be a funeral director. As of September 30, 2003 and December 31, 2002, the face amount of our contracts sold through our AMLIC channel represented approximately 50% and 55%, respectively, of our total new life and annuity face sales in Assurant PreNeed.
Risk Management |
Assurant PreNeed generally writes whole life insurance policies with increasing death benefits and obtains the majority of its profits through interest rate spreads. Interest rate spreads refer to the difference between the death benefit growth rates on pre-funded funeral insurance policies and the investment returns generated on the assets we hold related to those policies. To manage these spreads, we monitor weekly the movement in new money yields and monthly evaluate our actual net new achievable yields. This information is used by our business segment crediting committee to evaluate rates to be credited on applicable new and in force pre-funded funeral insurance policies and annuities. In addition, our business segment investment committee, including members of the crediting committee, reviews asset benchmarks and performs asset/ liability matching studies to develop the optimum portfolio to maximize yield and reduce risk.
In Assurant PreNeed, we utilize prudent underwriting to select and price insurance risks. We regularly monitor mortality assumptions to determine if experience remains consistent with these assumptions and to ensure that our product pricing remains appropriate. We continually review our underwriting, agent and policy contract provisions and pricing guidelines so that our policies remain competitive and supportive of our marketing strategies and profitability goals. Our underwriting policies rely on review procedures with actuarial personnel, in which actual loss experience is examined. Decisions are based on established actuarial pricing and risk selection principles to ensure that our underwriting and pricing guidelines are appropriate.
Many of our pre-funded whole-life funeral insurance policies have increasing death benefits. As of September 30, 2003, approximately 82% of Assurant PreNeeds in force insurance policy reserves related to policies that provide for death benefit growth, some of which provide for minimum death benefit growth pegged to changes in the Consumer Price Index. Policies that have rates guaranteed to change with the Consumer Price Index represented approximately 15% of Assurant PreNeeds reserves as of September 30, 2003. We have employed risk mitigation strategies to seek to minimize our exposure to a rapid increase in inflation.
In our independent channel, we outsource all of the servicing and administration of our policies.
Ceded Reinsurance
Our operating business segments utilize ceded reinsurance for three major business purposes:
| Loss Protection and Capital Management. As part of our overall risk and capacity management strategy, we purchase reinsurance for certain risks underwritten by our various operating business segments, including significant individual or catastrophic claims, and to free up capital to enable us to write additional business. | |
| Business Dispositions. We have used reinsurance to exit certain businesses, such as our FFG division in 2001 and our LTC business in 2000. Reinsurance was used in these cases to facilitate the transactions because the businesses shared legal entities with business units that we retained. |
117
| Assurant Solutions Client Risk and Profit Sharing. Assurant Solutions writes business produced by its clients, such as mortgage lenders and servicers and financial institutions, and reinsures all or a portion of such business to insurance subsidiaries of the clients. Such arrangements allow significant flexibility in structuring the sharing of risks and profits on the underlying business. |
Loss Protection and Capital Management |
In a traditional indemnity reinsurance transaction, a reinsurer agrees to indemnify another insurer for part or all of its liability under a policy or policies it has issued for an agreed upon premium. These agreements provide for recovery of a portion of losses and associated loss expenses from reinsurers. The terms of these agreements, which are typical for agreements of this type, generally provide, among other things, for the automatic acceptance by the reinsurer of ceded risks in excess of our retention limits (i.e. the amount of loss per individual risk that we are willing to absorb). For excess of loss coverage, we pay premiums to the reinsurers based on rates negotiated and stated in the treaties. For pro rata reinsurance, we pay premiums to the reinsurers based upon percentages of premiums received by us on the business reinsured. These agreements are generally terminable as to new risks by us or by the reinsurer on appropriate notice; however, termination does not affect risks ceded during the term of the agreement, which generally remain with the reinsurer.
We work with our operating subsidiaries to develop effective reinsurance arrangements that are consistent with the pricing and operational goals of each operating business segment. For example, Assurant Employee Benefits cedes 100% of monthly disability claims in excess of $10,000 per individual insured. For our group term life business, the maximum amount retained on any one life is $800,000 of life insurance including accidental death, limited to $500,000 in life insurance and $300,000 in accidental death and dismemberment insurance. Amounts in excess of these figures are reinsured with other life insurance companies on a yearly renewable term basis. Assurant Solutions purchases property reinsurance for flood risk, with per property limits of $925,000 in excess of $75,000 per individual loss. This treaty has a per occurrence cap of $2,775,000.
For those product lines where there is exposure to catastrophes (for example, homeowners policies written by Assurant Solutions), we closely monitor and manage our aggregate risk exposure by geographic area and have entered into reinsurance treaties to manage our exposure to these types of events. For 2003, catastrophe reinsurance was purchased to manage our risk exposure to a hurricane loss in excess of the modeled 200-year return time loss. We maintain $118 million of catastrophic excess of loss coverage for fire, flood and personal liability risks, with a per occurrence retention of the first $20 million. In addition, 90% of Florida hurricane losses in excess of $34 million are covered by the Florida Hurricane Catastrophe Fund (FHCF), with coverage capped at $85 million. This coverage has been in place as of June 1, 2003 and will continue through May 31, 2004. Future FHCF coverage will be determined by the FHCF in accordance with Florida statutes and will depend upon Assurant Solutions in force Florida risks and the FHCF claims paying capacity. Also, in Assurant Employee Benefits, we have purchased catastrophic reinsurance coverage in the group term life product line of $30 million in excess of our retention of the first $20 million.
A significant portion of Assurant Healths business has been reinsured under non-proportional reinsurance agreements that provide for the reinsurers to indemnify us for losses in a calendar year on combined ratios up to but not exceeding 110%. Such losses, with interest, are offset against any future profits. For calendar years where the combined ratio does not exceed 98%, Assurant Health keeps all the profits on the reinsured business net of the reinsurance fee. For years where the reinsured business is profitable but the combined ratio exceeds 98%, Assurant Health keeps 50% of the profits on the business net of the fee.
With the exception of a small block of older policy forms, all of the LTC business of John Alden, one of our subsidiaries, has been reinsured with ERC Life Reinsurance Corporation (ERC). All risks and profits generated by the reinsured business have been transferred to ERC. The reserves and premium transferred are in excess of 95% of the direct long-term care amounts generated by John Alden. The remaining small block of long-term care policies in John Alden has been reinsured with John Hancock as part of the sale of that division. See Business Dispositions below.
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Under indemnity reinsurance transactions in which we are the ceding insurer, we remain liable for policy claims if the assuming company fails to meet its obligations. To limit this risk, we have control procedures in place to evaluate the financial condition of reinsurers and to monitor the concentration of credit risk to minimize this exposure. The selection of reinsurance companies is based on criteria related to solvency and reliability and, to a lesser degree, diversification as well as on developing strong relationships with our reinsurers for the sharing of risks. At December 31, 2002, 68% of our primary reinsurers (excluding The Hartford and John Hancock) were rated A or better by A.M. Best, while 10% of our reinsurers did not have A.M. Best ratings at such date.
In addition, we also purchase reinsurance when capital requirements and the economic terms of the reinsurance make it appropriate to do so.
Business Dispositions
We have exited businesses through reinsurance ceded to third parties, such as our 2001 sale of the insurance operations of FFG to The Hartford. The assets backing the liabilities on these businesses are held in a trust. All separate account business and John Alden general account business relating to FFG were transferred through modified coinsurance, a form of proportional reinsurance in which the underlying assets and liabilities are still reflected on the ceding companys balance sheet. Under this arrangement, The Hartford receives all premiums, pays all claims and funds all reserve increases net of investment income on reserves held. All other FFG business was reinsured by 100% coinsurance, which transfers all affected assets and liabilities as well as all premiums and claims to the assuming company. We would be responsible for administering this business in the event of a default by The Hartford. In addition, under the reinsurance agreement, The Hartford is obligated to contribute funds to increase the value of the separate accounts relating to the business sold if such value declines. If The Hartford fails to fulfill these obligations, we will be obligated to make these payments.
In 1997, John Alden sold substantially all of its annuity operations to SunAmerica Life Insurance Company (SunAmerica), now a subsidiary of American International Group, Inc. In connection with the sale, John Alden reinsured its existing block of annuity policies to SunAmerica on a coinsurance basis. This coinsurance was initially on an indemnity basis and the parties agreed to transition the business to an assumption basis as soon as practical. In certain states, the transition to an assumption basis is subject to policyholder approval. To the extent that such transition does not take place with respect to any particular policy, the policy will remain reinsured on an indemnity basis. As of September 30, 2003, more than 95% of the ceded annuity reserves had either transitioned to an assumption basis or had lapsed.
In 2000, we sold all of our LTC operations to John Hancock. In connection with the sale, we reinsured our existing block of long-term care policies to John Hancock on a coinsurance basis. Under the coinsurance agreement, we transferred 100% of the policy reserves and related assets on this block of business to John Hancock, and John Hancock agreed to be responsible for 100% of the policy benefits. The assets backing the liabilities on this business are held in a trust and John Hancock is obligated to fund the trust if the value of the assets is deemed insufficient to fund the liabilities. If John Hancock fails to fulfill these obligations, we will be obligated to make these payments.
Assurant Solutions Client Risk and Profit Sharing
Historically, our insurance subsidiaries in Assurant Solutions have ceded a portion of the premiums and risk related to business generated by certain clients to the clients captive insurance companies or to reinsurance companies in which the clients have an ownership interest. In some cases, our insurance subsidiaries have assumed a portion of these ceded premiums and risk from the captive insurance companies and reinsurance companies. Through these arrangements, our insurance subsidiaries share some of the premiums and risk related to client-generated business with these clients. When the reinsurance companies are not authorized to do business in our insurance subsidiarys domiciliary state, our insurance subsidiary obtains collateral, such as a trust or a letter of credit, from the reinsurance company or its affiliate in an amount equal to the outstanding reserves to obtain full financial credit in the domiciliary state for the third-
119
In addition, we recently received a John Doe summons from the Internal Revenue Service requesting information as to the identities of U.S. taxpayers that have engaged in producer-owned reinsurance company transactions with us. The Internal Revenue Service previously issued a notice stating that certain tax benefits claimed in connection with producer-owned reinsurance company transactions involving credit insurance transactions with producers who own reinsurance companies located in the Turks and Caicos will be denied and is investigating whether tax benefits claimed by the taxpayers they wish to identify are available. This summons states that there is no issue in the investigation relating to our tax liability. However, it is possible that the investigation by the Internal Revenue Service could affect our current reinsurance arrangements.
Gross Annualized Premium in Force, Ceded Portion and Net Amount Retained
The following table details our gross annualized premium in force, the portion that was ceded to reinsurers and the net amount that was retained as of December 31, 2002.
As of December 31, 2002 | |||||||||||||||||
|
|||||||||||||||||
Percentage | |||||||||||||||||
Gross(1) | Ceded | Net | Retained | ||||||||||||||
|
|
|
|
||||||||||||||
(in millions) | |||||||||||||||||
Life insurance
|
$ | 1,893 | $ | 796 | $ | 1,097 | 57.9 | % | |||||||||
Accident and health
|
4,334 | 1,046 | 3,288 | 75.9 | |||||||||||||
Property and casualty
|
2,102 | 805 | 1,297 | 61.7 | |||||||||||||
|
|
|
|
||||||||||||||
Total consolidated
|
$ | 8,329 | $ | 2,647 | $ | 5,682 | 68.2 | % | |||||||||
|
|
|
|
(1) | Gross includes direct plus assumed premiums. |
Claims Provisions/ Reserves
In accordance with industry and accounting practices and applicable insurance laws and regulatory requirements, we establish reserves for payment of claims and claims expenses for claims that arise from our insurance policies. We maintain reserves for future policy benefits and unpaid claims expenses. Policy reserves represent the accumulation of the premiums received that are set aside to provide for future benefits and expenses on claims not yet incurred. Claim reserves are established for future payments and associated expenses not yet due on claims that have already been incurred, whether reported to us or not. Reserves, whether calculated under GAAP or SAP, do not represent an exact calculation of future policy benefits and expenses but are instead estimates made by us using actuarial and statistical procedures. There can be no assurance that any such reserves would be sufficient to fund our future liabilities in all circumstances. Future loss development could require reserves to be increased, which would adversely affect earnings in current and/or future periods. Adjustments to reserve amounts may be required in the event of changes from the assumptions regarding future morbidity, the incidence of disability claims and the rate of recovery, including the effects thereon of inflation and other societal and economic factors, persistency, mortality, property claim frequency and severity and the interest rates used in calculating the reserve amounts. The reserves reflected in our consolidated financial statements are calculated in accordance with GAAP.
See Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies Reserves.
Reserves are regularly reviewed and updated, using the most current information. Any adjustments are reflected in current results of operations. However, because the establishment of reserves is an inherently uncertain process, there can be no assurance that ultimate losses will not exceed existing reserves.
Reserves are reviewed at least quarterly by our business segment management.
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Investments
The investment portfolio is a critical part of our business activities and important to our overall profitability. The fundamental investment philosophy is to manage assets, within our stated risk parameters, to generate consistent and high levels of investment income, before gains and losses, while providing a total return that is competitive over the long-term. Our investment team is charged with:
| maintaining safety of principal and sufficient liquidity; | |
| managing credit, interest rate, prepayment and market risks; | |
| maintaining adequate diversification among asset classes, industry concentrations and individual issuers; and | |
| adhering to all applicable regulatory requirements. |
We have individual business segments with different needs and characteristics. Hence, our investment approach for each business segment is tailored to that business segments needs in terms of asset allocation, liquidity needs and duration of assets and liabilities.
Organization
The general account is managed by our asset management department, Assurant Asset Management, or AAM. In this capacity, AAM acts as both our investment advisor and our asset manager. As investment advisor, the AAM organization oversees the design and implementation of overall investment policy. As asset manager, AAM is responsible for (i) directly investing those general account assets for which the department has in-house expertise and (ii) selecting and monitoring outside managers for those assets for which AAM has limited expertise. AAM fulfills these roles through its involvement in the establishment of risk management techniques, business segment investment policy and asset benchmark construction and through leadership and participation in our two investment oversight entities: the Companys risk management committee and the individual business segment investment committees.
Our risk management committee consists of the Chief Executive Officer, Chief Financial Officer, Chief Investment Officer, Corporate Actuary and Head of Strategic Analysis. It meets quarterly and is responsible for setting overall corporate risk tolerance for the general account. As such, it approves all investment risk limits including those affecting overall portfolio quality, liquidity, duration and asset class concentration. Additionally, it approves the use of new asset classes when appropriate and business segment asset allocation and investment policy.
The business segment investment committees meet quarterly and are co-chaired by the business segment Chief Financial Officer and either the Head of Fixed Income Investments or the Head of Mortgage and Real Estate Investments. These committees are responsible for setting appropriate asset allocation and investment policy for our specific business segments. Additionally, they monitor investment strategy, performance, pricing and liability cash flows and research and recommend the use of new asset classes.
These committees, together with AAM, manage the overall risk parameters of our investment portfolios and seek to employ investment policies and strategies that are appropriate for and supportive of the needs of the individual businesses.
The portfolio and investment performance results are reviewed quarterly with our board of directors.
Investment Process |
Our investment process is initiated by the strategic analysis group within AAM. This group designs an appropriate asset allocation benchmark for each portfolio that is tailored to the associated liabilities and is designed to generate the highest level of investment income available given each business segments overall risk tolerance. Although income is the primary objective, total return is a significant secondary objective. We operate our business through multiple legal entities. At least one portfolio is maintained for each legal entity. In addition, separate portfolios are maintained for legal entities that conduct business for more than one
121
In addition, the asset allocation benchmark will reflect multiple constraints, such as all risk tolerances established by our risk management committee, appropriate credit structure, prepayment risk tolerance, liquidity requirements, capital efficiency, tax considerations and regulatory and rating agency requirements. The individual benchmarks are then aggregated together to give a total asset profile. Asset management is conducted at the portfolio level; however, risk constraints are also in place for the aggregate portfolio. Each benchmark is reviewed at least annually for appropriateness.
Our investment portfolios are invested in the following key asset classes:
| fixed income securities, including mortgage-backed and other asset-backed securities; | |
| preferred stocks; | |
| commercial mortgage loans; and | |
| commercial real estate. |
We began investing in private placement loans in the fourth quarter of 2003 and ultimately over the next several years intend to have private placement loans represent 5% of our total invested assets. We do not currently invest new money in equity securities; however, we may do so in the future. As of September 30, 2003, less than 1% of the fair value of our total invested assets was invested in common stock.
Changes in individual security values are monitored on a semi-monthly basis in order to identify potential problem credits. In addition, each month the portfolio holdings are screened for securities whose market price is equal to 85% or less of their original purchase price. Management then makes their assessment as to which of these securities are other than temporarily impaired. Assessment factors include, but are not limited to, the financial condition of the issuer, any collateral held and the length of time the market value of the security has been below cost. Each month the watchlist is discussed at a meeting attended by members of our investment, accounting and finance departments. Each quarter any security whose price decrease is deemed to have been other than temporarily impaired is written down to its then current market level, with the amount of the writedown reflected in our statement of operations for that quarter. Previously impaired issues are also monitored monthly, with additional writedowns taken quarterly if necessary.
Fixed Income Portfolio Process |
AAM controls the credit risk in the fixed income portfolio through a combination of issuer level credit research and portfolio level credit risk management. At the issuer level, we maintain a credit database that contains both qualitative and quantitative assessments of over 200 issuers and 35 industries. This database is updated regularly by our credit research team and is an integral part of the credit investment process. At the portfolio level, we control credit risk primarily through quality and industry diversification, individual issuer limits based upon credit rating and a sell discipline designed to reduce quickly exposure to deteriorating credits. In addition, we monitor changes in individual security values on a semi-monthly basis in order to identify potential problem credits. This process is also incorporated into our impairment watchlist process.
The risks in the fixed income portfolio are carefully controlled and monitored. First, AAM customizes the asset allocation benchmark to reflect the risk tolerance for each of our operating business segments. Second, our risk management committee imposes issuer portfolio limits on individual issuers based upon credit quality, which limits are currently 1.5% for issuers rated AA- and above, 1% for issuers rated A- to A+, 0.75% for
122
In order to invest in a wide variety of asset classes in our portfolio and to appropriately manage the accompanying risks, we had outsourced the management of almost 12% of our portfolios market value as of September 30, 2003. We have engaged Alliance Capital Management Corp. and Wellington Management Co. for high yield investments, Spectrum Asset Management, Inc. and Flaherty & Crumrine Inc. for preferred stock investments and Lancaster Investment Counsel and Phillips Hager & North Investment Management Ltd. for our Canadian investment portfolios. We retain custody control over assets under management by outside managers and have oversight procedures in place for all managers. These procedures include formal investment guidelines, daily transaction updates and periodic portfolio reviews. The outside managers are required to provide research updates for any issuer on the impairment watchlist for which they are responsible. Our agreements with these investment managers are generally terminable by us upon 30 days written notice. Additionally, we have recently entered into an agreement to outsource our new private placement loan investment program to Prudential Private Placement Investors, LP.
Commercial Mortgage Loans Investment Process |
We originate fixed rate, first commercial mortgage loans through a nationwide group of exclusive, regional mortgage correspondents. We have a mortgage loan committee within AAM that is responsible for the approval of our mortgage loan related investments. Generally the mortgage correspondents service the loans they originate and we regularly meet with them to help foster a strong working relationship. Every property securing a loan application is inspected and underwritten by our mortgage loan staff prior to approval by our mortgage loan committee, which is comprised of the heads of our commercial mortgage and real estate departments and the vice president of our legal department. Most of the loans are non-recourse and virtually all loans include a yield maintenance provision, which compensates us in the event of loan prepayment. We are a portfolio lender and generally hold our commercial mortgage loans to maturity. We typically do not securitize or otherwise sell our commercial mortgage loans.
Our investment process requires an in-depth review of the loan terms, security and the borrower prior to commitment. We seek geographic and property-type diversification and concentrate on the four following major property types for collateral: office, retail, warehouse and multi-family properties. Our policy is that mortgage loans may not exceed 75% of the market value of the property securing the loan; however, the loans we originate typically are below 70% of the market value. Loan terms generally range from five to 30 years, with amortization of five to 35 years.
Our commercial mortgage loan portfolio is reviewed monthly for potential problems. All servicers provide monthly delinquencies reports. Problem loans, including delinquencies, foreclosures and loans on the watch list, are reviewed monthly. Inspection reports relating to financial, market and physical conditions, among other items, are obtained and reviewed on all loans annually. A potential loss reserve based on historical data adjusted for current expectations is maintained and is typically between 1.25% and 2.25% of commercial mortgage loans on real estate. As of September 30, 2003, the reserve was approximately 2.0% of the unpaid principal of our commercial mortgage loans, or $19 million.
123
Investment Real Estate Process |
We invest in income-producing commercial properties to generate attractive risk-adjusted returns as well as to generate operating investment income with the potential for capital gains upon sale of the property. We invest with regional operating partners who generally invest capital in the property with us and provide management and leasing services. Our portfolio is diversified by location, property type, operating partner and lease term. Property types include office buildings, warehouse/industrial buildings and multi-family housing.
Our investment process relies upon thorough market research and extensive due diligence. We maintain regional market information to target potentially attractive real estate markets. Physical, financial and market due diligence is conducted on all potential acquisitions prior to investing. Financial scenarios and resulting income and capital gains for various holding periods are modeled. Modest levels of non-recourse debt are employed to enable us to diversify the portfolio while limiting our equity exposure to this asset class. These investments are made through limited liability companies or limited partnerships.
Our portfolio is monitored through numerous reports and regular property inspections. Monthly operating statements and quarterly GAAP statements are produced on every property and the results reported quarterly to the business segment investment committee. Internal annual appraisals are performed and every property is appraised by an independent appraiser at least once every three years on a rolling basis. Internal appraisals are updated quarterly to reflect major changes in market conditions or property or leasing conditions. Values are reported on our financial statements on the equity method. Market values are reported at the lesser of our internal valuation or the independent appraised value.
All portfolios are reviewed monthly to insure that they are in compliance with guidelines established by our risk management committee or the established asset allocation for all asset classes. Exceptions are reviewed by our Chief Investment Officer and are corrected by the appropriate asset manager. State and regulatory compliance is reviewed by portfolio and by legal entity at least annually to insure compliance with regulations.
Portfolio Composition
Our total invested assets were $10,714 million and $10,029 million, or 47% and 45%, of our total assets, as of September 30, 2003 and December 31, 2002, respectively. Our net investment income for the nine months ended September 30, 2003 and the year ended December 31, 2002 was 9% and 10%, respectively, of our total revenue, excluding realized investment losses and gains. We had a net realized gain on investments of $15 million for the nine months ended September 30, 2003 and a net realized loss on investments of $118 million for the year ended December 31, 2002. Our investment portfolio consists primarily of:
| fixed income securities, including mortgage-backed and other asset-backed securities; | |
| preferred stocks; | |
| commercial mortgage loans; and | |
| commercial real estate. |
As of September 30, 2003 and December 31, 2002, fixed maturity securities accounted for 83% and 80%, respectively, of our total invested assets. The corporate bond portfolio is well diversified across industry classes.
124
The following table sets forth the carrying value
of the securities held in our investment portfolio at the dates
indicated:
At
At December 31,
September 30,
2003
2002
2001
2000
(in millions)
$
8,848
$
8,036
$
7,630
$
8,097
433
272
247
204
909
842
869
1,048
69
69
68
213
329
684
627
439
126
126
159
171
$
10,714
$
10,029
$
9,600
$
10,172
(1) | Includes primarily commercial real estate and limited partnerships. |
Investment Results |
The overall income yield on our investments after investment expenses, excluding realized investment gains (losses), was 5.87% on an annualized basis for the nine months ended September 30, 2003 and 6.27% for the year ended December 31, 2002. The overall income yield on our investments after investment expenses, including realized gains (losses), was 6.00% on an annualized basis for the nine months ended September 30, 2003 and 5.09% for the year ended December 31, 2002.
The following table sets forth the income yield and net investment income, excluding realized investment gains/(losses), for each major investment category for the periods indicated.
For the Nine | |||||||||||||||||
Months Ended | For the Year Ended | ||||||||||||||||
September 30, 2003 | December 31, 2002 | ||||||||||||||||
|
|
||||||||||||||||
Yield(1) | Amount | Yield(1) | Amount | ||||||||||||||
|
|
|
|
||||||||||||||
(in millions) | |||||||||||||||||
Fixed maturities
|
6.11 | % | $ | 365 | 6.76 | % | $ | 510 | |||||||||
Equity securities
|
7.44 | % | 19 | 8.93 | % | 23 | |||||||||||
Commercial mortgage loans on real estate
|
8.11 | % | 53 | 9.11 | % | 78 | |||||||||||
Policy loans
|
5.64 | % | 3 | 5.10 | % | 3 | |||||||||||
Short-term investments
|
1.49 | % | 6 | 1.30 | % | 9 | |||||||||||
Cash and cash equivalents
|
0.65 | % | 2 | 1.64 | % | 9 | |||||||||||
Other investments(2)
|
26.50 | % | 26 | 13.71 | % | 19 | |||||||||||
|
|
||||||||||||||||
Investment income before investment expenses
|
6.08 | % | 473 | 6.46 | % | 651 | |||||||||||
Investment expenses
|
(17 | ) | (19 | ) | |||||||||||||
|
|
||||||||||||||||
Net investment income
|
5.87 | % | $ | 457 | 6.27 | % | $ | 632 | |||||||||
|
|||||||||||||||||
Total Return Fixed Maturity Portfolio(3)
|
6.54 | % | 8.42 | % | |||||||||||||
Total Return Lehman U.S. Aggregate Index(4)
|
3.78 | % | 10.26 | % |
(1) | The yield is calculated by dividing income by average assets. The yield calculation for the nine months ended September 30, 2003 is presented on an annualized basis and includes the average of asset positions as of December 31, 2002 and September 30, 2003. The yield calculation for the year ended December 31, 2002 includes the average of asset positions as of December 31, 2001 and December 31, 2002. |
(2) | Includes primarily commercial real estate and limited partnerships. |
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(3) | Total return is calculated using beginning and ending market portfolio value adjusted for external cash flows. |
(4) | The actual portfolio is customized for the liabilities that it supports. It will therefore differ from the Lehman Index, both in asset allocation and duration. As of September 30, 2003, the actual portfolio had a duration of 5.84 years with 4% of the total portfolio in U.S. Government securities, 58% in U.S. credit and 16% in securitized assets. Commercial mortgages and real estate comprised the remainder of the portfolio. In contrast, the Lehman Index had a duration of 4.4 with 34% in U.S. Government securities, 27% in U.S. credit and 39% in securitized assets. |
Fixed Maturity Securities |
The amortized cost and fair value of fixed maturity securities at September 30, 2003 and December 31, 2002, by type of issuer, were as follows:
Gross | Gross | |||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||||
|
|
|
|
|||||||||||||||
(in millions) | ||||||||||||||||||
At September 30, 2003
|
||||||||||||||||||
U.S. government and government agencies and
authorities
|
$ | 1,632 | $ | 50 | $ | (2 | ) | $ | 1,680 | |||||||||
States, municipalities and political subdivisions
|
191 | 17 | | 208 | ||||||||||||||
Foreign governments
|
305 | 17 | | 322 | ||||||||||||||
Public utilities
|
924 | 86 | (1 | ) | 1,009 | |||||||||||||
All other corporate bonds
|
5,232 | 407 | (10 | ) | 5,629 | |||||||||||||
|
|
|
|
|||||||||||||||
Total
|
$ | 8,284 | $ | 577 | $ | (13 | ) | $ | 8,848 | |||||||||
|
|
|
|
|||||||||||||||
At December 31, 2002
|
||||||||||||||||||
U.S. government and government agencies and
authorities
|
1,576 | 71 | | 1,647 | ||||||||||||||
States, municipalities and political subdivisions
|
196 | 15 | | 212 | ||||||||||||||
Foreign governments
|
202 | 19 | (17 | ) | 204 | |||||||||||||
Public utilities
|
834 | 55 | (10 | ) | 879 | |||||||||||||
All other corporate bonds
|
4,823 | 299 | (27 | ) | 5,094 | |||||||||||||
|
|
|
|
|||||||||||||||
Total
|
$ | 7,631 | $ | 459 | $ | (54 | ) | $ | 8,036 | |||||||||
|
|
|
|
For similar information regarding our equity securities, see Note 5 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus.
126
The following table presents our fixed maturity securities portfolio by NAIC designation and the equivalent ratings of the nationally recognized securities rating organizations as of September 30, 2003 and December 31, 2002, as well as the percentage based on fair value, that each designation comprises:
At September 30, 2003 | At December 31, 2002 | |||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Percentage | Percentage | |||||||||||||||||||||||||||
NAIC | Rating Agency | Amortized | Fair | of Total | Amortized | Fair | of Total | |||||||||||||||||||||
Rating | Equivalent | Cost | Value | Fair Value | Cost | Value | Fair Value | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
1 | Aaa/Aa/A | $ | 5,845 | $ | 6,215 | 70 | % | $ | 5,673 | $ | 6,013 | 75 | % | |||||||||||||||
2 | Baa | 1,915 | 2,076 | 23 | % | 1,454 | 1,526 | 19 | % | |||||||||||||||||||
3 | Ba | 363 | 386 | 4 | % | 333 | 338 | 4 | % | |||||||||||||||||||
4 | B | 125 | 130 | 2 | % | 108 | 105 | 1 | % | |||||||||||||||||||
5 | Caa and lower | 34 | 39 | 1 | % | 59 | 50 | 1 | % | |||||||||||||||||||
6 | In or near default | 2 | 2 | | 4 | 4 | | |||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||
Total | $ | 8,284 | $ | 8,848 | 100 | % | $ | 7,631 | $ | 8,036 | 100 | % | ||||||||||||||||
|
|
|
|
|
|
The amortized cost and fair value of fixed maturity securities at September 30, 2003 and December 31, 2002, by contractual maturity are shown below:
At September 30, | ||||||||||||||||||
2003 | At December 31, 2002 | |||||||||||||||||
|
|
|||||||||||||||||
Amortized | Fair | Amortized | ||||||||||||||||
Cost | Value | Cost | Fair Value | |||||||||||||||
|
|
|
|
|||||||||||||||
(in millions) | ||||||||||||||||||
Due in one year or less
|
$ | 274 | $ | 281 | $ | 271 | $ | 274 | ||||||||||
Due after one year through five years
|
1,535 | 1,639 | 1,990 | 2,085 | ||||||||||||||
Due after five years through ten years
|
2,189 | 2,349 | 1,647 | 1,732 | ||||||||||||||
Due after ten years
|
2,309 | 2,555 | 2,313 | 2,483 | ||||||||||||||
|
|
|
|
|||||||||||||||
Total
|
6,307 | 6,824 | 6,221 | 6,574 | ||||||||||||||
Mortgage and asset backed securities
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1,977 | 2,024 | 1,410 | 1,462 | ||||||||||||||
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Total
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$ | 8,284 | $ | 8,848 | $ | 7,631 | $ | 8,036 | ||||||||||
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Virtually all of our fixed maturity securities portfolio is publicly traded. We have recently initiated a private placement program and plan to invest approximately $500 million in privately placed securities over the next two years. As of September 30, 2003, approximately 94% of the fair market value of our fixed maturity securities were dollar denominated. As of September 30, 2003, we had approximately C$500 million invested in Canadian fixed maturity securities; however, these assets directly support Canadian liabilities.
Commercial Mortgage Loans |
We have made commercial mortgage loans, collateralized by the underlying real estate, on properties located throughout the United States. At December 31, 2002, approximately 47% of the outstanding principal balance of commercial mortgage loans was concentrated in the states of California, New York, Connecticut, Pennsylvania and Florida. Although we have a diversified loan portfolio, an economic downturn could have an adverse impact on the ability of our debtors to repay their loans. At December 31, 2002, the outstanding balances of commercial mortgage loans ranged in size from $1 to $10 million with an average outstanding balance of $2 million. Loan commitments outstanding at September 30, 2003 and December 31, 2002 totaled $39 million and $29 million, respectively.
As of September 30, 2003, approximately $500 million of principal, or 53%, of our commercial mortgage loans before valuation allowance had balloon maturities. A balloon maturity is a loan with larger dollar amounts of payments becoming due in the later years of the loan. The default rate on commercial mortgage loans with balloon payment maturities has historically been higher than the default rate on commercial
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Investment Real Estate |
We also hold commercial equity real estate as part of our investment portfolio. Investments in real estate joint ventures totaled $57 million and $63 million as of September 30, 2003 and December 31, 2002, respectively. We own real estate through real estate joint ventures and partnerships. The main property types within our portfolio are office, industrial/warehouse and multi-family housing.
Competition
We face competition in each of our businesses; however, we believe that no single competitor competes against us in all of our business lines and the business lines in which we operate are generally characterized by a limited number of competitors. Competition in our operating business segments is based on a number of factors, including:
| quality of service; | |
| product features; | |
| price; | |
| scope of distribution; | |
| financial strength ratings; and | |
| name recognition. |
The relative importance of these factors depends on the particular product and market. We compete for customers and distributors with insurance companies and other financial services companies in our various businesses.
Assurant Solutions has numerous competitors in its product lines, but we believe no other company participates in all of the same lines or offers comprehensive capabilities. Competitors include insurance companies and financial institutions. In Assurant Health, we believe the market is characterized by many competitors, and our main competitors include health insurance companies and the Blue Cross/ Blue Shield plans in the states in which we write business. In Assurant Employee Benefits, commercial competitors include benefits and life insurance companies as well as not-for-profit Delta Dental plans. In Assurant PreNeed, our main competitors are two pre-need life insurance companies with nationwide representation, Forethought Financial Services and Homesteaders Life Company, and several small regional insurers. While we are among the largest competitors in terms of market share in many of our business lines, in some cases there are one or more major market players in a particular line of business.
Some of these companies may offer more competitive pricing, greater diversity of distribution, better brand recognition or higher financial strength ratings than we have. Some may also have greater financial resources with which to compete. In addition, many of our insurance products, particularly our group benefits and health insurance policies, are underwritten annually and, accordingly, there is a risk that group purchasers may be able to obtain more favorable terms from competitors rather than renewing coverage with us. The effect of competition may, as a result, adversely affect the persistency of these and other products, as well as our ability to sell products in the future.
Ratings
Rating organizations continually review the financial positions of insurers, including our insurance subsidiaries. Insurance companies are assigned financial strength ratings by independent rating agencies based upon factors relevant to policyholders. Ratings provide both industry participants and insurance consumers
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Most of our domestic operating insurance subsidiaries have A.M. Best financial strength ratings of A (Excellent), which is the second highest of ten ratings categories and the highest within the category based on modifiers (i.e., A and A- are Excellent). Our other domestic operating insurance subsidiaries have A.M. Best financial strength ratings of A- (Excellent), which is the second highest of ten ratings categories and the lowest within the category based on modifiers.
The Moodys financial strength rating for one of our domestic operating insurance subsidiaries was A2 (Good), which is the third highest of nine ratings categories and mid-range within the category based on modifiers (i.e., A1, A2 and A3 are Good), and for five of our domestic operating insurance subsidiaries is A3 (Good), which is the third highest of nine ratings categories and the lowest within the category based on modifiers.
The S&P financial strength rating for five of our domestic operating insurance subsidiaries, is A (Strong), which is the third highest of ten ratings categories and mid-range within the category based on modifiers (i.e., A+, A and A- are Strong), and for two of our domestic operating insurance subsidiaries is A- (Strong), which is the third highest of ten ratings categories and the lowest within the category based on modifiers.
The objective of A.M. Bests, Moodys and S&Ps ratings systems is to assist policyholders and to provide an opinion of an insurers financial strength, operating performance, strategic position and ability to meet ongoing obligations to its policyholders. These ratings reflect opinions of A.M. Best, Moodys and S&P of our ability to pay policyholder claims, are not applicable to the securities offered in this prospectus and are not a recommendation to buy, sell or hold any security, including our common stock. These ratings are subject to periodic review by and may be revised upward, downward or revoked at the sole discretion of A.M. Best, Moodys and S&P .
Properties
We own seven properties, including our five buildings that serve as headquarters locations for our operating business segments in Miami, Florida, Atlanta, Georgia, Kansas City, Missouri, Milwaukee, Wisconsin and Rapid City, South Dakota. We lease office space for various offices and service centers located throughout the United States and internationally, including our New York corporate office, Assurant PreNeeds Atlanta operations and our data center in Woodbury, Minnesota. Our leases have terms ranging from month-to-month to ten years. We believe that our owned and leased properties are adequate for our current business operations.
Employees
As of September 30, 2003, we had approximately 12,200 employees. In Assurant Solutions, we have employees in Brazil who are represented by two separate labor unions. None of our other employees are subject to collective bargaining agreements governing employment with us or represented by labor unions. We believe that we have an excellent relationship with our employees.
Legal Proceedings
We are regularly involved in litigation in the ordinary course of business, both as a defendant and as a plaintiff. We may from time to time be subject to a variety of legal and regulatory actions relating to our current and past business operations. While we cannot predict the outcome of any pending or future litigation, examination or investigation and although no assurances can be given, we do not believe that any pending matter will have a material adverse effect on our financial condition or results of operations.
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In Assurant Solutions, we are subject to a number of pending actions, primarily in the State of Mississippi, many of which allege that our credit insurance products were packaged and sold with lenders products without buyer consent. The judicial climate in Mississippi is such that the outcome of these cases is extremely unpredictable. We have been advised by legal counsel that we have meritorious defenses to all claims being asserted against us. We believe, based on information currently available, that any losses are not expected to significantly differ from amounts previously accrued.
ABIG, part of Assurant Solutions, on behalf of certain of its subsidiaries, including ABIC and ABLAC, previously entered into a Consent Order and a comprehensive Compliance Plan with 43 participating states relating to compliance with the often disparate state insurance laws, regulations and administrative interpretations which have been difficult to apply to the marketing of ABIGs credit insurance products through financial institutions, retailers and other entities offering consumer financing as a regular part of their business. In addition to an initial settlement of $12 million, ABIG agreed to a multi-state market conduct examination commencing November 23, 1999, for review of ABIGs implementation of the Compliance Plan. A final report was issued on December 19, 2001, and ABIG paid a final settlement of $3 million to participating states.
In February 2002, the State of Minnesota initiated an enforcement action against ABIC and ABLAC in connection with certain alleged regulatory violations. Thereafter, ABIC and ABLAC filed suit in Minnesota state court seeking to enjoin the enforcement action because the alleged regulatory matters included within the enforcement action were resolved as a part of the above-described Consent Order and Compliance Plan to which Minnesota was a party. In February 2003, the State of Minnesota, ABIC and ABLAC reached a final settlement of all matters included within the enforcement action and the separate state court action filed by ABIC and ABLAC. Pursuant to the settlement, ABIC and ABLAC each agreed to pay $100,000 to the State of Minnesota and agreed to compensate the state for its investigative costs, which totaled $1.8 million. In addition, ABIC and ABLAC agreed to stop selling insurance in Minnesota for five years, though they could apply for reinstatement in 20 months. Other member companies of Assurant Solutions with product lines that overlap those offered by ABIC and ABLAC currently remain authorized to do business in the State of Minnesota. We do not believe that the effect of the settlement during the next five years will have a material impact on our financial condition or results of operations.
On October 1, 2003, a grand jury in Mower County, Minnesota issued an indictment of ABIC and two corporate officers of Assurant Solutions. The indictment alleges that ABIC and its two named corporate officers each violated the Minnesota Fair Campaign Practices Act in connection with two contributions by ABIC to the Republican National State Election Committee totaling $15,000. The maximum penalty for ABIC is a $40,000 fine for each alleged violation and/or forfeiture of ABICs license to conduct business in Minnesota. In addition, the maximum monetary penalty for each officer would be $20,000 per violation, which we may reimburse under certain circumstances. Other member companies of Assurant Solutions with product lines that overlap those offered by ABIC remain authorized to conduct business in the State of Minnesota. ABIC believes that it has meritorious defenses to the claims being asserted against it, and we believe, based on information currently available, that any liabilities that could result are not expected to have a material effect on our financial condition or results of operations.
In addition, one of our subsidiaries, American Reliable Insurance Company (ARIC), participated in certain excess of loss reinsurance programs in the London market and, as a result, reinsured certain personal accident, ransom and kidnap insurance risks from 1995 to 1997. ARIC and a foreign affiliate ceded a portion of these risks to other reinsurers ( retrocessionaires ). ARIC ceased reinsuring such business in 1997. However, certain risks continued beyond 1997 due to the nature of the reinsurance contracts written. ARIC and some of the other reinsurers involved in the programs are seeking to avoid certain treaties on various grounds, including material misrepresentation and non-disclosure by the ceding companies and intermediaries involved in the programs. Similarly, some of the retrocessionaires are seeking avoidance of certain treaties with ARIC and the other reinsurers and some reinsureds are seeking collection of disputed balances under some of the treaties. The disputes generally involve multiple layers of reinsurance, and allegations that the reinsurance programs involved interrelated claims spirals devised to disproportionately pass claims losses to higher-level reinsurance layers. Many of the companies involved in these programs, including ARIC, are currently involved in
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As a result of regulatory scrutiny of our industry practices or our businesses, such as examinations of race-based premiums charged in the past by two of our acquired subsidiaries, it is possible that we may be subject to legal proceedings in the future relating to those practices and businesses. See Regulation.
See Risk Factors Risks Related to Our Industry Our business is subject to risks related to litigation and regulatory actions.
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REGULATION
United States
State Regulation
General |
Our insurance subsidiaries are subject to regulation in the various states and jurisdictions in which they transact business. The extent of regulation varies, but generally derives from statutes that delegate regulatory, supervisory and administrative authority to a department of insurance in each state. The regulation, supervision and administration relate, among other things, to:
| standards of solvency that must be met and maintained; | |
| the payment of dividends; | |
| changes of control of insurance companies; | |
| the licensing of insurers and their agents; | |
| the types of insurance that may be written; | |
| guaranty funds; | |
| privacy practices; | |
| the ability to enter and exit certain insurance markets; | |
| the nature of and limitations on investments, premium rates, or restrictions on the size of risks that may be insured under a single policy; | |
| reserves and provisions for unearned premiums, losses and other obligations; | |
| deposits of securities for the benefit of policyholders; | |
| payment of sales compensation to third parties; | |
| approval of policy forms; and | |
| the regulation of market conduct, including underwriting and claims practices. |
State insurance departments also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports, prepared under SAP, relating to the financial condition of companies and other matters. Financial examinations completed during the past three years with respect to our operating subsidiaries have not resulted in material negative adjustments to statutory surplus and pending financial and market conduct examinations with respect to these subsidiaries have not identified any material findings to date. Two of our subsidiaries have responded affirmatively to an NAIC survey regarding race-based premiums, resulting in examinations by two state insurance departments. This relates to actions of the subsidiaries or predecessor companies before acquisition by us. One examination has been concluded and one is still in progress and, to date, no penalties have been imposed as a result of these examinations. The amount of in force business as to which these subsidiaries charged race-based premiums is very small, representing less than 1% of the in force block of business of the Company at September 30, 2003. While we do not expect that these examinations will have a material adverse effect on us, there can be no assurance that further examinations or litigation will not occur with respect to race-based premiums.
In February 2003, two of our subsidiaries, ABIC and ABLAC, reached a final settlement with the State of Minnesota in connection with certain alleged regulatory violations. Pursuant to the settlement, ABIC and ABLAC have agreed to stop selling insurance in Minnesota for five years, though they could apply for reinstatement in 20 months. In addition, ABIC may lose its license to conduct business in the State of Minnesota as a result of alleged violations of the Minnesota Fair Campaign Practices Act. However, other member companies of Assurant Solutions with product lines that overlap those offered by ABIC and ABLAC
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At the present time, our insurance subsidiaries are collectively licensed to transact business in all 50 states and the District of Columbia, although several of our insurance subsidiaries individually are licensed in only one or a few states. We have insurance subsidiaries domiciled in the states of Alabama, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Indiana, Kentucky, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Wisconsin, and in Puerto Rico.
Regulation of Credit Insurance Products |
Most states and other jurisdictions in which our insurance subsidiaries do business have enacted laws and regulations that apply specifically to consumer credit insurance. The methods of regulation vary but generally relate to, among other things, the amount and term of coverage, the content of required disclosures to debtors, the filing and approval of policy forms and rates, the ability to provide creditor-placed insurance and limitations on the amount of premiums that may be charged and on the amount of compensation that may be paid as a percentage of premiums. In addition, some jurisdictions have enacted or are considering regulations that may limit profitability arising from credit insurance based on underwriting experience.
The regulation of credit insurance is also affected by judicial activity. For example, recent federal court decisions have enhanced the ability of national banks to engage in activities that effectively compete with our consumer credit insurance business without being subject to various aspects of state insurance regulation.
Regulation of Service Contracts and Warranties |
The extent of regulation over the sale of service contracts and warranties varies considerably from state to state. In the states that do regulate the sales of these products, the regulations generally are less stringent than those applicable to the sale of insurance. For example, most states do not require the filing and approval of contract forms and rates for service contracts and warranties. States that do regulate such contract forms typically require specific wording regarding cancellation rights and regarding the consumers rights in the event of a claim. Most states do not require that individual salespersons of service contracts and warranties be licensed as insurance agents. In the states that do require such a license, salespersons may qualify for a limited license to sell service contracts and warranties without meeting the education and examination requirements applicable to insurance agents. In addition, the compensation paid to salespersons of service contracts and warranties is generally not regulated.
Regulation of Health Insurance Products |
State regulation of health insurance products varies from state to state, although all states regulate premium rates, policy forms and underwriting and claims practices to one degree or another. Most states have special rules for health insurance sold to individuals and small groups. For example, a number of states have passed or are considering legislation that would limit the differentials in rates that insurers could charge for health care coverages between new business and renewal business for small groups with similar demographics. Every state has also adopted legislation that would make health insurance available to all small employer groups by requiring coverage of all employees and their dependents, by limiting the applicability of pre-existing conditions exclusions, by requiring insurers to offer a basic plan exempt from certain benefits as well as a standard plan, or by establishing a mechanism to spread the risk of high risk employees to all small group insurers. The U.S. Congress and various state legislators have from time to time proposed changes to the health care system that could affect the relationship between health insurers and their customers, including external review. In addition, various states are considering the adoption of play or pay laws requiring that employers either offer health insurance or pay a tax to cover the costs of public health care insurance. We cannot predict with certainty the effect that any proposals, if adopted, or legislative developments could have on our insurance businesses and operations.
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A number of states have enacted new health insurance legislation over the past several years. These laws, among other things, mandate benefits with respect to certain diseases or medical procedures, require health insurers to offer an independent external review of certain coverage decisions and establish health insurer liability. There has also been an increase in legislation regarding, among other things, prompt payment of claims, privacy of personal health information, health insurer liability and relationships between health insurers and providers. We expect that this trend of increased legislation will continue. These laws may have the effect of increasing our costs and expenses.
In most states in which we operate, we provide our individual health insurance products through an association. The use of associations offers greater flexibility on pricing, underwriting and product design compared to products sold directly to individuals on a true individual policy basis due to the greater regulatory scrutiny of true individual policies. The marketing of health insurance through association groups has recently come under increased scrutiny. An interruption in, or changes to, our relationships with various third-party distributors or our inability to respond to regulatory changes could impair our ability to compete and market our insurance products and services and materially adversely affect our results of operations and financial condition.
Regulation of Employee Benefits Products |
State regulation of non-medical group products, including group term life insurance, group disability and group dental products, also varies from state to state. As with individual insurance products, the regulation of these products generally also includes oversight over premium rates and policy forms, but often to a lesser degree. The regulatory environment for group term life insurance is relatively established, with few significant changes from year to year.
Group PPO dental insurance policies are generally regulated in the same manner as non-PPO dental policies, except to the extent that a small number of states have chosen to restrict the difference in benefits allowable between in-network and out-of-network services. Also, some states directly regulate the operation of the PPO network by requiring separate licensing or registration for the organization that contracts with the providers of dental care. In those states, PPOs also must comply with varying levels of regulatory oversight concerning the content of PPO contracts and provider practice standards. Most of the states in which prepaid dental plans are written recognize prepaid dental plans as an activity separate from traditional insurance, because providers are compensated through capitation arrangements. In most of these states, prepaid dental plans are written by a single-purpose, single-state affiliate that holds a license distinct from the life and health insurance license required for group dental insurance policies. Entities providing prepaid plans are variously licensed as health maintenance organizations (HMOs), prepaid dental plans, limited service health plans, life and health insurers or risk-bearing PPOs, where such licenses are required. Each state has different rules regarding organization, capitalization and reporting for the separate entities, with additional variations relating to provider contracting, oversight, plan management and plan operations.
Providers of group disability and dental insurance, like providers of group health insurance, are subject to state privacy laws, claims processing rules and prompt pay requirements in various states.
As an extension of past legislative activities in the medical insurance arena, legislative and regulatory consideration, at both the federal at state levels, is being directed toward an effort to mandate what its proponents call mental health parity in the policy provisions of group disability insurance plans. This would require providers of group disability insurance to extend the same benefits for disabilities related to mental illness as are provided for other disabilities.
Group benefit plans and the claims thereunder are also largely subject to federal regulation under ERISA, a complex set of laws and regulations subject to interpretation and enforcement by the Internal Revenue Service and the Department of Labor. ERISA regulates certain aspects of the relationships between us and employers who maintain employee benefit plans subject to ERISA. Some of our administrative services and other activities may also be subject to regulation under ERISA.
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Regulation of Pre-Funded Funeral Insurance Products |
State regulation of the pre-funded funeral insurance products business varies considerably from state to state. Our pre-funded funeral insurance products are typically structured as small whole life insurance policies, usually under $10,000 face amount, and are regulated as such by the states. State laws also restrict who may sell a pre-funded funeral. For example, in certain states a pre-funded funeral may only be offered through licensed funeral directors. In New York, the payment of commissions to a funeral director for the sale of insurance is prohibited.
State privacy laws, particularly those with opt-in clauses, can also affect the pre-funded funeral insurance business. These laws make it harder to share information for marketing purposes, such as generating new sales leads. Similarly, state do not call lists, as well as the recently created national do not call list, also make it more difficult for our pre-funded funeral insurance agents to solicit new customers, particularly on a cold call basis.
In certain states, insurance companies offering pre-funded funeral insurance products must offer a free-look period of typically 30 days, during which the purchaser of the product may cancel and receive a full refund. Furthermore, in certain states, death benefits under pre-funded funeral insurance products must grow with the Consumer Price Index.
Insurance Holding Company Statutes |
Although as a holding company, Assurant, Inc. is not regulated as an insurance company, we own capital stock in insurance subsidiaries and therefore are subject to state insurance holding company statutes, as well as certain other laws, of each of the states of domicile of our insurance subsidiaries. All holding company statutes, as well as other laws, require disclosure and, in some instances, prior approval of material transactions between an insurance company and an affiliate. The holding company statutes as well as other laws also require, among other things, prior approval of an acquisition of control of a domestic insurer, some transactions between affiliates and the payment of extraordinary dividends or distributions.
Insurance Regulation Concerning Dividends |
The payment of dividends to us by any of our insurance subsidiaries in excess of a certain amount (i.e., extraordinary dividends) must be approved by the subsidiarys domiciliary state department of insurance. Ordinary dividends, for which no regulatory approval is generally required, are limited to amounts determined by formula, which varies by state. The formula for the majority of the states in which our subsidiaries are domiciled is the lesser of (i) 10% of the statutory surplus as of the end of the prior year or (ii) the prior years statutory net income. In some states, the formula is the greater amount of clauses (i) and (ii). Some states, however, have an additional stipulation that dividends may only be paid out of earned surplus. If insurance regulators determine that payment of an ordinary dividend or any other payments by our insurance subsidiaries to us (such as payments under a tax sharing agreement or payments for employee or other services) would be adverse to policyholders or creditors, the regulators may block such payments that would otherwise be permitted without prior approval. As part of the regulatory approval process for the acquisition of ABIG in 1999, we entered into an agreement with the Florida Insurance Department pursuant to which ABIC and ABLAC have agreed to limit the amount of ordinary dividends they would pay to us to an amount no greater than 50% of the amount otherwise permitted under Florida law. This agreement expires in August 2004. In addition, we entered into an agreement with the New York Insurance Department as part of the regulatory approval process for the merger of Bankers American Life Assurance Company, one of our New York-domiciled insurance subsidiaries, into First Fortis Life Insurance Company in 2001 pursuant to which First Fortis Life Insurance Company agreed not to pay any dividends to us until fiscal year 2004. No assurance can be given that there will not be further regulatory actions restricting the ability of our insurance subsidiaries to pay dividends. Based on the dividend restrictions under applicable laws and regulations, the maximum amount of dividends that our subsidiaries could pay to us in 2003 without regulatory approval was approximately $290 million, of which approximately $19 million had been paid as of September 30, 2003. We expect that as a
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Statutory Accounting Practices (SAP) |
SAP is a basis of accounting developed to assist insurance regulators in monitoring and regulating the solvency of insurance companies. It is primarily concerned with measuring an insurers statutory surplus. Accordingly, statutory accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in accordance with appropriate insurance law and regulatory provisions applicable in each insurers domiciliary state.
GAAP is concerned with a companys solvency, but it is also concerned with other financial measurements, such as income and cash flows. Accordingly, GAAP gives more consideration to appropriate matching of revenue and expenses and accounting for managements stewardship of assets than does SAP. As a direct result, different assets and liabilities and different amounts of assets and liabilities will be reflected in financial statements prepared in accordance with GAAP as opposed to SAP.
Statutory accounting practices established by the NAIC and adopted, for the most part, by the various state insurance regulators determine, among other things, the amount of statutory surplus and statutory net income of our insurance subsidiaries and thus determine, in part, the amount of funds they have available to pay as dividends to us.
Assessments for Guaranty Funds |
Virtually all states require insurers licensed to do business in their state to bear a portion of the loss suffered by some insureds as a result of the insolvency of other insurers. Depending upon state law, insurers can be assessed an amount that is generally equal to between 1% and 3% of premiums written for the relevant lines of insurance in that state each year to pay the claims of an insolvent insurer. A portion of these payments is recoverable through premium rates, premium tax credits or policy surcharges. Significant increases in assessments could limit the ability of our insurance subsidiaries to recover such assessments through tax credits or other means. In addition, there have been some legislative efforts to limit or repeal the tax offset provisions, which efforts, to date, have been generally unsuccessful. These assessments are expected to increase in the future as a result of recent insolvencies.
Insurance Regulations Concerning Change of Control |
Many state insurance regulatory laws intended primarily for the protection of policyholders contain provisions that require advance approval by the state insurance commissioner of any change in control of an insurance company that is domiciled, or, in some cases, having such substantial business that it is deemed to be commercially domiciled, in that state. Prior to granting such approval, the state insurance commissioner will consider such factors as the financial strength of the applicant, the integrity of the applicants board of directors and executive officers, the applicants plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control. We own, directly or indirectly, all of the shares of stock of insurance companies domiciled in the states listed in the General section above. Control is generally presumed to exist through the ownership of 10% (5% in the case of Florida, in which certain of our insurance subsidiaries are domiciled) or more of the voting securities of a domestic insurance company or of any company that controls a domestic insurance company. Any purchaser of shares of common stock representing 10% (5% in the case of Florida) or more of the voting power of our capital stock will be presumed to have acquired control of our domestic insurance subsidiaries unless, following application by that purchaser in each insurance subsidiarys state of domicile, the relevant insurance commissioner determines otherwise.
In addition to these filings, the laws of many states contain provisions requiring pre-notification to state agencies prior to any change in control of a non-domestic insurance company admitted to transact business in that state. While these pre-notification statutes do not authorize the state agency to disapprove the change of
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Any future transactions that would constitute a change in control of any of our insurance subsidiaries would generally require prior approval by the insurance departments of the states in which our insurance subsidiaries are domiciled or commercially domiciled and may require pre-acquisition notification in those states that have adopted pre-acquisition notification provisions and in which such insurance subsidiaries are admitted to transact business. Regulatory approval for a change of control may also be required in one or more of the foreign jurisdictions in which we have insurance subsidiaries.
These requirements may deter, delay or prevent transactions affecting the control of our common stock, including transactions that could be advantageous to our stockholders.
Insurance Regulatory Information System |
The NAIC Insurance Regulatory Information System (IRIS) was developed to help state regulators identify companies that may require special attention. The IRIS system consists of a statistical phase and an analytical phase whereby financial examiners review annual statements and financial ratios. The statistical phase consists of 12 key financial ratios based on year-end data that are generated from the NAIC database annually; each ratio has an established usual range of results. These ratios assist state insurance departments in executing their statutory mandate to oversee the financial condition of insurance companies.
A ratio result falling outside the usual range of IRIS ratios is not considered a failing result; rather, unusual values are viewed as part of the regulatory early monitoring system. Furthermore, in some years, it may not be unusual for financially sound companies to have several ratios with results outside the usual ranges. Generally, an insurance company will become subject to regulatory scrutiny if it falls outside the usual ranges of four or more of the ratios. In the past, variances in certain ratios of our insurance subsidiaries have resulted in inquiries from insurance departments, to which we have responded. These inquiries have not led to any restrictions affecting our operations.
Risk-Based Capital (RBC) Requirements |
In order to enhance the regulation of insurer solvency, the NAIC has adopted formulas and model laws to implement RBC requirements for life and health insurers, for property and casualty insurers, and, most recently, for health organizations. These formulas and model laws are designed to determine minimum capital requirements and to raise the level of protection that statutory surplus provides for policyholder obligations.
Under laws adopted by individual states, insurers having less total adjusted capital (generally, as defined by the NAIC), than that required by the relevant RBC formula will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. The RBC laws provide for four levels of regulatory action. The extent of regulatory intervention and action increases as the ratio of total adjusted capital to RBC falls. The first level, the company action level, requires an insurer to submit a plan of corrective actions to the regulator if total adjusted capital falls below 200% of the RBC amount (or below 250%, when the insurer has a negative trend as defined under the RBC laws). The second level, the regulatory action level, requires an insurer to submit a plan containing corrective actions and requires the relevant insurance commissioner to perform an examination or other analysis and issue a corrective order if total adjusted capital falls below 150% of the RBC amount. The third level, the authorized control level, authorizes the relevant insurance commissioner to take whatever regulatory actions considered necessary to protect the best interests of the policyholders and creditors of the insurer, which may include the actions necessary to cause the insurer to be placed under regulatory control, i.e., rehabilitation or liquidation, if total adjusted capital falls below 100% of the RBC amount. The fourth action level is the mandatory control level, which requires the relevant insurance commissioner to place the insurer under regulatory control if total adjusted capital falls below 70% of the RBC amount.
The formulas have not been designed to differentiate among adequately capitalized companies that operate with higher levels of capital. Therefore, it is inappropriate and ineffective to use the formulas to rate or
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Federal Regulation
General |
In 1945, the U.S. Congress enacted the McCarran-Ferguson Act which declared the regulation of insurance to be primarily the responsibility of the individual states. Although repeal of McCarran-Ferguson is debated in the U.S. Congress from time to time, the federal government generally does not directly regulate the insurance business. However, federal legislation and administrative policies in several areas, including healthcare, pension regulation, age and sex discrimination, financial services regulation, securities regulation, privacy laws, terrorism and federal taxation, do affect the insurance business.
Federal Securities Regulation of Fortis Variable Insurance Product Business |
Two of our subsidiaries, Fortis Benefits Insurance Company and First Fortis Life Insurance Company, are subject to various federal securities regulations because they have been involved in the issuance of variable insurance products that are required to be registered as securities under the Securities Act. These registered insurance contracts, which are no longer being sold, have been 100% reinsured with The Hartford through modified coinsurance agreements. The Hartford now administers this closed block of business pursuant to a third-party administration agreement. Nevertheless, because these two subsidiaries are still considered the issuers of the products, they are subject to regulation by the SEC. As a result, they must file periodic reports under the Securities Exchange Act of 1934, as amended (Exchange Act) and are periodically examined for compliance with applicable federal securities laws by the SEC. The SEC is currently conducting a routine examination of this variable product business. As of September 30, 2003, there had been no adverse findings reported by the SEC. See also Managements Discussion and Analysis of Financial Condition and Results of Operations Acquisitions and Dispositions of Businesses.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) |
As with other lines of insurance, the regulation of health insurance historically has been within the domain of the states. However, HIPAA and the implementing regulations promulgated thereunder by the Department of Health and Human Services impose new obligations for issuers of health and dental insurance coverage and health and dental benefit plan sponsors. HIPAA requires certain guaranteed issuance and renewability of health insurance coverage for individuals and small employer groups (generally 50 or fewer employees) and limits exclusions based on pre-existing conditions. Most of the insurance reform provisions of HIPAA became effective for plan years beginning on or after July 1, 1997.
HIPAA also establishes new requirements for maintaining the confidentiality and security of individually identifiable health information and new standards for electronic health care transactions. The Department of Health and Human Services promulgated final HIPAA regulations in 2002. The privacy regulations required compliance by April 2003, the electronic transactions regulations by October 2003 and the security regulations by April 2005. As have other entities in the health care industry, we have incurred substantial costs in meeting the requirements of these HIPAA regulations and expect to continue to incur costs to achieve and to maintain compliance. We have been working diligently to comply with these regulations in the time periods required. However, there can be no assurances that we will achieve such compliance with all of the required transactions or that other entities with which we interact will take appropriate action to meet the compliance deadlines. Moreover, as a consequence of these new standards for electronic transactions, we may see an increase in the number of health care transactions that are submitted to us in paper format, which could increase our costs to process medical claims.
HIPAA is far-reaching and complex and proper interpretation and practice under the law continue to evolve. Consequently, our efforts to measure, monitor and adjust our business practices to comply with HIPAA are ongoing. Failure to comply could result in regulatory fines and civil lawsuits. Knowing and intentional violations of these rules may also result in federal criminal penalties.
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The Terrorism Risk Insurance Act |
On November 26, 2002, the Terrorism Risk Insurance Act was enacted to ensure the availability of insurance coverage for terrorist acts in the United States. This law requires insurers writing certain lines of property and casualty insurance to offer coverage against certain acts of terrorism causing damage within the United States or to U.S. flagged vessels or aircraft. In return, the law requires the federal government to indemnify such insurers for 90% of insured losses resulting from covered acts of terrorism, subject to a premium-based deductible. Any existing policy exclusions for such coverage were immediately nullified by the law, although such exclusions may be reinstated if either the insured consents to reinstatement or fails to pay any applicable increase in premium resulting from the additional coverage within 30 days of being notified of such an increase. It should be noted that an act of terrorism as defined by the law excludes purely domestic terrorism. For an act of terrorism to have occurred, the U.S. Secretary of the Treasury must make several findings, including that the act was committed on behalf of a foreign person or foreign interest. The law expires automatically at the end of 2005.
The Terrorism Risk Insurance Act required the U.S. Secretary of the Treasury to conduct an expedited study as to whether or not group life insurance should be covered under the law. Based on the study, the Secretary concluded that inclusion of group life insurance was not appropriate.
We have a geographically diverse block of group life business and have secured limited reinsurance protection against catastrophic losses in our group life product line. Nevertheless, we are exposed to the risk of substantial group life losses from a catastrophe, including a terrorist act.
Given that our property and casualty insurance products primarily cover personal residences and personal property, we do not believe our property and casualty exposure to terrorist acts to be significant.
USA PATRIOT Act |
On October 26, 2001, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 was enacted into law as part of the USA PATRIOT Act. Among its many provisions the law requires that financial institutions adopt anti-money laundering programs that include policies, procedures and controls to detect and prevent money laundering, designate a compliance officer to oversee the program and provide for employee training, and periodic audits in accordance with regulations proposed by the U.S. Treasury Department. Proposed Treasury regulations governing portions of our life insurance business would require us to develop and implement procedures designed to detect and prevent money laundering and terrorist financing. We remain subject to U.S. regulations that prohibit business dealings with entities identified as threats to national security. We have licensed software to enable us to detect and prevent such activities in compliance with existing regulations and we are developing policies and procedures designed to comply with the proposed regulations should they come into effect.
There are significant criminal and civil penalties that can be imposed for violation of Treasury regulations. We believe that the steps we are taking to comply with the current regulations and to prepare for compliance with the proposed regulations should be sufficient to minimize the risks of such penalties.
Gramm-Leach-Bliley Act |
On November 12, 1999, the Gramm-Leach-Bliley Act of 1999 became law, implementing fundamental changes in the regulation of the financial services industry in the United States. The act permits the transformation of the already converging banking, insurance and securities industries by permitting mergers that combine commercial banks, insurers and securities firms under one holding company. Under the Act, national banks retain their existing ability to sell insurance products in some circumstances. In addition, bank holding companies that qualify and elect to be treated as financial holding companies may engage in activities, and acquire companies engaged in activities, that are financial in nature or incidental or complementary to such financial activities, including acting as principal, agent or broker in selling life, property and casualty and other forms of insurance, including annuities. A financial holding company can own any kind of insurance company or insurance broker or agent, but its bank subsidiary cannot own the insurance
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Regulation by the Federal Reserve Board |
Fortis Bank, which is a subsidiary of Fortis, obtained approval in 2002 from state banking authorities and the Federal Reserve Board to establish branch offices in Connecticut and New York. By virtue of the opening of these offices, the U.S. operations of Fortis, including our operations, became subject to the nonbanking prohibitions of Section 4 of the BHCA. In order to continue to operate its U.S. nonbanking operations, including the insurance activities conducted by our subsidiaries, Fortis notified the Federal Reserve Board of its election to be a financial holding company for purposes of the BHCA and the Federal Reserve Boards implementing regulations in Regulation Y. Pursuant to Fortis status as a financial holding company, Fortis and its subsidiaries, including our subsidiaries, are permitted to engage in nonbanking activities in the United States that are financial in nature or incidental to a financial activity as defined in Section 4(k) of the BHCA and in Regulation Y. In particular, Fortis status as a financial holding company permits Fortis to engage in the United States in both banking activities through the U.S. branches of Fortis Bank and insurance activities through our subsidiaries. Activities that are financial in nature include, among other things, insuring, guaranteeing or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent or broker for purposes of the foregoing.
Fortis will continue to qualify as a financial holding company so long as Fortis Bank remains well capitalized and well managed as those terms are defined in Regulation Y. Generally, Fortis Bank will be considered well capitalized if it maintains tier 1 and total risk-based capital ratios of at least 6% and 10%, respectively, and will be considered well managed if it has received at least a satisfactory composite rating of its U.S. branch operations at its most recent examination. As a general matter, as long as Fortis controls us within the meaning of the BHCA or owns more than 5% of any class of our voting shares, the BHCA does not permit us to engage in nonfinancial activities such as manufacturing, distribution of goods and real estate development except to the extent that another exemption under the BHCA, such as the merchant banking exemption, is available. If the Federal Reserve Board were to determine that any of our existing activities were not insurance activities or not otherwise financial in nature or not incidental to such activities, or if Fortis lost and was unable to regain its financial holding company status, we could be required to restructure our operations or divest some of these operations, which could result in increased costs and reduced profitability.
The Federal Reserve Board oversees all of Fortis direct and indirect U.S. subsidiaries for compliance with the BHCA, including our Company. Our Company will be considered a subsidiary of Fortis so long as Fortis owns 25% or more of any class of our voting shares or otherwise controls us within the meaning of the BHCA. In addition, even if we are not a subsidiary of Fortis, the nonfinancial activities restrictions of the BHCA and Regulation Y (discussed above) would continue to apply so long as Fortis owned more than 5% of any class of our voting shares and another BHCA exemption, such as the merchant banking exemption, is not available.
Legislative Developments
Legislation has been introduced in the U.S. Congress that would allow state-chartered and regulated insurance companies, such as our insurance subsidiaries, to choose instead to be regulated exclusively by a federal insurance regulator. We do not believe that such legislation will be enacted during the current Congressional term.
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Numerous proposals to reform the current health care system have been introduced in the U.S. Congress and in various state legislatures. Proposals have included, among other things, modifications to the existing employer-based insurance system, a quasi-regulated system of managed competition among health insurers, and a single-payer, public program. Changes in health care policy could significantly affect our business. For example, federally mandated, comprehensive major medical insurance, if proposed and implemented, could partially or fully replace some of our current products. Furthermore, legislation has been introduced from time to time in the U.S. Congress that could result in the federal government assuming a more direct role in regulating insurance companies.
In addition, the U.S. Congress is considering the expansion of risk retention groups, which were originally established in 1986 to address the lack of available product liability insurance. Risk retention groups may be chartered in a state with favorable regulations and then proceed to do business in any state, even though insurance companies competing in the other states may be subject to more stringent regulations. This is a continuing risk to the extended service contract business at Assurant Solutions.
There is also legislation pending in the U.S. Congress and in various states designed to provide additional privacy protections to consumer customers of financial institutions. These statutes, including the Fair Credit Reporting Act, and similar legislation and regulations in the United States or other jurisdictions could affect our ability to market our products or otherwise limit the nature or scope of our insurance operations.
The NAIC and individual states have been studying small face amount life insurance for the past two years. Some initiatives that have been raised at the NAIC include further disclosure for small face amount policies and restrictions on premium to benefit ratios. The NAIC is also studying other issues such as suitability of insurance products for certain customers. This may have an effect on our pre-funded funeral insurance business. Suitability requirements such as a customer assets and needs worksheet could extend and complicate the sale of pre-funded funeral insurance products.
Medical Savings Accounts were created by U.S. Congress as a trial program in 1996. MSAs allow self-employed individuals, as well as employees of small employers (i.e., employers with 50 or fewer employees), to set aside funds on a tax-free basis for the purpose of paying eligible medical expenses, so long as such persons are covered under a high-deductible health insurance policy. MSA health insurance policies have become an important and growing product line for Assurant Health. On December 8, 2003, the Medicare Prescription & Modernization Act was signed into law. This Act includes a provision providing for HSAs. In addition, the House passed a 12-month extension on MSAs, providing a transition period for the continued offering of MSAs.
We are unable to evaluate new legislation that may be proposed and when or whether any such legislation will be enacted and implemented. However, many of the proposals, if adopted, could have a material adverse effect on our financial condition, cash flows or results of operations, while others, if adopted, could potentially benefit our business.
Foreign Jurisdictions |
A portion of our business is carried on in foreign countries. We have insurance subsidiaries domiciled in Argentina, Brazil, the Dominican Republic, the Turks and Caicos Islands and the United Kingdom. Certain subsidiaries operate in Canada under the branch system. The degree of regulation and supervision in foreign jurisdictions varies from minimal in some to stringent in others. Generally, our insurance subsidiaries operating in such jurisdictions must satisfy local regulatory requirements. Licenses issued by foreign authorities to our insurance subsidiaries are subject to modification or revocation by such authorities, and these subsidiaries could be prevented from conducting business in certain of the jurisdictions where they currently operate. In the past, we have been allowed to modify our operations to conform with new licensing requirements in most jurisdictions.
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In addition to licensing requirements, our foreign operations are also regulated in various jurisdictions with respect to:
| currency, policy language and terms; | |
| amount and type of security deposits; | |
| amount and type of reserves; | |
| amount and type of local investment; and | |
| the share of profits to be returned to policyholders on participating policies. |
Some foreign countries regulate rates on various types of policies. Certain countries have established reinsurance institutions, wholly or partially owned by the state, to which admitted insurers are obligated to cede a portion of their business on terms which do not always allow foreign insurers full compensation. In some countries, regulations governing constitution of technical reserves and remittance balances may hinder remittance of profits and repatriation of assets.
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MANAGEMENT
Directors
The table below sets forth the names, ages and
positions of our directors:
Name
Age
Positions
68
Chairman of the Board
58
Director and Immediate Past Chairman of the Board
58
Director, President and Chief Executive Officer
54
Director
61
Director
52
Director
59
Director
59
Director
63
Director
63
Director
54
Director
61
Director
(1) | Denotes Class I Director with term to expire in 2005. |
(2) | Denotes Class II Director with term to expire in 2006. |
(3) | Denotes Class III Director with term to expire in 2007. |
While our board of directors is not currently classified, pursuant to our by-laws, our board of directors will be classified effective upon the consummation of the offering. These classifications have been denoted above. As Fortis ownership is expected to fall below 50% upon consummation of the offering contemplated by this prospectus, each of Messrs. Fakkert, Valckenaere and Van Rossum has expressed his intention to resign from our board of directors upon the consummation of the offering.
John Michael Palms, Ph.D., D.Sc., Chairman of the Board. Dr. Palms has been a member of our board of directors since March 1990 and became Chairman in October 2003 as a result of Mr. Van Rossums decision to resign the position and allow it to be filled by an outside director in line with emerging best practices for public companies in the United States. Dr. Palms is a Distinguished University Professor at the University of South Carolina and was the President of the University of South Carolina from 1991 until his retirement in 2002. Earlier in his career, Dr. Palms served as President of Georgia State University and as a professor and administrator at Emory University. Dr. Palms currently serves on the boards of the Computer Task Group and Simcom International and is the Chair of the Exelon Corporations audit committee. He is also Chairman of the Board of the Institute for Defense Analyses. In the past, Dr. Palms has been a member of various additional company committees and boards including the University of South Carolinas Educational and Development Foundation Boards, NationsBank of the Carolinas audit committee, the audit committee of the Board of Directors of Carolina First Bank, the Mynd Corporations compensation committee and Chair of PECO Energys nuclear committee.
Anton van Rossum, Director and Immediate Past Chairman of the Board. Mr. Van Rossum is the Chief Executive Officer of Fortis, has been a member of our board of directors since September 2000 and was Chairman of our board of directors from September 2000 until October 2003. Mr. Van Rossum stepped down as Chairman in order to allow Dr. Palms to fill the Chairmans position, in line with emerging best practices for public companies in the United States. Prior to joining Fortis, Mr. Van Rossum spent 28 years with McKinsey & Company in a variety of roles, including Principal and Director, in The Netherlands, Scandinavia and Belgium. In addition to serving as Chief Executive Officer of Fortis since 2000, he is a member of the board of directors of Fortis SA/NV, Fortis N.V., Fortis Brussels, Fortis Utrecht and Caifor, a Fortis joint venture based in Spain. He is also Chairman of the boards of directors of Fortis Insurance N.V., Fortis Bank, Fortis AG, and of Fortis ASR N.V.s Raad van Commissarissen (Supervisory Board).
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J. Kerry Clayton, President, Chief Executive Officer and Director. Mr. Clayton has been President and Chief Executive Officer of the Company since May 2000 and has been a member of our board of directors since March 1999. From 1993 to 1999, Mr. Clayton served as Executive Vice President of the Company with a variety of responsibilities. From 1985 to 1993, Mr. Clayton served as President of Fortis Benefits Insurance Company, which acquired and combined the operations of Western Life Insurance Company, St. Paul Life Insurance Company and the Group Division of Mutual Benefit Life. He also served as Senior Vice President, Finance of the Company from 1981 to 1985. From 1970 to 1980, Mr. Clayton held various positions with American Security Group (now Assurant Solutions), which was acquired by the Company in 1980.
Michel Baise, Director. Mr. Baise has been a member of our board of directors since October 2003. Mr. Baise is currently General Manager, Finance of Fortis and has held this position since 1994. From 1989 to 1994, Mr. Baise worked for Société Générale de Belgique, as Advisor in the Industrial Subsidiaries and Strategy Division. Between 1982 and 1989, Mr. Baise served in various management positions and as a member of the Executive Committee of the Belgian Bank in Hong Kong and Belgium. This was preceded by assignments at the European Asian Bank as Credit Manager in Hamburg, Germany from 1981 to mid-1982, and Operations Manager in Singapore from 1977 to 1980. Mr. Baise began his career in 1972 as a management trainee at Generale Bank, later named Fortis Bank, and held various positions there including Deputy Manager of the Bills Department until 1977. Mr. Baise is Director and Chairman of Fortis Finance, a subsidiary of Fortis Insurance N.V. He is also Director and Chairman of various financing vehicles in Luxemburg: Fortfinlux SA, FGF Lux SA, Fortinvestlux SA and in Jersey: Fortis Capital Company, Ltd. He was recently appointed to be a member of the Supervisory Board of a mortgage bank in The Netherlands as a subsidiary of Fortis Bank Nederland.
Dr. Robert J. Blendon, Sc.D., Director. Dr. Blendon has been a member of our board of directors since March 1993. Dr. Blendon has been a professor of Health Policy at Harvard Universitys School of Public Health and a professor of Political Analysis at Harvard Universitys Kennedy School of Government since 1987. Previously, he served as Vice President of The Robert Wood Johnson Foundation.
Beth L. Bronner, Director. Ms. Bronner has been a member of our board of directors since January 1994. Ms. Bronner is currently Senior Vice President and Chief Marketing Officer of Jim Beam Brands, a division of Fortune Brands. Prior to joining Jim Beam in 2003, Ms. Bronner was a Partner at LERA Consulting in Chicago, Illinois. Prior to joining LERA Consulting in 2002, Ms. Bronner was the President and Chief Operating Officer of ADVO, Inc., the nations largest full-service targeted direct mail marketing company. Before joining ADVO, Inc. in 2000, Ms. Bronner was President of the Health Division at Sunbeam Corporation. She was also a Senior Vice President and Director of Marketing of North American Consumer Banking at Citibank, N.A. and Vice-President of Emerging Markets for AT&T Company. Since 1993, she has been a member of the board of directors of The Hain-Celestial Group Inc., and has chaired its compensation committee. She also served as a member of Oak Industries, Inc.s audit committee from 1996 until its 2000 merger with Corning Incorporated. Ms. Bronner also serves on the boards of several charitable organizations; she is currently serving as a board member of the Cradle Foundation and is on the board of trustees of the Goodman Theater in Chicago, Illinois. She is a former trustee of the New School in New York City.
Howard L. Carver, Director. Mr. Carver has been a member of our board of directors since June 2002. Mr. Carver is retired as an Office Managing Partner of Ernst & Young. Mr. Carvers career at Ernst & Young spanned five decades, beginning as an auditor and a financial consultant. He later became the director of insurance operations in several Ernst & Young offices, and served as Regional Director of insurance operations, Associate National Director of insurance operations, Co-Chairman of Ernst & Youngs International insurance committee and was a member of the Ernst & Young National Insurance Steering Committee. He retired from Ernst & Young in June of 2002. He currently chairs the audit committees of the Company and the Phoenix National Trust Company, a wholly owned subsidiary of the Phoenix Group. Mr. Carver is a Certified Public Accountant and is a member of both the American Institute of Certified Public Accountants, and the Connecticut Society of CPAs. Mr. Carver also serves on the boards and/or finance committees of several civic/charitable organizations.
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Arie A. Fakkert, Director. Mr. Fakkert has been a member of our board of directors since January 1987. From 1986 until his retirement in October 2003, Mr. Fakkert was General Manager of Fortis Insurance International N.V. and acted as General Liaison between the Company in the United States and Fortis in Europe. Prior to assuming that position, he served as the General Manager at AMEV Praktijkvoorziening N.V. He began his career at Royal Dutch Shell Group, serving in both the United States and the United Kingdom.
Allen R. Freedman, Director. Mr. Freedman has been a member of our board of directors since its inception in 1979. Mr. Freedman is currently the owner and principal of A.R. Freedman & Co., a corporate strategy development firm and is the former Chairman and Chief Executive Officer of the Company, where he served as Chief Executive Officer until May 2000 and Chairman until his retirement in July 2000. In 1979, Mr. Freedman became the Companys president and first employee, initiating the Companys initial strategy and orchestrating its growth over the next 21 years. He began his career in 1964 as a tax lawyer, and a year later, he joined the Internal Revenue Services Office of the Chief Counsel. Mr. Freedman served as Vice President of D.H. Magid & Co. from 1967 to 1970. From there, he served as Vice President of Irving Trust Company (now Bank of New York). In 1975, Mr. Freedman became Executive Vice President and Treasurer of Lewis R. Eisner & Co., where he managed the creation of what is now Assurant in the United States, along with several other investments made by predecessors of Assurant. Beginning in 1978, he initiated and supervised most aspects of Assurants U.S. operations. Since his retirement as Chairman and Chief Executive Officer of the Company, he has served as a Director of Cornerstone Family Services, Chairman of its audit committee and a member of its investment committee. Since 1984, Mr. Freedman has also served as Chairman of the audit committee of Systems & Computer Technologies Corporation (SCTC). In January 2002, he became the Chairman of the Board of SCTC. Most recently, he has become a member of the board of directors of the newly formed Association of Audit Committee Members, Inc.
H. Carroll Mackin, Director. Mr. Mackin is the former Executive Vice President and Treasurer of the Company, where he served from 1980 until his retirement in 1997. Mr. Mackin has been a member of our board of directors since October 1996. Mr. Mackin served as a consultant to the Company in 1979. He was the Companys fourth employee and initiated many of the Companys early activities, including consolidating its investment departments and its first treasury function. Before joining the Company, he was Director for Investments at Forstmann, Leff. He is currently principal owner of Great Northern Manufacturing, LLC, a Louisville, Kentucky-based manufacturer of specialty nails.
Gilbert Mittler, Director. Mr. Mittler is the Chief Financial Officer of Fortis, and has been a member of our board of directors since March 2003. Mr. Mittler joined AG Group, one of the founding companies of Fortis, in 1988 and became at the inception of Fortis in 1990 Director of Fortis Group Finance & Development and Secretary of the Executive and Supervisory Boards of Fortis. He began his career as an accountant at Arthur Andersen in 1974, and subsequently worked for Belgian holding company Sofina as Senior Officer from 1976 to 1988. In 1988, he was recruited to serve as Head of Corporate Development of the AG Group (now Fortis AG), and in 1993 became Managing Director of ASLK Bank (now Fortis Bank) and a member of its Executive Committee, responsible for Finance & Control and foreign operations. In 1998, he became a member of the executive committee of Fortis, and a year later, he was named Managing Director of Fortis (B) and Fortis (NL), maintaining various responsibilities at group level. Since September 2000, he has served as Chief Financial Officer of Fortis and since 2001 also as Managing Director and Chief Financial Officer of Fortis Bank. Mr. Mittler is a member of the board of directors of Caifor, Fortis AG, Fortis Bank and Fortis Insurance N.V. He is also Vice-Chairman of the board of directors of the Banque Générale du Luxembourg and a member of Fortis ASR N.V.s Raad van Commissarissen (Supervisory Board).
Georges A. Valckenaere, Director. Mr. Valckenaere is the retired Advisor to the Chief Executive Officer of Fortis and has been a member of our board of directors since March 1995. Before retiring from Fortis in January 2002, Mr. Valckenaere was Chief Executive Officer of Fortis International N.V. Prior to joining Fortis International N.V., Mr. Valckenaere was Director and General Manager of Fortis AG. In addition to serving on the Companys and Fortis International N.V.s board of directors, Mr. Valckenaere also served on the boards of Fortis Bank, Fortis Assurances, Fortis Australia, Fortis Luxembourg Assurances, Fortis Insurance in the United Kingdom, Keppel Insurance and Caifor.
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Composition of Board of Directors
Our by-laws provide that our board of directors shall consist of such number of directors as from time to time fixed exclusively by resolution of the board of directors. However, our certificate of incorporation and the shareholders agreement that we will enter into with Fortis Insurance N.V. will provide that for so long as Fortis owns at least 10% of our outstanding common stock, our board of directors shall consist of no more than 12 directors (including at least seven independent directors at such time as is required by the listing standards of the New York Stock Exchange). The current board of directors consists of 12 persons and will be divided into three classes. In addition, each director will serve a three year term, with termination staggered according to class, except that Class I Directors will have an initial term expiring in 2005 and Class II Directors will have an initial term expiring in 2006. The classification and current term of office of each of our directors has been noted in the table listing our board of directors under Directors.
Pursuant to the shareholders agreement that we will enter into with Fortis Insurance N.V., Fortis will have the right to nominate designees to our board of directors and, subject to limited exceptions, our board of directors will nominate those designees as follows: (i) so long as Fortis owns at least 10% of our outstanding common stock, two designees (out of a maximum of 12 directors); and (ii) so long as Fortis owns less than 10% but at least 5% of our outstanding common stock, one designee. Currently, Fortis has five designees on our board of directors, consisting of Messrs. Van Rossum, Baise, Fakkert, Mittler and Valckenaere. As Fortis ownership is expected to fall below 50%, three Fortis designees are expected to resign from our board of directors upon the consummation of the offering contemplated by this prospectus. It will be the Companys intention to replace these Fortis designees as soon as practicable with independent directors but no later than as is required by the listing standards of the New York Stock Exchange. Fortis will cause the appropriate number of Fortis designees to resign promptly at any time when the number of Fortis designees on our board of directors exceeds the number of designees to which Fortis is entitled, unless otherwise requested by us. Each of Messrs. Fakkert, Valckenaere and Van Rossum has expressed his intention to resign from our board of directors upon the consummation of the offering contemplated by this prospectus.
Committees of the Board of Directors
Executive Committee. The Executive Committee is composed of Messrs. Baise, Clayton, Freedman and Palms and is chaired by Mr. Clayton. This committee acts for the board of directors when a meeting of the full board is not practical.
Compensation Committee. The Compensation Committee is composed of Ms. Bronner and Messrs. Freedman, Mittler and Van Rossum and is chaired by Mr. Freedman. This committee approves, administers and interprets our compensation and benefit policies, including our executive incentive programs. It reviews and makes recommendations to our board of directors to ensure that our compensation and benefit policies are consistent with our compensation philosophy and corporate governance principles. This committee is also responsible for establishing our CEOs compensation.
Audit Committee. The Audit Committee is composed of Messrs. Carver, Mackin and Palms and is chaired by Mr. Carver. This committee has general responsibility for the oversight and surveillance of our accounting, reporting and financial control practices. Among other functions, the committee retains our independent public accountants. Each member of the Audit Committee is a non-management director. Mr. Carver is a financial expert within the definition of that term under the regulations under the Securities Act.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is composed of Messrs. Blendon, Mittler, Palms and Van Rossum and is chaired by Dr. Palms. This committee oversees our governance policies, nominates directors for election by the board or by stockholders, nominates committee chairpersons and nominates directors for membership on the committees of the board.
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Compensation Committee Interlocks and Insider
Participation
The Compensation Committee is composed of
Ms. Bronner and Messrs. Freedman, Mittler and Van
Rossum. There are no interlocks, as defined by the
SEC, with respect to any member of the Compensation Committee.
Director Compensation
Our board of directors adopted and our sole stockholder approved the Assurant Directors Compensation Plan, as amended on December 12, 2003, to be effective as of the closing of the offering contemplated by this prospectus. The purpose of the plan is to attract, retain and compensate highly qualified individuals for service as members of the board of directors by providing them with competitive compensation and an ownership interest in our common stock. Directors who are employees of the Company or any of its subsidiaries or affiliates, or of Fortis Insurance N.V. or any of its subsidiaries or affiliates, and directors who are designated by Fortis to serve as directors pursuant to the shareholders agreement between the Company and Fortis Insurance N.V., are not eligible to participate in the plan or to receive payment for service as a director.
The plan provides for payment of an annual retainer to our non-employee directors of $35,000, payable in cash quarterly. Additional annual retainers will be paid to the Chairman of the Board and committee members and chairpersons as follows: Chairman of the Board: $7,500; Audit Committee: member $3,750, chairperson $7,500; Compensation Committee: member $2,500, chairperson $5,000; Corporate Governance and Nominating Committee: member $2,500, chairperson $5,000; Executive Committee: none. Annual service for this purpose relates to the approximate 12-month periods between annual meetings of our stockholders. A prorated retainer will be paid to any person who becomes a non-employee director other than by election at an annual meeting. The plan also provides for the payment of participation fees of $2,000 for each board or committee meeting and $500 for each board or committee conference call (but not more than one fee for meetings or conference calls held on the same day). The Chairman of the Board or chairperson of a committee may authorize the full meeting fee to be payable with respect to any extended conference call or any other special off-site meeting required as part of a directors service. The plan provides for reasonable reimbursement of travel expenses in connection with attending meetings of our board and its committees, and other company functions where the directors attendance is requested by our Chief Executive Officer. A participant may elect to have any cash amounts payable under the Directors Compensation Plan transferred to the Assurant Investment Plan, described under Management Compensation and Incentive Plans.
In addition to cash compensation, the plan provides that each non-employee director will receive, on the later of the effective date of the plan or the first date he or she becomes a non-employee director, an initial award of (1) shares of our common stock having a grant date value equal to the normal (non-prorated) annual cash retainer amount for such year, excluding any retainer related to a committee member or chairperson assignment, and (2) stock appreciation rights with respect to an equal number of shares of common stock. On the day following each annual meeting of our stockholders, beginning in 2005, each non-employee director then in office (other than a director who first became a non-employee director at the stockholders meeting held on the previous day) will receive (1) an award of stock having a grant date value equal to the directors annual cash retainer for such year, excluding any retainer earned by the director as a committee member or chair, and (2) an award of stock appreciation rights with respect to an equal number of shares of common stock. In no event will a director receive both an initial award and an annual award of shares and stock appreciation rights for the same year of service. The stock appreciation rights granted under the plan will have a base value equal to the fair market value of our common stock on the date of grant. Upon exercise of a stock appreciation right, a director will receive a cash payment equal to the excess, if any, of the fair market value of one share of our common stock on the date of exercise over the base value of the right. Stock appreciation rights granted under the plan will be fully vested on the date of grant, but may not be exercised until the fifth anniversary of the date of grant. To the extent not previously exercised, such rights will be automatically exercised on the earlier of the first anniversary of the grantees termination as a director of the Company for any reason or the tenth anniversary of the date of grant.
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Subject to adjustment for recapitalization events, the maximum number of shares of our common stock that may be issued under the Directors Compensation Plan is 500,000. The plan will remain in effect until the day following the 2013 annual meeting of our stockholders, unless terminated earlier by our board of directors. The board of directors may at any time terminate or amend the plan, but any such amendment would be subject to stockholder approval if, in the reasonable judgment of the board, the amendment would constitute a material change requiring stockholder approval under applicable laws or the applicable requirements of a stock exchange on which our stock is listed.
Consulting Agreement
Effective July 31, 2000, Mr. Freedman retired as the Chief Executive Officer of the Company. In connection with his retirement, Mr. Freedman entered into a Consulting, Non-Compete and Payments Agreement with us and Fortis Insurance N.V. pursuant to which he agreed to (1) perform consulting services for the Company for a period of three years from and after July 31, 2000, and (2) refrain from certain activities that would be in competition with the Company, which includes refraining from encouraging, soliciting or inducing any officer or employee of the Company or its subsidiaries to enter into an employment relationship with any entity whose business activities are in competition with those of the Company for a period of five years ending July 31, 2005. Pursuant to the terms of this agreement, Mr. Freedman has received total payments of $2,491,000 and is entitled to one additional payment of $607,000 on August 1, 2004, and reimbursement of any reasonable out-of-pocket expenses incurred in providing his consulting services.
Reimbursement of Fortis Liaison Office
During 2003, 2002, 2001 and 2000, we paid $427,000, $749,000, $516,000 and $0, respectively, to Fortis for costs representing salary, benefits and other expenses of Mr. Fakkert, one of our directors, who was then an employee of one of Fortis subsidiaries, and his support staff. We discontinued these payments as of October 3, 2003. See Certain Relationships and Related Transactions Reimbursement of Fortis Liaison Office.
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Executive Officers
The table below sets forth certain information
concerning our executive officers:
Name
Age
Positions
58
President, Chief Executive Officer and Director
49
Executive Vice President and Chief Financial
Officer
56
Executive Vice President
59
Executive Vice President
48
Executive Vice President; President and Chief
Executive Officer of Assurant Employee Benefits
57
Executive Vice President; President and Chief
Executive Officer of Assurant PreNeed
49
Executive Vice President; President and Chief
Executive Officer of Assurant Health
45
Executive Vice President; President and Chief
Executive Officer of Assurant Solutions
40
Senior Vice President, General Counsel and
Secretary
49
Senior Vice President and General Auditor
56
President and Chief Investment Officer of
Assurant Asset Management
56
Senior Vice President, Investor Relations
48
Senior Vice President, Compensation and Benefits
62
Senior Vice President, Public Affairs/ Government
Relations
60
Senior Vice President, Finance (Taxation)
56
Senior Vice President and Chief Information
Officer
J. Kerry Clayton, President, Chief Executive Officer and Director. Biography available under Directors.
Robert B. Pollock, Executive Vice President and Chief Financial Officer. Mr. Pollock has been our Executive Vice President and Chief Financial Officer since January 1999. He is also the Chairman of Assurant Solutions. From 1993 to 1999, he served as President and Chief Executive Officer of Assurant Employee Benefits. Mr. Pollock began his career as an actuary at CUNA Mutual Insurance Group in 1974. He then joined the Company as a staff actuary at Assurant Employee Benefits in 1981. In July 1992, Mr. Pollock was appointed Senior Vice President, Group Life and Disability at Assurant Employee Benefits. In July 1993, he was appointed President and Chief Executive Officer of Assurant Employee Benefits. He is a Fellow of the Society of Actuaries and a member of the American Academy of Actuaries. Mr. Pollock was the Chairman of the Disability Insurance Committee for the Health Insurance Association of America (HIAA) for three years.
Lesley Silvester, Executive Vice President. Ms. Silvester has been our Executive Vice President since January 2001. Ms. Silvesters professional career spans more than two and a half decades, much of which has been in the insurance industry in human resources management, organization development and strategy. Ms. Silvesters experience includes 15 years with different parts of the Company in the United States and with Fortis in Europe, focusing recently on world-wide senior management development, company learning, human resources strategy and post-merger integration. Ms. Silvester is a Graduate Member of the Institute of Personnel Management in the United Kingdom and holds both her F.L.M.I. and American Compensation Association Certification.
Benjamin M. Cutler, Executive Vice President. Mr. Cutler has been Executive Vice President of the Company and Chairman, Assurant Health since January 2003. Mr. Cutler has over 30 years of experience in
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Michael J. Peninger, Executive Vice President; President and Chief Executive Officer, Assurant Employee Benefits. Mr. Peninger has been President and Chief Executive Officer of Assurant Employee Benefits since January 1999. Mr. Peninger began his career at Northwestern National Life in 1977 as an actuary. He then joined Assurant Employee Benefits in 1985 as a corporate actuary and has held various positions within the Company. In 1991, Mr. Peninger was appointed Senior Vice President and Chief Financial Officer and in 1993 he became Senior Vice President of Finance and Claims of Assurant Employee Benefits. In 1998, Mr. Peninger was appointed Executive Vice President. Mr. Peninger is a Fellow of the Society of Actuaries and a member of the American Academy of Actuaries.
Alan W. Feagin, Executive Vice President; President and Chief Executive Officer, Assurant PreNeed. Mr. Feagin is President and Chief Executive Officer of Assurant PreNeed and Vice-Chairman and Chief Executive Officer of AMLIC, positions he has held since January 1995. Mr. Feagin joined United Family Life Insurance Company (now part of Assurant PreNeed) in 1989 as Senior Vice President, Marketing. He also served as Senior Vice President of Sales of United Family Life before being named President and Chief Executive Officer in 1995. Mr. Feagin has more than 20 years of experience in the marketing, advertising and sales arenas, beginning his career in the soft drink industry. He has served in various senior marketing positions with the McCann-Erickson advertising agency, RJ Reynolds Industries and Canada Dry/ Sunkist Corporation prior to joining the Company.
Donald Hamm, Executive Vice President; President and Chief Executive Officer, Assurant Health. Mr. Hamm has been President and Chief Executive Officer of Assurant Health since January 2003. Mr. Hamm first joined Assurant Health in 1982, holding several executive positions until 1993. He then worked as a principal with William M. Mercer, a consultant with Tillinghast-Towers Perrin and as Vice President of the Southeast Region for Blue Cross/ Blue Shield of Wisconsin prior to rejoining Assurant Health in 1999 as Chief Financial Officer. Mr. Hamm is a Fellow in the Society of Actuaries, a member of the American Academy of Actuaries and a Fellow of the Life Management Institute.
Philip Bruce Camacho, Executive Vice President; President and Chief Executive Officer, Assurant Solutions. Mr. Camacho has been President and Chief Executive Officer of Assurant Solutions since January 2003. Prior to his appointment as President, Mr. Camacho served as Assurant Groups Executive Vice President for Sales and Marketing. Mr. Camacho joined American Bankers in 1990 as Vice President of Information Systems. At the time of the Companys acquisition of American Bankers, he was Executive Vice President, Investor Relations, with responsibility for legal and regulatory affairs, marketing services, licensing, state filings and client administration, as well as investor relations. A certified public accountant, before joining American Bankers, Mr. Camacho worked as an accountant with PricewaterhouseCoopers LLP, specializing in insurance in the United States, United Kingdom and the Caribbean.
Katherine Greenzang, Senior Vice President, General Counsel and Secretary. Ms. Greenzang has been our Senior Vice President, General Counsel and Secretary since June 2001. Ms. Greenzang joined the Company in August 1994 as Corporate Counsel. She was named Assistant Vice President and Corporate Counsel in 1995 and Vice President, Corporate Counsel in 1996 before assuming her current position. Prior to joining the Company, Ms. Greenzang worked as an associate at Dewey Ballantine LLP. She is a member of the American Bar Association, the New York State Bar Association and the Association of Corporate Counsel.
Jeffrey Helman, Senior Vice President and General Auditor. Mr. Helman has been Senior Vice President and General Auditor since January 1997. As head of Audit Services, he is responsible for fulfilling the internal auditing requirements of the Company and its individual business segments. Mr. Helman has over two decades of experience and expertise in finance and auditing. Prior to joining the Company in 1993 as Vice President, he was a Partner at Arthur Andersen & Company, where he had worked since graduating from college in 1975. Mr. Helman is a Certified Public Accountant and is a member of the Institute of Internal Auditors and the American Institute of Certified Public Accountants.
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Lucinda Landreth, President and Chief Investment Officer, Assurant Asset Management. Ms. Landreth has been President and Chief Investment Officer of Assurant Asset Management, a division of the Company since June 2002. Ms. Landreth is responsible for managing the Companys investment portfolio and for overseeing the development and implementation of the Companys investment policy. Ms. Landreth first worked at the Company from 1997 until 2001 as Executive Vice President and Chief Investment Officer of Fortis Mutual Funds, and was responsible for investment performance and process, equity strategy and compliance, as well as developing investment professionals. When the sale of Fortis Financial Group was finalized, Ms. Landreth left the Company. She returned in July of 2002 as Senior Vice President before assuming her current title. Prior to joining the Company, Ms. Landreth was Chief Investment Officer of Alex Brown Advisory and Trust Co., a subsidiary of a major investment bank and securities brokerage in Baltimore. Ms. Landreth started her career as an equity analyst with Philadelphias Provident National Bank in 1970. After holding a succession of positions with what later became PNC Financial Services Group, she was named Managing Director of PNCs Equity Investment area in 1992. Ms. Landreth is a Chartered Financial Analyst.
Larry M. Cains, Senior Vice President, Investor Relations. Mr. Cains has been our Senior Vice President, Investor Relations, since January 2004. Prior to his current position, he served as Senior Vice President, Finance for nine years and was responsible for managing the departments of the Controller, corporate insurance and Information Technology (New York). Prior to assuming that position, Mr. Cains served as the Companys Vice President and Controller for seven years. Mr. Cains has three decades of experience in accounting, finance and general management. Prior to joining the Company in 1988, he was Marsh & McLennans Vice President and Controller for ten years. Earlier in his career, he was employed by Arthur Andersen & Company and Hertz Corporation in accounting and auditing. Mr. Cains is a Certified Public Accountant and is a member of the American Institute of Certified Public Accountants, the New York Society of Certified Public Accountants and Financial Executives International.
Robert Haertel, Senior Vice President, Compensation and Benefits. Mr. Haertel has been Senior Vice President of the Company since January 2001. Prior to his current position he was Vice President, Compensation, a position he held since June 1998. Mr. Haertel began his career in Human Resources as an employee relations generalist for Shell Oil Company in 1979. He then went on to hold various management positions specializing in compensation and human resources at Citicorp, Engelhard Corporation, Bankers Trust and CS First Boston. Prior to joining the Company in June 1998, Mr. Haertel was the director of compensation and benefits at Nielsen Media Research. Mr. Haertel holds a Certified Compensation Professional designation from World at Work (formerly the American Compensation Association) and is a member of the Society of Human Resources Management.
Edwin L. Harper, Senior Vice President, Public Affairs/ Government Relations. Mr. Harper has been our Senior Vice President, Public Affairs/ Government Relations since July 2001. Prior to his current position, Mr. Harper held a number of senior management positions including Chief Operating Officer and Chief Financial Officer of American Security Group (now Assurant Solutions) from 1998 to 2001. Prior to joining American Security Group, Mr. Harper held various executive positions, including President and Chief Executive Officer of the Association of American Railroads, Executive Vice President and Chief Financial Officer of the Campbell Soup Company and Senior Vice President and Chief Administrative Officer of CertainTeed Corporation. In 1980, Mr. Harper joined then President-elect Reagans Transition Team. He stayed on to become an Assistant to the President, Deputy Director of the Office on Management and Budget and, later, Chief of Policy Development. Earlier, from 1970 to 1973, he served under President Nixon as a Special Assistant to the President with policy planning and budgeting responsibilities. Mr. Harper has served on the boards of several public companies, academic institutions, civic organizations and professional associations. Currently he is a member of the board of directors of CompuCon Inc., the Council on Excellence in Government and The American Quality and Productivity Center.
Barbara R. Hege, Senior Vice President, Finance. Ms. Hege has been Senior Vice President, Finance since December 2000. Ms. Hege joined the Company as Vice President, Taxation, in 1991. Prior to joining the Company, she was Vice President, Finance and Taxation at Mutual Benefit Life Insurance Company. Earlier in her career she was a Senior Manager with KPMG LLP in Chicago. She is a Certified Public Accountant and a Chartered Life Underwriter. She is a member of the American Institute of Certified Public
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Lance R. Wilson, Senior Vice President and Chief Information Officer. Mr. Wilson has been our Senior Vice President, Shared Services, and Chief Information Officer since April 2000. Prior to joining the Company, Mr. Wilson was Chief Information Officer at Sunbeam Corporation from 1999 to 2000, and also worked for Honeywell Corporation from 1997 to 1999 as Vice President and Chief Information Officer. From 1989 to 1997, Mr. Wilson provided leadership for the information systems activities of the Pillsbury Company, where he was Vice President, Management Information Systems. From 1979 to 1989, Mr. Wilson held various positions with Land OLakes, Inc., where he was responsible for the creation and implementation of a marketing and sales decision support system. Mr. Wilson started his career in 1974 at the U.S. Department of Defense, U.S. Navy, where he was responsible for Management Systems Analysis.
Executive Management Committee and Management Board
A group of executive officers that we refer to as the Executive Management Committee, consisting of the Chief Executive Officer and all Executive Vice Presidents of the Company and the Chief Executive Officers of each of our operating business segments, is ultimately responsible for setting the policies, strategy and direction of the Company, subject to the overall direction and supervision of the board of directors. The current members of the Executive Management Committee are J. Kerry Clayton, Robert B. Pollock, Lesley Silvester, Benjamin M. Cutler, Michael J. Peninger, Alan W. Feagin, Donald Hamm and Philip Bruce Camacho. All of the Companys executive officers constitute a group that we refer to as the Management Board. This group is responsible for setting the operational policies of the Company, including those dealing with shared services, issues that pertain to multiple business segments and corporate functions.
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Stock Ownership of Directors and Executive Officers
The following table shows the number of Fortis Shares, comprised of one ordinary share of Fortis N.V. together with one ordinary share of Fortis SA/NV, beneficially owned as of October 1, 2003 by each director and each executive officer named in the Summary Compensation Table in the Management Compensation and Incentive Plans section below, and by all of our directors and executive officers as a group. Unless otherwise noted, each of the named individuals had sole voting and investment power with respect to the shares shown. Shares underlying stock options that are exercisable within 60 days are deemed to be outstanding for the purpose of computing the outstanding shares owned by the particular person and by the group, but are not deemed outstanding for any other purpose. The beneficial ownership of each director, each executive officer and of the group is less than 1% of the outstanding Fortis Shares. See Principal and Selling Stockholders for a description of the beneficial ownership of our common stock.
Amount and Nature of | ||||
Beneficial Ownership of | ||||
Name | Fortis Shares | |||
|
|
|||
J. Kerry Clayton
|
| |||
Robert B. Pollock
|
| |||
Benjamin M. Cutler
|
| |||
Lesley Silvester
|
| |||
Philip Bruce Camacho
|
| |||
John Michael Palms
|
| |||
Anton van Rossum
|
25,450 | (1)* | ||
Michel Baise
|
17,142 | (2)* | ||
Robert J. Blendon
|
| |||
Beth L. Bronner
|
| |||
Howard L. Carver
|
| |||
Arie A. Fakkert
|
3,715 | (3)* | ||
Allen R. Freedman
|
| |||
H. Carroll Mackin
|
| |||
Gilbert Mittler
|
38,850 | (4)* | ||
Georges Valckenaere
|
66,476 | (5)* | ||
All directors and executive officers as a group
(27 persons)
|
151,633 | * |
* | Less than 1% |
(1) | Includes 25,450 shares that are subject to stock options exercisable within 60 days. |
(2) | Includes 16,050 shares that are subject to stock options exercisable within 60 days. |
(3) | Includes 3,500 shares that are subject to stock options exercisable within 60 days. |
(4) | Includes 38,850 shares that are subject to stock options exercisable within 60 days. |
(5) | Includes 42,450 shares that are subject to stock options exercisable within 60 days. |
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Management Compensation and Incentive Plans
The following table sets forth certain summary information concerning compensation paid or accrued by the Company for services rendered in all capacities during the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001 for our Chief Executive Officer and each of the next four most highly compensated executive officers during the fiscal year ended December 31, 2003. These individuals are referred to as the named executive officers.
Summary Compensation Table
Long-Term | |||||||||||||||||||||||||||||
Compensation | |||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||
Annual Compensation | Awards | Payouts | |||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
Other | Securities | ||||||||||||||||||||||||||||
Name and | Annual | Underlying | All Other | ||||||||||||||||||||||||||
Principal Position | Year | Salary | Bonus | Compensation(1) | Options(2) | LTIP(3) | Compensation(4) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||
($) | ($) | ($) | (#) | ($) | ($) | ||||||||||||||||||||||||
J. Kerry Clayton
|
2003 | 811,200 | (5) | | 30,000 | | 865,864 | ||||||||||||||||||||||
President and Chief
|
2002 | 780,000 | 1,560,000 | 30,000 | | 54,600 | |||||||||||||||||||||||
Executive Officer
|
2001 | 750,000 | | 30,000 | 450,389 | 125,067 | |||||||||||||||||||||||
Robert B. Pollock
|
2003 | 649,000 | (5) | | 15,000 | 69,244 | 468,515 | ||||||||||||||||||||||
Executive Vice
|
2002 | 624,000 | 1,067,368 | 15,000 | | 43,680 | |||||||||||||||||||||||
President and Chief
|
2001 | 609,615 | 6,568 | 14,000 | 125,543 | 87,500 | |||||||||||||||||||||||
Financial Officer
|
|||||||||||||||||||||||||||||
Benjamin M. Cutler
|
2003 | 459,700 | (5) | | 10,000 | | 236,808 | ||||||||||||||||||||||
Executive Vice
|
2002 | 442,000 | 530,400 | 4,000 | | 66,640 | |||||||||||||||||||||||
President
|
2001 | 425,000 | 510,000 | 3,500 | 83,937 | 44,996 | |||||||||||||||||||||||
Lesley Silvester
|
2003 | 432,600 | (5) | | 10,000 | | 240,942 | ||||||||||||||||||||||
Executive Vice
|
2002 | 416,000 | 540,800 | 10,000 | | 29,120 | |||||||||||||||||||||||
President
|
2001 | 400,000 | | 3,200 | 28,609 | 42,700 | |||||||||||||||||||||||
Philip Bruce Camacho
|
2003 | 525,000 | (5) | | 4,000 | | 129,865 | ||||||||||||||||||||||
Executive Vice
|
2002 | 478,400 | 278,907 | 4,000 | 220,000 | 33,488 | |||||||||||||||||||||||
President; President | 2001 | 464,615 | | 3,700 | | 48,554 | |||||||||||||||||||||||
and Chief Executive Officer, Assurant Solutions |
(1) | Perquisites and other personal benefits to the named executive officers were less than both $50,000 and 10% of the total annual salary and bonus reported for the named executive officers, and therefore, information regarding perquisites and other personal benefits has not been included. |
(2) | The option grants shown in this table represent options granted pursuant to the Fortis, Inc. Stock Option Plan to acquire shares of Fortis Inc.s Series D Preferred Stock, the value of which is related to the market value of shares of Fortis N.V. and Fortis SA/NV, and the Euro to U.S. dollar conversion rate. On October 15, 2003, our board of directors authorized the discontinuance of this plan effective September 22, 2003 and all stock options outstanding thereunder were cancelled in exchange for a payment of the fair value of such options, as determined by an independent third party. |
(3) | Amounts shown in this column represent amounts that were paid or payable in the given year under the Appreciation Incentive Rights Plan. |
(4) | Amounts shown in this column for the fiscal year ended December 31, 2003 include the following amounts: (i) for Mr. Clayton, $14,000 for Company contributions under the Assurant 401(k) Plan, $151,984 for estimated Company contributions under the 401(k) portion of the Assurant Executive Pension and 401(k) Plan, and $699,880 in payment of the fair value for stock options to purchase Fortis, Inc.s Series D Preferred Stock granted pursuant to the Fortis, Inc. Stock Option Plan that were cancelled on September 22, 2003; (ii) for Mr. Pollock, $14,000 for Company contributions under the Assurant 401(k) Plan, $106,146 for estimated Company contributions under the 401(k) portion of the |
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Assurant Executive Pension and 401(k) Plan, and $348,369 in payment of the fair value for stock options to purchase Fortis, Inc.s Series D Preferred Stock granted pursuant to the Fortis, Inc. Stock Option Plan that were cancelled on September 22, 2003; (iii) for Mr. Cutler, $14,000 for Company contributions under the Assurant 401(k) Plan, $55,307 for estimated Company contributions under the 401(k) portion of the Assurant Executive Pension and 401(k) Plan, and $167,501 in payment of the fair value for stock options to purchase Fortis, Inc.s Series D Preferred Stock granted pursuant to the Fortis, Inc. Stock Option Plan that were cancelled on September 22, 2003; (iv) for Ms. Silvester, $14,000 for Company contributions under the Assurant 401(k) Plan, $54,138 for estimated Company contributions under the 401(k) portion of the Assurant Executive Pension and 401(k) Plan, and $172,804 in payment of the fair value for stock options to purchase Fortis, Inc.s Series D Preferred Stock granted pursuant to the Fortis, Inc. Stock Option Plan that were cancelled on September 22, 2003; and (v) for Mr. Camacho, $14,000 for Company contributions under the Assurant 401(k) Plan, $42,273 for estimated Company contributions under the 401(k) portion of the Assurant Executive Pension and 401(k) Plan, and $73,592 in payment of the fair value for stock options to purchase Fortis, Inc.s Series D Preferred Stock granted pursuant to the Fortis, Inc. Stock Option Plan that were cancelled on September 22, 2003. | |
(5) | Bonus amounts earned by the named executive officers for the fiscal year ended December 31, 2003 will be determined when final financial results for the year are known, and will be payable on or about March 15, 2004. The bonus targets, as a percentage of base salary, are as follows: for Mr. Clayton, 100%; for Mr. Pollock, 85%; for Mr. Cutler, 65%; for Ms. Silvester, 65%; and for Mr. Camacho, 60%. There is an additional multiplier from 0 to 2 times the bonus targets, based upon Company performance. |
Option Grants in 2003
The following table presents information concerning stock options granted pursuant to the Fortis, Inc. Stock Option Plan to acquire shares of Fortis, Inc.s Series D Preferred Stock to the named executive officers during the fiscal year ended December 31, 2003. The Stock Option Plan was terminated effective as of September 22, 2003, and all stock options outstanding thereunder were cancelled in exchange for a payment of the fair value of such options, as determined by an independent third party. Such payment totaled approximately $2.2 million for all outstanding stock options.
Number of | ||||||||||||||||||||
Securities | Percent of | |||||||||||||||||||
Underlying | Total Options | Grant Date | ||||||||||||||||||
Options | Granted to | Exercise or | Present | |||||||||||||||||
Granted(1) | Employees in | Base Price | Expiration | Value(2) | ||||||||||||||||
Name | (#) | Fiscal Year | ($/Sh) | Date | ($) | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
J. Kerry Clayton
|
30,000 | 32.2 | % | 23.65 | 3/21/13 | 293,400 | ||||||||||||||
Robert B. Pollock
|
15,000 | 16.1 | % | 23.65 | 3/21/13 | 146,700 | ||||||||||||||
Benjamin M. Cutler
|
10,000 | 10.7 | % | 23.65 | 3/21/13 | 97,800 | ||||||||||||||
Lesley Silvester
|
10,000 | 10.7 | % | 23.65 | 3/21/13 | 97,800 | ||||||||||||||
Philip Bruce Camacho
|
4,000 | 4.3 | % | 23.65 | 3/21/13 | 39,120 |
(1) | The options were granted pursuant to the Fortis, Inc. Stock Option Plan to acquire shares of Fortis, Inc.s Series D Preferred Stock, the value of which is related to the market value of shares of Fortis N.V. and Fortis SA/NV and the Euro to U.S. dollar conversion rate. The options had a term of ten years and were scheduled to vest as to one-third of the shares on the first three anniversaries of the date of grant. |
(2) | There was no public market for shares of Fortis, Inc.s Series D Preferred Stock on the grant date. The estimated present values for the options listed above are based on the binomial values of the options calculated as of September 22, 2003 by an independent third party, using the following assumptions: (i) the value of one share of Series D Preferred Stock is the sum of the value of 0.9 of one share of Fortis SA/NV and 0.9 of one share of common stock of Fortis N.V., (ii) the exercise price of the option was equal to the fair market value as of the date of grant, (iii) the stock price equals the average of the |
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combined Fortis N.V./Fortis SA/NV share price for the three months prior to the calculation; (iv) volatility was calculated as the average of the 60-month historical volatility of the Fortis SA/NV and Fortis N.V. shares at the date of calculation; (v) the annual dividend was calculated as the average of the Fortis SA/NV and Fortis N.V. stock dividend, and (vi) the discount rate was based on the Euro benchmark yield curve for the outstanding term of each option. Although this calculation is not necessarily the value of the options as of their date of grant, it is the value for which they were cashed out, as discussed above. |
Long-Term Incentive Plan Awards
The following table presents information concerning long-term incentive plan awards to the named executive officers under the Appreciation Incentive Rights Plan during the fiscal year ended December 31, 2003:
Estimated Future | ||||||||||||
Payouts Under | ||||||||||||
Performance or | Non-Stock Price- | |||||||||||
Number of Shares, | Other Period Until | Based Plans | ||||||||||
Units or Other | Maturation or |
|
||||||||||
Name | Rights(#) | Payout | Target(1)($) | |||||||||
|
|
|
|
|||||||||
J. Kerry Clayton
|
20,151(2 | ) | 3 Years | 811,200 | ||||||||
Robert B. Pollock
|
14,509(2 | ) | 3 Years | 584,100 | ||||||||
Benjamin M. Cutler
|
8,565(2 | ) | 3 Years | 344,775 | ||||||||
Lesley Silvester
|
8,060(2 | ) | 3 Years | 324,450 | ||||||||
Philip Bruce Camacho
|
7,333(3 | ) | 3 Years | 341,250 |
(1) | As described more fully under Assurant Appreciation Incentive Rights Plan, an eligible employee of Assurant, Inc. receives 75% of his or her award in Assurant, Inc. incentive rights and 25% of his or her award in operating business segment incentive rights. Conversely, an eligible employee of an operating business segment of Assurant receives 25% of his or her award in Assurant, Inc. incentive rights and 75% of his or her award in operating business segment incentive rights. Each incentive right represents the right to the appreciation in value of an incentive right over the vesting period of the award, based on a valuation provided by an independent, qualified appraiser. |
(2) | Represents the total number of incentive rights awarded. Rights are distributed between Assurant, Inc. (75%) and each of the four operating business segments (25%). The Assurant, Inc. incentive rights will be replaced with stock appreciation rights on Assurant common stock from and after the closing of the offering contemplated by this prospectus, as more fully described under Assurant Appreciation Incentive Rights Plan. |
(3) | Represents the total number of incentive rights awarded. Rights are distributed between Assurant, Inc. (25%) and Assurant Solutions (75%). The Assurant, Inc. incentive rights will be replaced with stock appreciation rights on Assurant common stock from and after the closing of the offering contemplated by this prospectus, as more fully described under Assurant Appreciation Incentive Rights Plan. |
Pension Plans
We maintain two executive defined benefit pension plans, each of which is inter-related with our broad-based, tax-qualified, defined benefit pension plan.
Supplemental Executive Retirement Plan. Effective January 1, 1990, our board of directors adopted the Supplemental Executive Retirement Plan (SERP), which is a non-qualified, unfunded supplemental pension plan for certain key executives of the Company and its subsidiaries. Under the SERP, participants who meet certain conditions are entitled to receive a benefit, called a target benefit, that is then offset (reduced) by certain other benefits, such as the pension payable under our tax-qualified defined benefit pension plan (the Assurant Pension Plan, described below), the benefit payable under the pension portion of the Executive Pension and 401(k) Plan, described below, and Social Security benefits. If the SERP benefit commences at
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A participant is not vested in any of his or her benefit under the SERP until the second anniversary of the date he or she commences participation in the plan. On the second anniversary of participation, the participant vests in the SERP benefit at the rate of 3% for each month of employment thereafter with the Company or its subsidiaries. A participant will become 100% vested in his or her SERP benefit in the event of death or disability. If a participant is terminated for cause, as defined in the SERP, or commits a material breach of certain covenants regarding non-competition, confidentiality, non-solicitation of employees or non-solicitation of customers, then the participant will forfeit any remaining SERP benefits.
The default form of payment under the SERP is a single lump payment that is the actuarial equivalent of the SERP benefit. The participant may also elect optional forms of payment under the SERP.
If there is a change in control with respect to the Company or a division, and within two years after the change in control a participants employment is terminated without cause or the participant terminates employment for good reason, then (1) the participant will become 100% vested in his or her SERP benefit; (2) the participant will be credited with 36 additional months of service for purposes of computing his or her target benefit; and (3) the actuarial reduction for commencement of the SERP benefit prior to age 60 will be calculated as though the participant was 36 months older than his or her actual age.
The SERP provides that if the payments to a participant or beneficiary will be made over a period of more than one year and if at the time payments commence the Company is not subject to pending proceedings as a debtor under the U.S. Bankruptcy Code, then Fortis Insurance N.V. will guarantee the payment of SERP benefits to such participant or beneficiary. The SERP further provides that if Fortis Insurance N.V. ceases to be the beneficial owner of the Company, then such guarantee will be limited to the actuarially equivalent value of the participants SERP benefit immediately following such cessation of beneficial ownership.
The table below shows the target benefit payable
under the SERP. The benefit shown is a single life annuity
commencing at age 60.
Target Benefits Payable Under the Assurant,
Inc. SERP
Years of Service(1)
Final Compensation
10
15
20
25
35
$
125,000
$
187,500
$
250,000
$
250,000
$
250,000
187,500
281,250
375,000
375,000
375,000
250,000
375,000
500,000
500,000
500,000
312,500
468,750
625,000
625,000
625,000
375,000
562,500
750,000
750,000
750,000
437,500
656,250
875,000
875,000
875,000
500,000
750,000
1,000,000
1,000,000
1,000,000
562,500
843,750
1,125,000
1,125,000
1,125,000
625,000
937,500
1,250,000
1,250,000
1,250,000
(1) | At December 31, 2003, J. Kerry Clayton had 33.2 years of service and SERP compensation of $1,622,400; Robert B. Pollock had 22.6 years of service and SERP compensation of $1,200,650; Lesley Silvester had 19.3 years of service and SERP compensation of $713,790; Benjamin M. Cutler had |
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18.1 years of service and SERP compensation of $758,505; and Philip Bruce Camacho had 4.4 years of service and SERP compensation of $840,000. |
Executive Pension and 401(k) Plan. Effective January 1, 1994, our board of directors adopted the Executive Pension and 401(k) Plan, which is a non-qualified, unfunded deferred compensation plan for certain key executives of the Company and its subsidiaries. The pension portion of this plan (referred to herein as the Executive Pension Plan) is intended to restore to participants amounts that they are restricted from receiving under the Assurant Pension Plan, described below, due to section 401(a)(17) of the U.S. tax code, which generally limits the compensation that may be taken into account under a tax-qualified pension plan to no more than $200,000 annually (subject to cost of living adjustments).
A participant becomes vested in the benefits under the Executive Pension Plan after three years of vesting service, if the participant has elected to participate in the pension equity portion of the Assurant Pension Plan and after five years of vesting service if the participant has elected to participate in the pension formula that predated the pension equity formula under the Assurant Pension Plan. The benefits under the Executive Pension Plan are payable in a single lump sum in cash as soon as practicable after the participant terminates employment, unless exchanged for options under the Assurant Investment Plan.
Assurant Pension Plan. Since 1983, we have maintained the Assurant Pension Plan, which is a tax-qualified, defined benefit pension plan subject to regulation under ERISA. Eligible employees generally may participate in the Plan after completing one year of service with the Company. The Assurant Pension Plan provides for multiple benefit formulas for different groups of participants. Benefits under the plan are payable at termination of employment. A participants benefit may be paid in a lump sum or in various annuity forms.
For the year ended December 31, 2003, we estimate $6,821,819 in expense under the SERP, $1,867,013 of estimated expense under the Executive Pension Plan and $19,911,269 of estimated expense under the Assurant Pension Plan. The expense under the Executive Pension Plan in 2003 included $663,216 of estimated expense under the American Bankers Insurance Group SERP and $67,948 of estimated expense under the John Alden SERP.
401(k) Plan
Assurant 401(k) Plan. Since 1983, we have maintained the Assurant 401(k) Plan, which is a tax-qualified, defined contribution plan subject to regulation under ERISA. Employees generally are eligible to make pre-tax contributions to the plan immediately upon beginning work with Assurant. Participants may elect to contribute up to 50% of their eligible pay to the plan on a pre-tax or after-tax basis. Eligible pay generally includes base salary, short-term incentive bonus, overtime and commissions.
After one year of service, a participant is eligible to begin receiving employer matching contributions. Each year, we may determine whether to declare an employer matching contribution. The Assurant 401(k) plan provides for three different matching allocation formulas for different groups of participants. A participant generally vests in his employer matching contributions and investment earnings thereon after three years of vesting service.
Before a participant terminates employment, a participants vested pre-tax account generally is payable after age 59 1/2, in the event of a hardship, or as a loan. A participants vested account is also payable at termination of employment in the form of a lump sum. Participants may invest their own contributions and Company matching contributions in various investment options offered under the plan, which will include common stock of the Company. The number of shares reserved and available for issuance under the plan is 10,000,000. The investment fund within the plan that consists of common stock of the Company will be designed as an employee stock ownership plan under ERISA and the U.S. tax code.
Under the Executive Pension and 401(k) Plan discussed above, the 401(k) portion of this plan (referred to herein as the Executive 401(k) Plan) is intended to restore to participants amounts that they are restricted from receiving under the Assurant 401(k) Plan due to section 401(a)(17) of the U.S. tax code, which generally limits the compensation that may be taken into account under a tax-qualified pension plan to no
158
Under the Executive 401(k) Plan, a participant who is actively employed on the last regularly scheduled work day of a fiscal year is entitled to receive a credit equal to 7% of compensation in excess of the compensation limitation of section 401(a)(17) of the U.S. tax code and including compensation exchanged for options under the Assurant Investment Plan that was received as compensation in the year the options are granted. Such credit is then offset by the amount of the employer matching contribution received in the Assurant 401(k) Plan. The amounts credited to a participants account under the 401(k) portion of this plan are deemed to be invested at the participants direction in investment vehicles that are also available under the Assurant 401(k) Plan (which will include common stock of the Company).
A participant becomes vested in the 401(k) credits and deemed investment earnings thereon in the Executive 401(k) Plan after three years of vesting service. The benefits under the Executive 401(k) Plan are payable in a single lump sum in cash as soon as practicable after the participant terminates employment, unless exchanged for options under the Assurant Investment Plan.
For the year ended December 31, 2002, we made combined employer allocations under the Executive 401(k) Plan and employer matching contributions under the Assurant 401(k) Plan of $24 million. The employer contribution for the fiscal year ended December 31, 2003 will be determined and allocated in February 2004.
Employment and Change in Control Agreements
We have entered into change in control severance agreements with Mr. Clayton, our other named executive officers and other officers and key employees. The severance agreements generally provide that if a change in control (as defined) occurs with respect to the business segment for which an employee works, then a two-year trigger period begins. If the employees employment is terminated by us without cause or if the employee resigns for good reason (each as defined) during such two-year period, the employee is entitled to certain cash severance payments and continuation of medical and other welfare benefits for a period of 18 months following the termination of employment at the rate charged active employees.
The amount of cash severance benefits payable to an employee is equal to a multiple (ranging from 1 to 3 depending on the agreement, and equal to 3 for Mr. Clayton and our other named executive officers) times the sum of the employees annual base salary and target annual bonus. One-half of the cash severance is payable within thirty days of the date of the employees termination, and one-half of the cash severance is payable in equal monthly installments over a period ranging from six months (for those with a severance multiple of 1) to 18 months (for those with a severance multiple of 3), offset by the amount of pre-tax compensation earned by the executive during such period. In addition, if a change in control has occurred and the employees employment has been terminated by us without cause or if the employee has resigned for good reason within one year prior to the change in control, then the employee is entitled to the cash severance benefits described above, to be paid in a lump sum in cash within 30 days after the change in control has occurred, and continuation of medical and other welfare benefits for a period of 18 months at the rate charged active employees, except that we shall reimburse the employee for the cost of obtaining such welfare benefits between the date his or her termination and the date of the change in control. These agreements also provide additional rights including, but not limited to, outplacement services, legal fee reimbursement and reimbursement for any excise tax imposed on the officer by section 4999 of the U.S. tax code.
The offering contemplated by this prospectus does not constitute a change in control as defined in these agreements.
American Bankers Insurance Group has a severance agreement with Mr. Camacho. If Mr. Camacho terminates his employment because of retirement (as determined in accordance with normal company policies) or death, then Mr. Camacho will receive a severance payment equal to 150% of his current salary, defined as his salary for the 12 months preceding the severance, excluding any bonus or deferred compensation. If Mr. Camachos employment is terminated because of disability, then Mr. Camacho will receive a
159
2004 Long-Term Incentive Plan
Our board of directors has adopted and our sole stockholder has approved the 2004 Long-Term Incentive Plan, to be effective as of the closing of the offering contemplated by this prospectus. This equity-based incentive plan is intended to promote our success and enhance our value by linking the personal interests of our employees, directors and consultants to those of our stockholders, and by providing such persons with an incentive for outstanding performance.
The 2004 Long-Term Incentive Plan authorizes the granting of awards to employees, officers, directors and consultants in the following forms:
| options to purchase shares of our common stock, which may be nonstatutory stock options or incentive stock options under the U.S. tax code; | |
| stock appreciation rights, which give the holder the right to receive the difference between the fair market value per share on the date of exercise over the grant price; | |
| performance awards, which are payable in cash or stock upon the attainment of specified performance goals; | |
| restricted stock, which is subject to restrictions on transferability and subject to forfeiture on terms set by the Compensation Committee of our board of directors; | |
| dividend equivalents, which entitle the participant to payments equal to any dividends paid on the shares of stock underlying an award; and | |
| other stock-based awards in the discretion of the Compensation Committee, including unrestricted stock grants. |
The number of shares reserved and available for issuance under the plan is 10,000,000 shares. In the event that any outstanding award expires for any reason or is settled in cash, any unissued shares subject to the award will again be available for issuance under the plan. If a participant pays the exercise price of an option by delivering to us previously owned shares, only the number of shares we issue in excess of the surrendered shares will count against the plans share limit. Also, if the full number of shares subject to an option is not issued upon exercise for any reason (other than to satisfy a tax withholding obligation), only the net number of shares actually issued upon exercise will count against the plans share limit.
In the event of a corporate transaction involving the Company (including any stock dividend, stock split, merger, spin-off or related transaction), the share authorization limits of the 2004 Long-Term Incentive Plan will be adjusted proportionately, and the Compensation Committee may adjust outstanding awards to preserve their benefits or potential benefits.
The 2004 Long-Term Incentive Plan will be administered by the Compensation Committee of our board of directors. The committee has the authority to designate participants, determine the type or types of awards to be granted to each participant and the number, terms and conditions of awards, establish, adopt or revise any rules and regulations to administer the plan, and make all other decisions and determinations that may be required under the plan. Our board of directors may at any time administer this plan. If so, it will have all the powers of the committee.
All awards must be evidenced by a written agreement with the participant, which will include the provisions specified by the Compensation Committee.
Under section 162(m) of the U.S. tax code, a public company generally may not deduct compensation in excess of $1 million paid to its chief executive officer and the four next most highly compensated executive officers. Until the annual meeting of our stockholders in 2007, or until the 2004 Long-Term Incentive Plan is
160
Unless otherwise provided in an award certificate or plan document, upon the death or disability of a participant, all of his or her outstanding awards under the 2004 Long-Term Incentive Plan will become fully vested. Unless otherwise provided in an award certificate or plan document, if a participants employment is terminated without cause or the participant resigns for good reason (as such terms are defined in the plan) within two years after a change in control of the Company, all of such participants outstanding awards under the plan will become fully vested. The Compensation Committee may in its discretion accelerate the vesting of an award at any other time, and may discriminate among participants or among awards in exercising its discretion.
Our board of directors or the Compensation Committee may at any time terminate or amend the 2004 Long-Term Incentive Plan, but any such amendment would be subject to stockholder approval if, in the reasonable judgment of the board or committee, the amendment would materially increase the number of shares available under the plan, expand the types of awards available under the plan, materially extend the term of the plan or otherwise constitute a material change requiring stockholder approval under applicable laws or the applicable requirements of a stock exchange on which our stock is listed. No termination or amendment of the plan may, without the written consent of the participant, reduce or diminish the value of an outstanding award determined as if the award had been exercised, vested, cashed in or otherwise settled on the date of such amendment or termination. The Compensation Committee may amend or terminate outstanding awards, but such amendments may require the consent of the participant and, unless approved by our stockholders or otherwise permitted by the antidilution provisions of the plan, the exercise price of an outstanding option may not be reduced, directly or indirectly, and the original term of an option may not be extended.
The 2004 Long-Term Incentive Plan will become effective as of the closing of the offering contemplated by this prospectus. We estimate that, as of its effective date, approximately 12,000 employees, officers and directors will be eligible to participate in the plan. No awards will be granted under the plan prior to its effective date; however shares of restricted common stock will be granted to our executive officers upon closing of the offering contemplated by this prospectus which, assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 62,260 shares of common stock. The restricted common stock awards to be granted to each executive officer will be based on a percentage of their base salaries, ranging from 5% to 50%. This restricted common stock will generally vest over a three-year period, with one-third vesting in each year. During the restricted period, the holder will have the right to receive dividends and exercise voting rights. See Principal and Selling Stockholders. Any other awards will be made at the discretion of the Compensation Committee. Therefore, it is not presently possible to determine the benefits or amounts that will be received by any individuals or groups pursuant to the 2004 Long-Term Incentive Plan in the future.
2004 Employee Stock Purchase Plan
The 2004 Employee Stock Purchase Plan was adopted by our board of directors and was approved by our sole stockholder on October 15, 2003. It will go into effect as of the first July 1 or January 1 following the closing of the offering contemplated by this prospectus.
The purpose of the stock purchase plan is to enhance the proprietary interest among the employees of the Company and our participating subsidiaries through ownership of our common stock. The stock purchase plan is designed to allow eligible employees to purchase shares of our common stock, at defined intervals, with their accumulated payroll deductions. Employees are eligible to participate if they are customarily employed by us, or one of our subsidiaries designated by our Compensation Committee, for at least 20 hours per week and five
161
The plan is intended to be a qualified employee stock purchase plan within the meaning of section 423 of the U.S. tax code. Under the stock purchase plan, our Compensation Committee may from time to time grant to eligible employees rights to purchase our common stock during designated purchase periods. Provided the offering contemplated by this prospectus closes on or before July 1, 2004, the initial purchase period will begin on July 1, 2004 and will end on December 31, 2004. Unless otherwise determined by the Compensation Committee, new purchase periods of six months duration will begin each following January 1 and July 1.
Employees who elect to participate in a purchase period may have up to 15% of their compensation withheld pursuant to the stock purchase plan, subject to any limit imposed from time to time by the committee (currently $6,000 per six-month purchase period). The amount withheld is then used to purchase shares of our common stock on the designated purchase dates at the end of each purchase period. Until the Compensation Committee determines otherwise, the price of common stock purchased under the plan is equal to the lower of 90% of the market value (closing price) of our common stock at the beginning date of each purchase period or 90% of the market value (closing price) of our common stock at the end of the purchase period. The Compensation Committee may designate a different discount formula, but not less than 85% of the market value at the beginning or end of any purchase period. Since the shares are purchased at less than market value, employees will receive a benefit from participating in the stock purchase plan. The maximum number of shares of our common stock that may be purchased by any participant in the stock purchase plan on any one purchase date is 5,000 shares.
Certain limits are imposed by law. For example, an employee may not be granted a purchase right for a purchase period if immediately after the grant, he or she would own 5% or more of the total combined voting power or value of all classes of our stock or the stock of our subsidiaries. Also, a participant cannot receive purchase rights that, in combination with purchase rights under other section 423 plans, would result during any calendar year in the purchase of shares having an aggregate fair market value of more than $25,000.
In the event of a stock dividend, stock split or combination of shares, recapitalization or other change in our capitalization, or other distribution with respect to our stockholders other than normal cash dividends, an automatic adjustment will be made in the number and kind of shares as to which outstanding purchase rights will be exercisable and in the available shares and limits described above, so that the proportionate interest of the participants is maintained as before the occurrence of such event.
The stock purchase plan will terminate on the tenth anniversary of its effective date, unless terminated earlier by the Compensation Committee. The Compensation Committee has the authority to amend the stock purchase plan at any time, but, with limited exceptions, no amendment may adversely affect any outstanding rights to purchase stock. Certain amendments to the stock purchase plan would require approval of our stockholders, such as a change in eligibility requirements or an increase in the number of shares reserved for purchase under the plan.
Executive Management Incentive Plan |
Our Executive Management Incentive Plan was adopted by the board of directors and approved by our sole stockholder on October 15, 2003, to be effective as of January 1, 2004. Participation in the Executive Management Incentive Plan is limited to senior officers of the Company and its subsidiaries who are selected to participate in the plan for a given year by the Compensation Committee of our board of directors. The plan provides for the payment of annual monetary awards to each participant equal to a percentage of such participants base salary based upon the achievement of certain designated performance goals.
Each participant in the plan will be eligible to receive a cash bonus in connection with a particular calendar year during the term of the plan if performance goals set for that year by the Compensation Committee are met or exceeded. Not later than ninety days after the commencement of any year during the term of the plan, the Compensation Committee will set in writing performance goals based on one or more
162
At the time the Compensation Committee sets the performance goals for a particular year, it will also set in writing the percentages of each participants salary that will be awarded to the participant if the Company (or one or more of our subsidiaries or divisions, as applicable) achieves the designated performance goals. Payments under the plan will be made promptly after the Compensation Committee certifies in writing that the relevant performance goals and other terms of the plan were satisfied in connection with such payments. Our board of directors or the Compensation Committee may terminate, suspend or amend the plan at any time.
Only our senior officers and senior officers of our subsidiaries are eligible to participate in the Executive Management Incentive Plan. The amount of awards under the plan will be determined at the discretion of the Compensation Committee. Therefore, it is not presently possible to determine the benefits or amounts that will be received by any individuals or groups pursuant to this plan.
Assurant Appreciation Incentive Rights Plan |
Since January 1, 1999, the Company has maintained the Fortis Appreciation Incentive Rights Plan (to be renamed the Assurant Appreciation Incentive Rights Plan), which provides key employees with the right to receive long-term incentive cash compensation based on the appreciation in value of incentive units of Assurant and incentive units of each of its operating business segments. This plan is administered by a committee appointed by our board of directors.
Under this plan as currently in effect, an eligible employee of Assurant receives 75% of his or her award in Assurant incentive rights and 25% of his or her award in operating business segment incentive rights. Conversely, an eligible employee of an operating business segment of Assurant receives 25% of his or her award in Assurant incentive rights and 75% of his or her award in operating business segment incentive rights. Each incentive right represents the right to the appreciation in value of an incentive unit. Each Assurant incentive unit originally represented one ten millionth (.0000001) of the entity value of Assurant, and each operating business segment incentive unit represented one ten millionth of the entity value of each operating business segment that participates in the plan. However, the number of incentive units has been adjusted over time for cash flows into and out of each entity. The entity value of Assurant and the entity value of the respective operating business segments are determined by the committee as of each December 31st based on a valuation provided by an independent, qualified appraiser. The committee also determines the adjustment to the number of incentive units outstanding in each entity and the value of each unit as of the valuation date. Each incentive right entitles the holder to a cash payment equal to the difference between the value of the incentive unit on the December 31st immediately preceding the date of exercise and the value of the incentive unit on the December 31st immediately preceding the date of grant.
Each right becomes vested on the third anniversary of the effective date the right was granted, except that (1) each Assurant right becomes fully vested if Assurant undergoes a change in control (as defined in the plan); (2) each business unit segment becomes fully vested if that operating business segment undergoes a change in control; and (3) if a participant retires, becomes disabled, or dies, then the participant vests in 1/36th of each right for each month elapsed from January 1st of the year of grant to the date the participant terminates employment. Rights that have become vested may be exercised during a 45-day exercise period following the announcement by the plan committee of the value of Assurant incentive units and of the incentive units of each operating business segment. To the extent not previously exercised, all rights will automatically be exercised on the tenth anniversary of the date of grant. Rights that are exercised are payable solely in cash. A participant may elect to have any amounts payable under the Assurant Appreciation Incentive Rights Plan exchanged for options in the Assurant Investment Plan, described below.
Our board of directors amended the Fortis Appreciation Incentive Rights Plan to provide for the cash-out and replacement of Fortis, Inc. incentive rights with stock appreciation rights related to Assurant common stock from and after the closing of the offering contemplated by this prospectus. The business segment rights
163
All future grants of Assurant rights under the amended and restated plan, now called the Assurant Appreciation Incentive Rights Plan, will consist of Assurant stock appreciation rights that will give the holder the right to receive, upon exercise of the right, a cash payment equal to the difference between the market price of Assurant common stock on the date of exercise over the market price of Assurant common stock on the date of grant. Except as provided above with respect to the replacement Assurant stock appreciation rights, all such rights will vest over a three-year period from the date of grant, will have a ten-year term and will be exercisable at any time after they are vested and before the expiration of the term.
Assurant Investment Plan
Our board of directors adopted the Assurant Investment Plan, which provides key employees, including the named executive officers, the ability to exchange a portion of their compensation for options to purchase certain third-party mutual funds. The plan became effective as of January 1, 1999 and is administered by our Senior Vice PresidentCompensation and Benefits, who is referred to as the administrator. Under the Assurant Investment Plan, a participant may exchange all or a portion of his or her eligible compensation for a specific number of options under the plan. Each option represents the right to purchase shares of a third-party mutual fund, as selected by the participant. Each option is exercisable for a dollar amount equal to the greater of 25% of the trading price of the applicable mutual fund units at the date the option is granted and 50% of the trading price of the applicable mutual fund units on the date the option is exercised. Each option is fully vested and exercisable on the grant date. Options may not be exercised more than twice in any calendar year, except with the consent of the administrator. For most options, the exercise period generally will expire on the earlier of 120 months after the participants death, disability or retirement and 60 months after the participants termination of employment for any other reason. Until the options are exercised, a participant may instruct the administrator to exchange some or all of the options for options to purchase different underlying mutual fund units.
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PRINCIPAL AND SELLING STOCKHOLDERS
Before this offering, 100% of the outstanding shares of our common stock have been indirectly beneficially owned by Fortis N.V. and Fortis SA/ NV, the parent companies of the selling stockholder, Fortis Insurance N.V. After the completion of this offering, we estimate that Fortis N.V. and Fortis SA/ NV will indirectly beneficially own approximately 45% of our common stock, or approximately 37% if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus. Although it has no contractual obligation to do so, Fortis has advised us that its current intent is to divest its remaining shares of our common stock over a period of time following the expiration of the lock-up agreement described under Underwriting. Pursuant to the lock-up agreements, we, each of our directors and officers, Fortis N.V., Fortis SA/ NV, Fortis Insurance N.V., and purchasers of shares under the directed share program have agreed, subject to limited exceptions, not to sell or cause to be sold or otherwise dispose of any shares of our common stock for a period of 180 days after the date of this prospectus without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters.
The following table sets forth information as of December 1, 2003 regarding the beneficial ownership of our common stock by:
| all persons known by us to own beneficially more than 5% of our common stock; | |
| our chief executive officer and each of the named executive officers; | |
| each director; | |
| all directors and executive officers as a group; and | |
| the selling stockholder. |
Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of October 1, 2003 are deemed issued and outstanding. These shares, however, are not deemed outstanding for purposes of computing percentage ownership of each other stockholder.
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Beneficial Ownership of | Beneficial Ownership of | |||||||||||||||||||
Principal Stockholders | Number of | Principal Stockholders | ||||||||||||||||||
Prior to the Offering | Shares To Be | After the Offering(2) | ||||||||||||||||||
Name and Address |
|
Sold in the |
|
|||||||||||||||||
of Beneficial Owner(1) | Number | Percentage | Offering | Number | Percentage | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Fortis Insurance N.V.
|
109,571,430 | (3) | 100% | 80,000,000 | 65,000,000 | 45 | % | |||||||||||||
J. Kerry Clayton
|
| | | 20,000 | (4) | * | ||||||||||||||
Robert B. Pollock
|
| | | 9,600 | (5) | * | ||||||||||||||
Benjamin M. Cutler
|
| | | 6,400 | (6) | * | ||||||||||||||
Lesley Silvester
|
| | | 6,800 | (7) | * | ||||||||||||||
Philip Bruce Camacho
|
| | | 2,590 | (8) | * | ||||||||||||||
John Michael Palms
|
| | | 1,667 | (9) | * | ||||||||||||||
Anton van Rossum
|
| | | | | |||||||||||||||
Michel Baise
|
| | | | | |||||||||||||||
Robert J. Blendon
|
| | | 1,667 | (9) | * | ||||||||||||||
Beth L. Bronner
|
| | | 1,667 | (9) | * | ||||||||||||||
Howard L. Carver
|
| | | 1,667 | (9) | * | ||||||||||||||
Arie A. Fakkert
|
| | | | | |||||||||||||||
Allen R. Freedman
|
| | | 1,667 | (9) | * | ||||||||||||||
H. Carroll Mackin
|
| | | 1,667 | (9) | * | ||||||||||||||
Gilbert Mittler
|
| | | | | |||||||||||||||
Georges Valckenaere
|
| | | | | |||||||||||||||
All directors and executive officers as a group
(27 persons)
|
| | | 72,262 | * |
* | Less than 1%. |
(1) | The address for Fortis Insurance N.V. is Archimedeslaan 6, 3500 GA Utrecht The Netherlands. The address for all other persons is c/o Assurant, Inc., One Chase Manhattan Plaza, 41st Floor, New York, New York 10005. |
(2) | Beneficial ownership of principal stockholders after the offering (i) includes shares of common stock to be issued to Fortis Insurance N.V. in exchange for the capital contribution which, assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 35,428,571 shares of common stock, which will take place simultaneously with the closing of the offering contemplated by this prospectus, (ii) reflects the effects of the merger for the purpose of redomestication, which will take place immediately prior to effectiveness of the registration statement of which this prospectus forms a part, (iii) reflects the conversion of each share of Class B Common Stock and each share of Class C Common Stock issued in the merger in accordance with its terms into shares of common stock based on a liquidation amount of $1,000 per share divided by the public offering price for our common stock which, assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 47.619048 shares of common stock per share of Class B Common Stock and Class C Common Stock, which will take place simultaneously with the closing of the offering contemplated by this prospectus and (iv) reflects grants of common stock to certain of our officers and directors to be made on the closing date of the offering contemplated by this prospectus. Beneficial ownership of principal stockholders after the offering does not take into account shares that may be sold by the selling stockholder in the event the underwriters over-allotment option is exercised. If the underwriters over-allotment option is exercised in full, Fortis Insurance N.V. will beneficially own an estimated 53,000,000 shares of our common stock, or approximately 37% immediately after the offering, assuming an initial public offering price of $21 per share. In addition, beneficial ownership of principal stockholders after the offering does not include shares that may be purchased in the offering, including in the directed share program. See UnderwritingDirected Share Program. |
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(3) | Includes 7,596,679 shares of Class A Common Stock held by Fortis Insurance N.V. directly, 41,832 shares of Class A Common Stock and 150,001 shares of Class B Common Stock held by Fortis (US) Funding Partners I LP and 111,489 shares of Class A Common Stock and 400,001 shares of Class C Common Stock held by Fortis (US) Funding Partners II LP, as adjusted to reflect the effects of the merger for the purpose of redomestication, which will take place immediately prior to effectiveness of the registration statement of which this prospectus forms a part, and the conversion of each share of Class B Common Stock and each share of Class C Common Stock issued in the merger in accordance with its terms into shares of Common Stock which, assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 47.619048 shares of common stock per share of Class B Common Stock and Class C Common Stock, which will take place simultaneously with the closing of the offering contemplated by this prospectus. Fortis Insurance N.V. is an indirect, wholly owned subsidiary of Fortis N.V. and Fortis SA/NV. |
(4) | Includes an estimated 20,000 shares of restricted common stock to be granted to Mr. Clayton on the closing date of the offering contemplated by this prospectus, assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus. This restricted stock will generally vest over a three-year period, with one-third vesting in each year. During the restricted period, the holder will have the right to receive dividends and exercise voting rights. |
(5) | Includes an estimated 9,600 shares of restricted common stock to be granted to Mr. Pollock on the closing date of the offering contemplated by this prospectus, assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus. This restricted stock will generally vest over a three-year period, with one-third vesting in each year. During the restricted period, the holder will have the right to receive dividends and exercise voting rights. |
(6) | Includes an estimated 6,400 shares of restricted common stock to be granted to Mr. Cutler on the closing date of the offering contemplated by this prospectus, assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus. This restricted stock will generally vest over a three-year period, with one-third vesting in each year. During the restricted period, the holder will have the right to receive dividends and exercise voting rights. |
(7) | Includes an estimated 6,800 shares of restricted common stock to be granted to Ms. Silvester on the closing date of the offering contemplated by this prospectus, assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus. This restricted stock will generally vest over a three-year period, with one-third vesting in each year. During the restricted period, the holder will have the right to receive dividends and exercise voting rights. |
(8) | Includes an estimated 2,590 shares of restricted common stock to be granted to Mr. Camacho on the closing date of the offering contemplated by this prospectus, assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus. This restricted stock will generally vest over a three-year period, with one-third vesting in each year. During the restricted period, the holder will have the right to receive dividends and exercise voting rights. |
(9) | Reflects an estimated 6,667 shares of common stock to be issued to such director on the closing date of the offering contemplated by this prospectus, assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus. These shares will not be subject to forfeiture restrictions, but cannot be transferred until the earlier of (i) five years from the date of grant and (ii) such time as such director is no longer a member of the board of directors. |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We describe below some of the transactions we have entered into with Fortis.
Certain relationships and related transactions with respect to the underwriters are set forth in Underwriting.
General
We are currently an indirect subsidiary of Fortis. Prior to and following the offering, some of our directors also were and will continue to be directors, officers and employees of Fortis and/or its subsidiaries. We will enter into a shareholders agreement with Fortis Insurance N.V. that will give Fortis the right to nominate designees to our board of directors and the right to approve certain significant corporate actions as described under Shareholders Agreement.
In the ordinary course of business, we have entered into a number of agreements with Fortis and its subsidiaries relating to our historical business and our relationship with the Fortis group of companies, the material terms of which are described below. In addition, in connection with the offering, we will enter into agreements with Fortis relating to our separation from Fortis and the ongoing relationship of our Company and Fortis after the offering date, as described below. We will enter into these agreements while we are still a subsidiary of Fortis and the agreements will become effective concurrently with the completion of the offering. Forms of the agreements summarized below have been filed as exhibits to the registration statement of which this prospectus forms a part.
Registration Rights Agreement
Concurrently with the offering contemplated by this prospectus, we will enter into a registration rights agreement with Fortis Insurance N.V. pursuant to which we will grant to Fortis Insurance N.V. and its affiliates that become our stockholders (collectively, Fortis Insurance) rights to request registration under the Securities Act to effect a public offering with respect to all or part of the shares of our common stock owned by them from time to time during the term of the agreement so long as the shares to be offered pursuant to the request have an aggregate offering price of at least $500 million (based on the then current market price) and, when the aggregate registrable shares held by the stockholder is less than or, after giving effect to the requested offering will be, less than 20% of the outstanding shares of our common stock, $250 million. We will be required to fulfill such obligation except in limited circumstances. The maximum number of shares to be included in any such public offering will not exceed the maximum number that the managing underwriter of such public offering considers to be appropriate. These rights may be exercised on an unlimited number of occasions with respect to registration statements on Form S-2 or S-3 and on not more than two occasions with respect to registration statements on Form S-1; provided that we will not be obligated to effect more than one registration in any 90-day period.
In addition, subject to limited exceptions, if we propose to register any shares of our common stock, other equity securities or securities convertible into or exchangeable for equity securities, whether or not for sale for our own account, we are required to provide notice to Fortis Insurance, and if requested by Fortis Insurance, we will include its shares in the registration statement. The maximum number of shares to be included in any such public offering will not exceed the maximum number that the managing underwriter of such public offering considers to be appropriate with priority given to securities sought to be included at our request.
During the term of the agreement, Fortis Insurance will agree not to sell, transfer or hedge any shares of our common stock or any securities convertible into or exchangeable for our common stock for 10 days prior to and 90 days after the effective date of a registration statement for an underwritten public offering of any of our equity securities (unless the underwriters of such offering permit a shorter period).
We are generally obligated to pay all expenses of the registration and offering of shares in connection with any such registration, other than underwriting discounts and commissions. In addition, we will agree to indemnify Fortis Insurance for damages relating to a material misstatement or omission in any registration statement or prospectus relating to shares of our common stock to be sold by Fortis Insurance. Fortis
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Generally, we may grant registration rights to other persons; however, any such registration rights cannot be exercised until after the second anniversary of this offering.
Shareholders Agreement
Concurrently with the offering contemplated by this prospectus, we will enter into a shareholders agreement with Fortis Insurance N.V. The shareholders agreement will set forth the following agreements as to corporate governance matters:
Composition of Board of Directors. For so long as Fortis owns at least 10% of our outstanding common stock, our board of directors shall consist of no more than 12 directors (including at least seven independent directors at such time as is required by the listing standards of the New York Stock Exchange). Fortis will have the right to nominate designees to our board of directors and subject to limited exceptions, our board of directors will nominate those designees as follows: (i) so long as Fortis owns at least 10% of our outstanding common stock, two designees (out of a maximum of 12 directors); and (ii) so long as Fortis owns less than 10% but at least 5% of our outstanding common stock, one designee. Currently, Fortis has five designees on our board of directors, three of whom have been designated as Class II directors and two of whom have been designated as Class III directors. As Fortis ownership is expected to fall below 50%, three Fortis designees are expected to resign from our board of directors upon the consummation of the offering contemplated by this prospectus. Fortis will cause the appropriate number of Fortis designees to resign promptly at any time when the number of Fortis designees on our board of directors exceeds the number of designees to which Fortis is entitled, unless otherwise requested by us. Each of Messrs. Fakkert, Valckenaere and Van Rossum has expressed his intention to resign from our board of directors upon the consummation of the offering contemplated by this prospectus. See Risk Factors Risks Related to Our Relationship with and Separation from Fortis, Description of Share Capital Shareholders Agreement Composition of Board of Directors for more detail on these provisions.
Fortis Voting Requirement. As long as Fortis owns at least 10% of our outstanding common stock, certain significant corporate actions may only be taken with the approval of Fortis Insurance N.V., as stockholder. See Risk Factors Risks Related to Our Relationship with and Separation from Fortis and Description of Share Capital Shareholders Agreement Fortis Voting Requirement for more detail on these provisions.
Cooperation Agreement
Concurrently with the offering contemplated by this prospectus, we will enter into a cooperation agreement with Fortis Insurance N.V., Fortis N.V. and Fortis SA/NV relating to our separation from Fortis and the ongoing relationship between our Company and Fortis. Pursuant to this agreement, Fortis will grant us non-exclusive, royalty-free rights to use the Fortis name and marks for various transition periods ranging from one to two years depending on the usage of such name or mark following the offering contemplated by this prospectus.
In addition, if Fortis is required to fully consolidate our financial statements with Fortis financial statements in accordance with International Accounting Standards/ International Financial Reporting Standards 27 (including if for any reason Fortis continues to own 50% of our outstanding common stock), we will be required to provide specified information to Fortis, including financial information, risk reporting, compliance reporting and drafts of earnings releases and other public filings. We will also be required to provide similar, but more limited, information to Fortis as long as Fortis owns shares representing 20% or more of the voting power of our outstanding common stock or during any period when Fortis is required to account for its investment in our Company under the equity method of accounting in accordance with International Accounting Standards/ International Financial Reporting Standards 28. In addition, we will be required to permit the Fortis internal audit group to inspect our books and records and to discuss affairs, finances and
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The cooperation agreement will also contain provisions relating to, among other things:
| cooperation between us and Fortis on various matters, including the timing of completion of audit reports and regulatory filings; and | |
| existing vendor purchasing arrangements pursuant to which we purchase products and services also used by Fortis (which to the extent permitted by the underlying arrangement will continue for their term). |
We will be entitled to indemnification from Fortis for losses arising out of any breach by Fortis of the cooperation agreement. We will be required to indemnify Fortis for any losses arising out of any breach by us of the cooperation agreement or any material untrue statement or omission contained in any Fortis filing relating to information about us provided by us to Fortis for use in the filing and which is or would be required to be included in any filing by us.
SERP Guarantee
Our SERP program provides that if the payments to a participant or beneficiary will be made over a period of more than one year and if at the time payments commence we are not subject to pending proceedings as a debtor under the U.S. Bankruptcy Code, then Fortis Insurance N.V. will guarantee the payment of SERP benefits to such participant or beneficiary. The SERP further provides that if Fortis Insurance N.V. ceases to be the beneficial owner of the Company, then such guarantee will be limited to the actuarially equivalent value of the participants SERP benefit immediately following such cessation of beneficial ownership.
The 1999 Trust Capital Securities and the Companys Subordinated Debentures
In April 1999, two of our subsidiary trusts, 1999 Fortis Capital Trust I and 1999 Fortis Capital Trust II, issued 200,000 7.60% and 499,850 7.876% trust capital securities (collectively, the 1999 Trust Capital Securities), respectively, to Fortis Capital Funding LP and Fortis Insurance N.V., respectively, in each case with a liquidation amount of $1,000 per security. 1999 Fortis Capital Trust I and 1999 Fortis Capital Trust II used the proceeds from the sale of the applicable 1999 Trust Capital Securities and trust common securities to purchase $200,001,000 and $499,851,000, respectively, of our 7.60% and 7.876% subordinated debentures due 2029 (collectively, the 1999 Subordinated Debentures), respectively. These debentures were the sole assets of the trusts. The 1999 Trust Capital Securities and the 1999 Subordinated Debentures were issued at the time of the issuance by (i) Fortis Floating Rate Capital Funding Trust of Euro 400 million floating rate noncumulative guaranteed trust capital securities, (ii) Fortis Fixed Rate Quarterly Capital Funding Trust of Euro 200 million fixed rate quarterly noncumulative guaranteed trust capital securities and (iii) Fortis Fixed Rate Annual Capital Funding Trust of Euro 50 million fixed rate annual noncumulative guaranteed trust capital securities (collectively, the Fortis Trusts and the Fortis Trust Securities), the common equity of each such Fortis Trust being owned indirectly by Fortis. The payments we made on the 1999 Subordinated Debentures and accordingly the payments made on the 1999 Trust Capital Securities were ultimately used by Fortis Insurance N.V. and Fortis Capital Funding LP to make payments on the Fortis Trust Securities. The payments we made on the 1999 Subordinated Debentures and therefore on the 1999 Trust Capital Securities exceeded the total payments due by the Fortis Trusts on the Fortis Trust Securities. In addition, in connection with the Fortis Trust Securities, we entered into a services agreement pursuant to which we were obligated to provide legal, accounting, tax and other general support services, including providing necessary administrative and record-keeping services for Fortis Capital Funding LP and the Fortis Trusts for an annual fee of $100,000. In connection with this offering, this agreement will be transitioned to another party. In December 2003, we redeemed all of the 1999 Subordinated Debentures at a redemption price of 100% of the principal amount thereof plus (i) accrued interest to the date of redemption and (ii) premium of approximately $64 million, which in turn caused the redemption of all of the 1999 Trust Capital Securities. The issuer trusts under the 1999 Trust Capital Securities are in the process of being dissolved.
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Guarantee of Capital Securities
Fortis guaranteed certain payments in connection with our 8.40% and 7.94% junior subordinated debentures (the 1997 Subordinated Debentures) and the 1997 Capital Securities of Fortis Capital Trust and Fortis Capital Trust II, subsidiary trusts of ours (the 1997 Capital Securities). This guarantee included a guarantee of our payments of principal, premium, if any, and interest on the junior subordinated debentures. In December 2003, we issued a notice of redemption and, in January 2004, we redeemed all of the outstanding 1997 Subordinated Debentures in accordance with the terms of the 1997 Subordinated Debentures, which resulted in a mandatory redemption of all of the outstanding 1997 Capital Securities. The issuer trusts under the 1997 Capital Securities are in the process of being dissolved.
Tender Offer for Trust Capital Securities
In order to simplify the capital structure of Assurant, Fortis Insurance N.V. is making a cash tender offer for all of the outstanding $150 million liquidation amount of 7.48% Trust Capital Securities and the $400 million liquidation amount of 7.68% Trust Capital Securities (collectively, the Trust Capital Securities) representing undivided beneficial ownership interests in the assets of certain special purpose trusts (the Trusts) established for the purpose of issuing the Trust Capital Securities. The proceeds from the Trust Capital Securities were loaned to the Company through the issuance of certain trust capital securities. See 2000 Trust Capital Securities and Subordinated Debentures. The sole assets of the Trusts are Regulatory Capital Partnership Securities issued by certain partnerships (the Partnerships). The Partnerships are the holders of Class A Common Stock of Fortis, Inc. as well as all of the outstanding shares of Class B and Class C Common Stock of Fortis, Inc. Fortis Insurance N.V. has received tenders of 100% of each class of Trust Capital Securities, including the requisite consents to permit the Partnerships and the Trusts , through a number of steps, to distribute the Class A Common Stock and the Class B and Class C Common Stock to Fortis Insurance N.V. (and its affiliates). In connection with the merger, Fortis Insurance N.V. (and its affiliates) will receive Assurant Common Stock for the Class A Common Stock it receives from the Partnerships and will, upon consummation of the tender offer, which will settle on the closing date of the offering contemplated by this prospectus, have the shares of Class B and Class C Common Stock issued in the merger automatically converted in accordance with their terms into shares of Common Stock of Assurant. See Description of Share Capital.
2000 Trust Capital Securities and Subordinated Debentures
In March 2000, two of our subsidiary trusts, Fortis Capital Proceeds Trust 2000-1 and Fortis Capital Proceeds Trust 2000-2, issued 150,000 8.48% and 400,000 8.40% trust capital securities (collectively, the 2000 Trust Capital Securities), respectively, to Fortis Insurance N.V., in each case with a liquidation amount of $1,000 per security. Fortis Capital Proceeds Trust 2000-1 and Fortis Capital Proceeds Trust 2000-2 used the proceeds from the sale of the applicable 2000 Trust Capital Securities and trust common securities to purchase $150,001,000 and $400,001,000, respectively, of our 8.48% and 8.40% subordinated debentures due 2030 (collectively, the 2000 Subordinated Debentures), respectively. These debentures were the sole assets of the trusts. In December 2003, we redeemed all of the 2000 Subordinated Debentures at a redemption price of 100% of the principal amount thereof plus (i) accrued interest to the date of redemption and (ii) premium of approximately $73 million, which in turn caused the redemption of all of the 2000 Trust Capital Securities. The issuer trusts under the 2000 Trust Capital Securities are in the process of being dissolved.
Commercial Paper Program and Other Indebtedness
Historically, Fortis has maintained a $1 billion commercial paper facility that we have been able to access (via intercompany loans) for up to $750 million. We have used the commercial paper facility to cover any cash shortfalls, which may occur from time to time. We had no intercompany loans with Fortis associated with this commercial paper facility during the year ended December 31, 2002. In 2001, $217 million in commercial paper was issued and redeemed by Fortis on our behalf. We had no outstanding intercompany loans with
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In addition, we previously had indebtedness outstanding in the amount of $225 million to Fortis Finance N.V., which was repaid in April 2001. See Managements Discussion and Analysis of Financial Condition and Results of Operations.
Reimbursement of Fortis Liaison Office
During 2003, 2002, 2001 and 2000, we paid $427,000, $749,000, $516,000 and $0, respectively, to Fortis for costs representing salary, benefits and other expenses of Arie Fakkert, a director of the Company, who was then an employee of one of Fortis subsidiaries, and his support staff. We discontinued these payments as of October 3, 2003.
Guarantee of Senior Bridge Credit Facilities
Fortis has guaranteed our obligations under the senior bridge credit facilities. See Description of Indebtedness Bridge Facilities.
Indemnification
Pursuant to the underwriting agreement described under Underwriting, we and Fortis Insurance N.V. have agreed to indemnify each other against certain liabilities.
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CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following summary describes the material United States federal income and estate tax consequences of the ownership of common stock by a Non-U.S. Holder (as defined below) as of the date hereof. This discussion does not address all aspects of United States federal income and estate taxes and does not deal with foreign, state and local consequences that may be relevant to such Non-U.S. Holders in light of their personal circumstances. Special rules may apply to certain Non-U.S. Holders, such as United States expatriates, controlled foreign corporations, passive foreign investment companies, foreign personal holding companies, corporations that accumulate earnings to avoid United States federal income tax, and investors in pass-through entities that are subject to special treatment under the Internal Revenue Code of 1986, as amended (the Code). Such Non-U.S. Holders should consult their own tax advisors to determine the United States federal, state and local income and other tax consequences that may be relevant to them. Furthermore, the discussion below is based upon the provisions of the Code, and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified, perhaps retroactively, so as to result in United States federal income tax consequences different from those discussed below. Persons considering the purchase, ownership or disposition of common stock should consult their own tax advisors concerning the United States federal income tax consequences in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction.
As used herein, a U.S. Holder of common stock means a holder that is for United States federal income tax purposes (i) a citizen or resident of the United States, (ii) a corporation or partnership created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to United States federal income taxation regardless of its source or (iv) a trust if it (X) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (Y) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. A Non-U.S. Holder is a holder that is not a U.S. Holder. If a partnership holds the common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Persons who are partners of partnerships holding the common stock should consult their tax advisors.
Dividends
Dividends paid to a Non-U.S. Holder of common stock generally will be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the Non-U.S. Holder within the United States and, where a tax treaty applies, are attributable to a United States permanent establishment of the Non-U.S. Holder, are not subject to the withholding tax, but instead are subject to United States federal income tax on a net income basis at applicable graduated individual or corporate rates. Certain certification and disclosure requirements must be satisfied for effectively connected income to be exempt from withholding. Any such effectively connected dividends received by a foreign corporation may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
A Non-U.S. Holder of common stock who wishes to claim the benefit of an applicable income tax treaty rate (and avoid backup withholding as discussed below) for dividends, will be required to (a) complete Internal Revenue Service (IRS) Form W-8BEN (or other applicable form) and certify under penalties of perjury that such holder is not a United States person or (b) if the common stock is held through certain foreign intermediaries, satisfy the relevant certification requirements of applicable United States Treasury regulations. Special certification and other requirements apply to certain Non-U.S. Holders that are entities rather than individuals.
A Non-U.S. Holder of common stock eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.
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Gain on Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to United States federal income tax with respect to gain recognized on a sale or other disposition of common stock unless (i) the gain is effectively connected with a trade or business of the Non-U.S. Holder in the United States, and, where an income tax treaty applies, is attributable to a United States permanent establishment of the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual and holds the common stock as a capital asset, such holder is present in the United States for 183 or more days in the taxable year of the sale or other disposition and certain other conditions are met, or (iii) the Company is or has been a United States real property holding corporation for United States federal income tax purposes.
An individual Non-U.S. Holder described in clause (i) above will be subject to tax on the net gain derived from the sale under regular graduated United States federal income tax rates. An individual Non-U.S. Holder described in clause (ii) above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States source capital losses (even though the individual is not considered a resident of the United States). If a Non-U.S. Holder that is a foreign corporation falls under clause (i) above, it will be subject to tax on its gain under regular graduated United States federal income tax rates and, in addition, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty.
The Company believes it is not and does not anticipate becoming a United States real property holding corporation for United States federal income tax purposes.
Federal Estate Tax
Common stock held by an individual Non-U.S. Holder at the time of death will be included in such holders gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
The Company must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the Non-U.S. Holder resides under the provisions of an applicable income tax treaty. A Non-U.S. Holder will be subject to backup withholding on dividends paid to such holder unless applicable certification requirements are met.
Information reporting and, depending on the circumstances, backup withholding, will apply to the proceeds of a sale of common stock within the United States or conducted through United States-related financial intermediaries unless the beneficial owner certifies under penalties of perjury that it is a Non-U.S. Holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person) or the holder otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such holders United States federal income tax liability provided the required information is furnished to the IRS.
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DESCRIPTION OF SHARE CAPITAL
The certificate of incorporation of Assurant, Inc. authorizes 800,000,000 shares of common stock, par value $0.01 per share, 150,001 shares of Class B Common Stock, par value $0.01 per share, 400,001 shares of Class C Common Stock, par value $0.01 per share, and 200,000,000 shares of preferred stock, par value $1.00 per share. The following summary of the terms and provisions of our capital stock does not purport to be complete and is qualified in its entirety by reference to our certificate of incorporation and by-laws, forms of which have been filed as exhibits to the registration statement of which this prospectus forms a part, and applicable law. As of October 1, 2003, the following shares of Fortis, Inc. were outstanding:
| 7,750,000 shares of Class A Common Stock; | |
| 150,001 shares of Class B Common Stock; | |
| 400,001 shares of Class C Common Stock; | |
| 19,160 shares of Series B Preferred Stock; and | |
| 5,000 shares of Series C Preferred Stock. |
As of October 1, 2003, Fortis, Inc. had three common stockholders of record.
In connection with the merger, each share of the existing Class A Common Stock of Fortis, Inc. will be exchanged for 10.75882039 shares of Common Stock of Assurant, Inc., each share of Series B Preferred Stock of Fortis, Inc. will be exchanged for one share of Series B Preferred Stock of Assurant, Inc., each share of Series C Preferred Stock of Fortis, Inc. will be exchanged for one share of Series C Preferred Stock of Assurant, Inc., each share of Class B Common Stock of Fortis, Inc. will be exchanged for one share of Class B Common Stock of Assurant, Inc. and each share of Class C Common Stock of Fortis, Inc. will be exchanged for one share of Class C Common Stock of Assurant, Inc. In addition, each outstanding share of Class B Common Stock and Class C Common Stock issued in the merger will be automatically converted in accordance with its terms into shares of Common Stock of Assurant, Inc. simultaneously with the closing of the offering contemplated by this prospectus, based on a liquidation amount of $1,000 per share divided by the initial public offering price of our common stock which, assuming an initial public offering price of $21 per share (the midpoint of the price range set forth on the cover of this prospectus), will result in the issuance of 47.619048 shares of Common Stock of Assurant, Inc. per share of Class B Common Stock and Class C Common Stock. After taking into account the effects of the transactions described above, the capital contribution and the grants of common stock to certain of our officers and directors to be made on the closing date of the offering contemplated by this prospectus, we estimate that we will have a total of approximately 145,072,262 shares of our common stock outstanding after the offering contemplated by this prospectus.
This section presents a description of the share capital of Assurant, Inc. as it will be in effect immediately following the consummation of the offering contemplated by this prospectus and assumes that the tender offer is consummated and the conversion of the Class B and Class C Common Stock described above occurs.
Common Stock
General. All outstanding shares of Common Stock are, and all shares of Common Stock to be outstanding upon completion of the offering will be, fully-paid and nonassessable.
Dividends. Subject to any preferential rights of any outstanding series of preferred stock that our board of directors may create from time to time, including the Series B and Series C Preferred Stock, the holders of our Common Stock will be entitled to dividends as may be declared from time to time by the board of directors from funds available therefor. Our board of directors currently intends to authorize the payment of dividends to holders of our Common Stock. See Dividend Policy and Regulation.
Voting Rights. Each share of Common Stock entitles the holder thereof to one vote on all matters, including the election of directors, and, except as otherwise required by law or provided in any resolution adopted by our board of directors with respect to any series of preferred stock, including the Series B and
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| altering, amending, repealing or adopting of certain provisions of our certificate of incorporation or by-laws by the stockholders, including amendments to the provisions governing: |
| the classified board; | |
| the removal of directors; | |
| the filling of vacancies on our board of directors; | |
| the approval of mergers or consolidations or the sale of all or substantially all of our assets; | |
| the calling of stockholders meetings; | |
| the prohibition of stockholder action by written consent; | |
| the advance notice requirements for stockholder proposals and nominations of directors to be considered at stockholder meetings; | |
| the liability of directors; and | |
| the supermajority voting provisions; |
| removing directors (which is permitted for cause only); and | |
| subject to limited exceptions, effecting any merger or consolidation or selling all or substantially all of our assets. |
See Shareholders Agreement.
Preemptive Rights. The holders of Common Stock do not have any preemptive rights. There are no subscription, redemption, conversion or sinking fund provisions with respect to the Common Stock.
Liquidation Rights. Upon dissolution, liquidation or winding-up of Assurant, Inc., subject to the rights of holders of any preferred stock outstanding, including the Series B and Series C Preferred Stock or any other class or series of stock having preferential rights, the holders of Common Stock will be entitled to receive our assets available for distribution proportionate to their pro rata ownership of the outstanding shares of Common Stock.
Class B and Class C Common Stock
In order to simplify the capital structure of Assurant in connection with the initial public offering, Fortis Insurance N.V. has made an offer to purchase and consent solicitation to acquire all of the Trust Capital Securities supported by the regulatory capital partnership securities issued by the Partnerships which hold the shares of Class B and Class C Common Stock of Fortis, Inc. Because 100% of the Trust Capital Securities have been tendered and the consents have been received for each series of Trust Capital Securities, Fortis Insurance N.V. will acquire all of the Class B and Class C shares, and simultaneously with the closing of the offering contemplated by this prospectus, such shares will be automatically converted in accordance with their terms into shares of Common Stock of Assurant as described above. Although Assurant will have authorization to issue preferred stock, Assurant will not have authorization to issue any additional Class B and Class C shares.
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Preferred Stock
Our board of directors has the authority, without further action of our stockholders, to issue up to 200,000,000 shares of preferred stock, par value $1.00 per share, in one or more series and to fix the powers, preferences, rights and qualifications, limitations or restrictions thereof, which may include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series or the designations of the series. The issuance of preferred stock could adversely affect the holders of common stock. The potential issuance of preferred stock may discourage bids for our common stock at a premium over the market price of our common stock, may adversely affect the market price of our common stock and may discourage, delay or prevent a change of control of Assurant, Inc.
We have Series B Preferred Stock consisting of 19,160 designated shares, all of which will be outstanding upon consummation of the merger for the purpose of redomestication, and Series C Preferred Stock consisting of 5,000 designated shares, all of which will be outstanding upon consummation of the merger for the purpose of redomestication. All of such shares have a liquidation price of $1,000 per share and rank senior to our common stock with respect to the right to receive dividends and to receive distributions upon the liquidation, dissolution or winding up of Assurant, Inc. Holders of the Series B Preferred Stock are entitled to receive cumulative dividends at the rate of 4.0% per share per annum, multiplied by the $1,000 liquidation price, and holders of the Series C Preferred Stock are entitled to receive dividends at the rate of 4.5% per share per annum, multiplied by the $1,000 liquidation price. All dividends are payable in arrears in equal amounts on a quarterly basis. Any dividend that is not paid on a specified dividend payment date with respect to a share of such Preferred Stock shall be deemed added to the liquidation price of such share for purposes of computing the future dividends on such share, until such delinquent dividend has been paid in full.
Holders of the Series B Preferred Stock may elect to have any or all of their shares redeemed by us at any time after April 1, 2002 and we must redeem all shares of the Series B Preferred Stock no later than July 1, 2017. Holders of the Series C Preferred Stock may elect to have any or all of their shares redeemed by us at any time after the earlier of (i) April 1, 2022, and (ii) certain specified events, and we must redeem all shares of the Series C Preferred Stock no later than July 1, 2027. We also have the right and the obligation to redeem the Series B Preferred Stock and Series C Preferred Stock upon the occurrence of certain specified events. The redemption price in all cases shall equal the $1,000 per share liquidation price plus all accumulated and unpaid dividends. We are not required to establish any sinking fund or similar funds with respect to such redemptions.
None of the shares of Series B Preferred Stock or Series C Preferred Stock is convertible into common stock or any other equity security of Assurant, Inc. However, holders of the Series B Preferred Stock and Series C Preferred Stock are entitled to one vote per share owned of record on all matters voted upon by Assurant, Inc. stockholders, voting with the holders of common stock as a single class, and not as a separate class or classes. The shares of Series B Preferred Stock and Series C Preferred Stock are subject to certain restrictions on transferability, and we have a right of first refusal to acquire the shares if any holder thereof desires to make a transfer not otherwise permitted by the terms thereof.
We have no current plans to issue any additional shares of preferred stock.
Anti-takeover Effects of Certain Provisions of the Certificate of Incorporation, By-Laws and Delaware General Corporation Law
The provisions of the Delaware General Corporation Law and our certificate of incorporation and by-laws summarized below may have the effect of discouraging, delaying or preventing hostile takeovers, including those that might result in a premium being paid over the market price of our common stock, and discouraging, delaying or preventing changes in control or management of our Company.
Certificate of Incorporation and By-Laws |
Our certificate of incorporation, which provides for the issuance of preferred stock, may have the effect of delaying, deferring or preventing a change in control of our Company without further action by the
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Super-Majority Voting Provision. Our certificate of incorporation requires the affirmative vote of the holders of at least two-thirds of the voting power of the capital stock entitled to vote for the election of directors for approval of the actions described above under Common Stock Voting Rights. In addition, the shareholders agreement we will enter into with Fortis Insurance N.V. will give Fortis Insurance N.V. the right to nominate designees to our board of directors and, subject to limited exceptions, our board of directors will nominate those designees as follows: (i) so long as Fortis owns at least 10% of our outstanding common stock, two designees (out of a maximum of 12 directors); and (ii) so long as Fortis owns less than 10% of our outstanding common stock but at least 5% of our outstanding common stock, one designee. Currently, Fortis has five designees on our board of directors. As Fortis ownership is expected to fall below 50%, three Fortis designees are expected to resign from our board of directors upon the consummation of the offering contemplated by this prospectus. In addition, as long as Fortis owns at least 10% of our outstanding common stock, certain significant corporate actions may only be taken with the approval of Fortis Insurance N.V., as stockholder. These actions include those listed under Shareholders Agreement Fortis Voting Requirement. These voting requirements could have the effect of delaying, deferring or preventing such transactions. See Risk Factors Risks Relating to Our Relationship with and Separation from Fortis.
Classified Board of Directors. Our board of directors will be divided into three classes, with the members of each class serving for staggered three-year terms. As a result, only one class of directors will be elected at each annual meeting of stockholders, with the other classes continuing for the remainder of their respective three-year terms. Stockholders have no cumulative voting rights, and a plurality of the stockholders are able to elect all of the directors. The classification of the directors and lack of cumulative voting will have the effect of making it more difficult not only for another party to obtain control of our Company by replacing our board of directors, but also for our existing stockholders to force an immediate change in the composition of our board of directors. Since our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. Stockholders will also have limited ability to remove directors, which will be permitted for cause only.
The anti-takeover and other provisions of our certificate of incorporation and by-laws could discourage potential acquisition proposals and could delay or prevent a change in control. These provisions are intended to enhance the likelihood or continuity and stability in the composition of the board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management.
Delaware General Corporation Law |
We are subject to Section 203 of the Delaware General Corporation Law, which we refer to as Section 203. In general, Section 203 prevents a person who owns 15% or more of our outstanding voting stock, an interested stockholder, from engaging in some business combinations, as described below, with us
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| the board of directors either approves the business combination or the transaction in which the person became an interested stockholder before that person became an interested stockholder; | |
| upon consummation of the transaction which resulted in the person becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding stock held by: |
- | directors who are also officers of our Company; and | |
- | employee stock plans that do not provide employees with the right to determine confidentiality whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
| at or subsequent to the time that the transaction in which the person became an interested stockholder, the business combination is: |
- | approved by the board of directors; and | |
- | authorized at a meeting of stockholders by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock which is not owned by the interest stockholder. |
For purposes of Section 203, the term business combinations includes mergers, consolidations, asset sales or other transactions that result in a financial benefit to the interested stockholder and transactions that would increase the interested stockholders proportionate share ownership of our Company.
Under some circumstances, Section 203 makes it more difficult for an interested stockholder to effect various business combinations with us for a period of three years after the stockholder becomes an interested stockholder. Although our stockholders have the right to exclude us from the restrictions imposed by Section 203, they have not done so. Section 203 may encourage companies interested in acquiring us to negotiate in advance with the board of directors, because the requirement stated above regarding stockholder approval would be avoided if a majority of the directors approves, prior to the time the party became an interested stockholder, either the business combination or the transaction which results in the stockholder becoming an interested stockholder.
Shareholders Agreement
Concurrently with the offering contemplated by this prospectus, we will enter into a shareholders agreement with Fortis Insurance N.V. The shareholders agreement will set forth the following agreements as to corporate governance matters:
Composition of Board of Directors. As long as Fortis owns at least 10% of our outstanding common stock, our board of directors shall consist of no more than 12 directors (including at least seven independent directors at such time as is required by the listing standards of the New York Stock Exchange). Our certificate of incorporation will have a provision to this same effect. Fortis will have the right to nominate designees to our board of directors and, subject to limited exceptions, our board of directors will nominate those designees as follows: (i) so long as Fortis owns at least 10% of our outstanding common stock, two designees (out of a maximum of 12 directors); and (ii) so long as Fortis owns less than 10% but at least 5% of our outstanding common stock, one designee. Currently, Fortis has five designees on our board of directors, three of whom have been designated as Class II directors and two of whom have been designated as Class III directors. If a vacancy in a Fortis director slot occurs, subject to limited exceptions and except as a result of resignations due to the number of Fortis designees exceeding those to which it is entitled, those vacancies will be filled with a person nominated by Fortis. We will agree to use our best efforts to cause each person designated by Fortis pursuant to the shareholders agreement to be nominated to our board of directors. As Fortis ownership is expected to fall below 50%, three Fortis designees are expected to resign from our board of directors upon the consummation of the offering contemplated by this prospectus. Fortis will cause the appropriate number of Fortis designees to resign promptly at any time when the number of Fortis designees on our board of directors
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Fortis Voting Requirement. As long as Fortis owns at least 10% of our outstanding common stock, the following actions may only be taken with the approval of Fortis Insurance N.V., as stockholder:
| any recapitalization, reclassification or combination of any of our securities or any of those of our principal subsidiaries (other than certain activities between wholly owned subsidiaries); and | |
| any liquidation, dissolution, winding up or commencement of voluntary bankruptcy or insolvency proceedings with respect to us or our principal subsidiaries. | |
See also Risk FactorsRisks Relating to Our Relationship with and Separation from Fortis.
Registration Rights
Concurrently with the offering contemplated by this prospectus, we will grant Fortis Insurance N.V. and its affiliates certain demand and piggyback registration rights with respect to all of the shares of our common stock owned by them. Pursuant to this registration rights agreement, after completion of this offering, Fortis will have the right to require us to register its shares of our common stock under the Securities Act for sale into the public markets, subject to the 180-day lock-up agreements. See Certain Relationships and Related Transactions Registration Rights Agreement and Underwriting.
Listing
Our common stock has been approved for listing on the New York Stock Exchange under the trading symbol AIZ.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be Mellon Investor Services LLC, 85 Challenger Road, Overpeck Centre, Ridgefield Park, New Jersey 07660.
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DESCRIPTION OF INDEBTEDNESS
Bridge Facilities |
The Company is the borrower under a $1,100 million senior bridge credit facility with a group of banks arranged by Morgan Stanley Senior Funding, Inc., an affiliate of Morgan Stanley & Co. Incorporated, Citigroup Global Markets Inc. and Banc One Capital Markets, Inc. The bridge facility is unsecured and matures in December 2004 or such date that the commitments are reduced in whole or terminated and/or the obligations become due and payable. Fortis N.V. and Fortis SA/ NV are guarantors of our obligations under the bridge facility until the date when (i) the guarantors, collectively, own less than 50% of our common stock and (ii) we have stand-alone senior unsecured ratings equal to or higher than both Baa1 from Moodys and BBB+ from Standard & Poors. Interest under the bridge facility is based on, at our option, LIBOR plus a spread ranging from 0.700% to 2.500% (or 0.400% to 1.125%, so long as the guarantee is in effect) per annum or the higher of the prime rate or 0.5% over the federal funds rate, plus a spread ranging from 0.000% to 1.500% (or from 0.000% to 0.125%, so long as guarantee is in effect) per annum, with the spread, in each case, determined on the basis of the senior unsecured debt rating of the Company (or of the guarantors, so long as the guarantee is in effect).
The terms of the bridge facility require that we repay the borrowings thereunder with proceeds we receive from, among other things and with exceptions, sales of assets not in the ordinary course of business, insurance and condemnation proceeds, and incurrences of debt and issuances of capital stock.
The bridge facility contains restrictive covenants that, among other things and with exceptions, limit our ability to effect changes in our businesses or our corporate existence, incur additional indebtedness, create liens on our assets, dispose of assets not in the ordinary course of business, make investments, pay dividends and interest on certain of our debt securities and capital stock, and enter into mergers and consolidations.
The terms of the bridge facility also require that we maintain certain specified minimum ratios of risk-based capital, consolidated debt to consolidated capitalization and of consolidated cash flow to consolidated interest expense, and minimum consolidated net worth.
The bridge facility also provides for general events of default, including:
| failure to pay principal of or interest on any loans under the bridge facility; | |
| failure to perform or observe any covenant; | |
| loss of any material insurance license or certain regulatory actions; | |
| acceleration or failure to make payments in respect of debt exceeding a specified amount; | |
| certain events of bankruptcy; and | |
| defaults by Fortis N.V. and/or Fortis SA/NV under the guarantee. |
In addition, events of default include the acquisition of more than 30% of our voting power and/or equity securities by any person or group (other than the existing control group). If any event of default occurs, the principal or interest on the borrowed amounts may become or may be declared to be immediately due and payable.
The Company is also the borrower under a $650 million senior bridge credit facility with a group of banks arranged by Morgan Stanley Senior Funding, Inc., an affiliate of Morgan Stanley & Co. Incorporated, including Merrill Lynch Capital Corp., an affiliate of Merrill, Lynch, Pierce, Fenner & Smith Incorporated, and Credit Suisse First Boston (acting through its Cayman Islands branch), an affiliate of Credit Suisse First Boston LLC. Borrowings under this senior bridge credit facility will be repaid immediately prior to or simultaneously with the closing of the offering contemplated by this prospectus with the proceeds of the capital contribution described under Capitalization.
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Revolving Credit Facility
The Company intends to enter into, as the borrower, a $500 million senior revolving credit facility with a group of banks arranged by Banc One Capital Markets, Inc. and Citigroup Global Markets, Inc. The revolving credit facility will be unsecured and mature on the third anniversary of the closing date thereof. During the period that our $1,100 million senior bridge credit facility remains outstanding, availability of loans under the revolving credit facility for purposes other than redeeming maturing commercial paper will be limited to $50 million. Interest under the revolving credit facility will be based on, at our option, (i) LIBOR plus a spread ranging from 50 to 225 basis points per annum, subject to an increase of 20 basis points at all levels so long as Fortis N.V. and Fortis SA/NV are guarantors of our obligations under the bridge facility or (ii) the higher of the prime rate or 0.5% over the federal funds rate, plus a spread ranging from 0 to 150 basis points per annum, with the spread in each case, determined on the basis of the senior debt rating of the Company.
The revolving credit facility will contain restrictive covenants that, among other things and with exceptions, limit our ability to effect changes in our business or our corporate existence, incur additional indebtedness, create liens on our assets, dispose of material assets, make investments and enter into mergers and consolidations.
The terms of the revolving credit facility will also require that we maintain certain specified minimum ratios of consolidated debt to consolidated capitalization and of consolidated cash flow to consolidated interest expense, and minimum amounts of statutory capital and consolidated net worth.
The revolving credit facility will also provide for general events of default including:
| failure to pay principal of or interest on any loans under the revolving credit facility; | |
| failure to perform or observe any covenant; | |
| breach of any representations or warranties made; | |
| loss of any insurance license or certain regulatory actions if such action would reasonably be expected to have a material adverse effect; | |
| acceleration of or failure to make payments in respect of debt exceeding a specified amount subject to any applicable grace period; | |
| judgment defaults in excess of a specified amount; | |
| certain events of bankruptcy; and | |
| failure to comply with certain ERISA matters. |
In addition, events of default will include the acquisition of more than 30% of our voting power and/or equity securities by any person or group (other than the existing control group). If any event of default occurs, the principal or interest on the borrowed amounts may become or may be declared to be immediately due and payable.
The revolving credit facility will not be guaranteed by Fortis.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering contemplated by this prospectus, we estimate that we will have a total of approximately 145,072,262 shares of our common stock outstanding, assuming an initial public offering price of $21 per share, which is the midpoint of the price range set forth on the cover of this prospectus. All of the 80,000,000 shares to be sold in the offering will be freely tradable without restriction or further registration under the Securities Act by persons other than our affiliates. Under the Securities Act, an affiliate of a company is a person that directly or indirectly controls, is controlled by or is under common control with that company.
The remaining estimated 65,072,262 shares of our common stock outstanding will be restricted securities within the meaning of Rule 144 under the Securities Act, as they will be held by Fortis and our officers and directors, and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144 and Rule 144A.
In general, under Rule 144, a person (or persons whose shares are aggregated), including any person who may be deemed our affiliate, is entitled to sell within any three-month period, a number of restricted securities that does not exceed the greater of 1% of the then outstanding common stock and the average weekly trading volume in the over-the-counter market during the four calendar weeks preceding each such sale, provided that at least one year has elapsed since such shares were acquired from us or any affiliate of ours and certain manner of sale, notice requirements and requirements as to availability of current public information about us are satisfied. Any person who is deemed to be our affiliate must comply with the provisions of Rule 144 (other than the one-year holding period requirement) in order to sell shares of common stock which are not restricted securities (such as shares acquired by affiliates either in the offering or through purchases in the open market following the offering). In addition, under Rule 144(k), a person who is not our affiliate, and who has not been our affiliate at any time during the 90 days preceding any sale, is entitled to sell such shares without regard to the foregoing limitations, provided that at least two years have elapsed since the shares were acquired from us or any affiliate of ours.
We, our directors and officers, Fortis N.V., Fortis SA/NV and Fortis Insurance N.V. have agreed with the underwriters not to, directly or indirectly, dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for common stock for a period of 180 days from the date of this prospectus, without the prior written consent of Morgan Stanley & Co. Incorporated, on behalf of the underwriters, subject to certain exceptions as described under Underwriting.
Fortis has advised us that it intends to divest its remaining shares of our common stock over a period of time following the expiration of the lock-up period. Concurrently with the offering contemplated by this prospectus, we will enter into a registration rights agreement with Fortis Insurance N.V. pursuant to which we will grant Fortis Insurance N.V. and its affiliates certain demand and piggyback registration rights with respect to all of the shares of our common stock owned by them. Pursuant to this agreement, after completion of this offering, Fortis will have the right to require us to register its shares of our common stock under the Securities Act for sale into the public markets, subject to the lock-up agreement. Shares registered under any such registration statement will be available for sale in the open market unless restrictions apply. See Certain Relationships and Related TransactionsRegistration Rights Agreement and Description of Share CapitalRegistration Rights.
Following the consummation of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register common stock issued or reserved for issuance under our Directors Compensation Plan, our 401(k) Plan, our 2004 Long-Term Incentive Plan and our Employee Stock Purchase Plan. Any such Form S-8 registration statement will automatically become effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless such shares are subject to vesting restrictions with us or the lock-up restrictions described above. We expect that the registration statement on Form S-8 will cover up to 18,000,000 shares and options.
No prediction can be made as to the effect, if any, future sales of shares, or the availability of shares for future sales, will have on the market price of our common stock prevailing from time to time. The sale of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of our common stock.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated is acting as representative, have severally agreed to purchase, and the selling stockholder has agreed to sell to them, the number of shares indicated below:
Name | Number of Shares | ||||
|
|
||||
Morgan Stanley & Co. Incorporated
|
|||||
Credit Suisse First Boston LLC
|
|||||
Merrill Lynch, Pierce, Fenner & Smith
Incorporated |
|||||
Citigroup Global Markets Inc.
|
|||||
Goldman, Sachs & Co.
|
|||||
J.P. Morgan Securities Inc.
|
|||||
Bear, Stearns & Co. Inc.
|
|||||
Cochran, Caronia Securities L.L.C.
|
|||||
Fortis Investment Services LLC
|
|||||
McDonald Investments Inc.
|
|||||
Raymond James & Associates, Inc.
|
|||||
SunTrust Capital Markets, Inc.
|
|||||
|
|||||
Total
|
80,000,000 | ||||
|
The underwriters are offering the shares of common stock subject to their acceptance of the shares from the selling stockholder and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters over-allotment option described below.
The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representative.
The selling stockholder has granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of 12,000,000 additional shares of common stock at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of the additional shares of common stock as the number listed next to the underwriters name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table. If the underwriters option is exercised in full, the total price to the public would be $ million, the total underwriters discounts and commissions would be $ million and total proceeds to the selling stockholder, excluding estimated offering expenses, would be $ million.
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The estimated offering expenses, in addition to the underwriting discounts and commissions, are approximately $ million, which includes legal, accounting and printing costs and various other fees associated with the registration and listing of the shares of common stock.
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of common stock offered by them.
Our common stock has been approved for listing on the New York Stock Exchange under the symbol AIZ. In connection with the listing of the common stock on the New York Stock Exchange, the underwriters will undertake to sell round lots of 100 shares or more to a minimum of 2,000 beneficial owners.
We, each of our directors and officers, Fortis N.V., Fortis SA/ NV and Fortis Insurance N.V. have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:
| offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; | |
| file or cause to be filed any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or | |
| enter in any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of common stock; |
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. The restrictions described in this paragraph do not apply to:
| the sale of shares to the underwriters; | |
| the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing; | |
| grants by us of options to purchase shares of our common stock or grants by us of restricted stock or director stock grants pursuant to our benefit plans; | |
| the issuance or sale by us of shares of common stock pursuant to our 2004 Employee Stock Purchase Plan or our 401(k) Plans and the filing by us of registration statements on Form S-8 in connection with one or more of our benefit or compensation plans; | |
| the issuance by us of shares of common stock or securities convertible into or exercisable or exchangeable for shares of common stock in connection with one or more mergers or acquisitions in which we are the surviving entity or acquirer, so long as the aggregate value of the securities so issued does not exceed a certain amount agreed upon by the representative and us and so long as the holder of such securities agrees in writing to be bound by the transfer restrictions described in this paragraph; | |
| transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares of common stock; and | |
| transfers by any person other than us of our common stock to an affiliate of such person, a family member of such person or a trust created for the benefit of such person or family member, provided that any transferee agrees in writing to be bound by the transfer restrictions described in this paragraph and subject to certain other conditions. |
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The 180-day restricted period described above is subject to extension such that, in the event that either (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the lock-up restrictions described above subject to limited exceptions, will continue to apply until the expiration of the 18-day period beginning on the earnings release or the occurrence of the material news or material event.
In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional means of facilitating the offering or to cover any over-allotments, the underwriters may bid for, and purchase, common stock in the open market to stabilize the price of the common stock. The underwriting syndicate may also reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering, if the syndicate repurchases previously distributed common stock to cover syndicate short positions or to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities, and may end any of these activities at any time.
A prospectus in electronic format may be made available on the websites maintained by one or more underwriters and one or more underwriters participating in this offering may distribute prospectuses electronically. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters that may make Internet distributions on the same basis as other allocations.
We, the selling stockholder and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
Relationships with Underwriters
The underwriters and their affiliates have from time to time provided, and expect to provide in the future, investment banking, commercial banking and other financial services to us and our affiliates, including Fortis and the selling stockholder, for which they have received and may continue to receive customary fees and commissions. In addition, Morgan Stanley Senior Funding, Inc. (MSSF), an affiliate of Morgan Stanley & Co. Incorporated, was the sole lender under a four-day loan for $650 million (the proceeds of which were used in connection with the redemption by us of the outstanding $699.9 million aggregate liquidation amount of 1997 capital securities in December 2003). MSSF, Merrill Lynch Capital Corp. (MLCC), an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Credit Suisse First Boston (acting through its Cayman Islands branch), an affiliate of Credit Suisse First Boston LLC, are the administrative agent, syndication agent and documentation agent, respectively, of our $650 million senior bridge credit facility. MSSF has acted as the bookrunner and lead arranger of this facility. MSSF, Credit Suisse First Boston (acting through its Cayman Islands branch) and Merrill Lynch Bank USA (MLB), an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated committed $325 million, $162.5 million and $162.5 million, respectively, to this facility as lenders. MSSF and Citicorp North America Inc. (CNA), an affiliate of
186
Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as the dealer manager in connection with the tender offer and consent solicitation by the selling stockholder with respect to the 2000 Trust Capital Securities. Merrill Lynch International, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, was engaged to provide a valuation analysis and fairness opinion with respect to the 2000 Subordinated Debentures and the 1999 Trust Capital Securities.
Because Fortis Investment Services LLC is one of the underwriters and an affiliate of the selling stockholder and us, this offering must comply with the requirements of Rule 2720 of the NASD. This rule provides that the initial public offering price can be no higher than the price recommended by a qualified independent underwriter, as defined by the NASD. In accordance with this rule, Morgan Stanley & Co. Incorporated has agreed to serve as qualified independent underwriter. Morgan Stanley & Co. Incorporated has performed due diligence investigations and reviewed and participated in the preparation of this prospectus and the registration statement of which this prospectus is a part, and will recommend a price in compliance with the requirements of Rule 2720. Morgan Stanley & Co. Incorporated will receive no compensation for acting in this capacity; however, we have agreed to indemnify Morgan Stanley & Co. Incorporated for acting as the qualified independent underwriter against specified liabilities under the Securities Act.
Directed Share Program
At our request, the underwriters have reserved for sale as part of the underwritten offering, at the initial offering price, up to 5% of the total number of shares offered in this prospectus for our directors, officers and employees. If purchased by these persons, these shares will be subject to a 180-day lock-up restriction. 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. Any reserved shares which are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered in this prospectus.
Pricing of the Offering
Prior to this offering, there has been no public market for the common stock. The initial public offering price will be determined by negotiations between us, the selling stockholder and the representative of the underwriters. Among the factors to be considered in determining the initial public offering price will be our future prospects and those of our industry in general, our premiums, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-book value ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors.
187
LEGAL MATTERS
The validity of the common stock will be passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Skadden, Arps, Slate, Meagher & Flom LLP has in the past performed, and continues to perform, legal services for us and our affiliates. Davis Polk & Wardwell is acting as U.S. legal advisor to Fortis Insurance N.V., as selling stockholder, and Fortis.
EXPERTS
The consolidated financial statements of Fortis, Inc. at December 31, 2002 and 2001 and for each of the three years in the period ended December 31, 2002 and the balance sheet of Assurant, Inc. at October 10, 2003 included in this prospectus, have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing in this prospectus, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, a Registration Statement on Form S-1 under the Securities Act with respect to the common stock offered in this prospectus. This prospectus, filed as part of the registration statement, does not contain all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and our common stock, we refer you to the registration statement and to its exhibits and schedules. Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and, in each instance, we refer you to the copy of such contract, agreement or document filed as an exhibit to the registration statement, with each such statement being qualified in all respects by reference to the document to which it refers. Anyone may inspect the registration statement and its exhibits and schedules without charge at the public reference facilities the SEC maintains at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies of all or any part of these materials from the SEC upon the payment of certain fees prescribed by the SEC. You may obtain further information about the operation of the SECs Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also inspect these reports and other information without charge at a website maintained by the SEC. The address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the informational requirements of the Exchange Act and will be required to file reports, proxy statements and other information with the SEC. You will be able to inspect and copy these reports, proxy statements and other information at the public reference facilities maintained by the SEC at the address noted above. You also will be able to obtain copies of this material from the Public Reference Room of the SEC as described above, or inspect them without charge at the SECs website. We intend to furnish our stockholders with annual reports containing consolidated financial statements audited by an independent accounting firm.
188
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
|
||||
Consolidated Financial Statements of Fortis, Inc.
|
||||
Report of Independent Accountants
|
F-2 | |||
Consolidated Balance Sheets of Fortis, Inc. at
December 31, 2002 and December 31, 2001
|
F-3 | |||
Consolidated Statements of Operations of Fortis,
Inc. for the Three Fiscal Years in the Period Ended
December 31, 2002
|
F-4 | |||
Consolidated Statements of Changes in
Stockholders Equity of Fortis, Inc. for the Three Fiscal
Years in the Period Ended December 31, 2002
|
F-5 | |||
Consolidated Statements of Cash Flows of Fortis,
Inc. for the Three Fiscal Years in the Period Ended
December 31, 2002
|
F-6 | |||
Notes to Consolidated Financial Statements of
Fortis, Inc.
|
F-8 | |||
Unaudited Interim Consolidated Balance Sheets of
Fortis, Inc. at September 30, 2003 and December 31,
2002
|
F-57 | |||
Unaudited Interim Consolidated Statements of
Operations of Fortis, Inc. for the Nine Months Ended
September 30, 2003 and September 30, 2002
|
F-59 | |||
Unaudited Interim Consolidated Statements of
Changes in Stockholders Equity of Fortis, Inc. From
December 31, 2002 through September 30, 2003
|
F-60 | |||
Unaudited Interim Consolidated Statements of Cash
Flows of Fortis, Inc. for the Nine Months Ended
September 30, 2003 and September 30, 2002
|
F-61 | |||
Notes to Unaudited Interim Consolidated Financial
Statements of Fortis, Inc.
|
F-62 | |||
Financial Statements of Assurant, Inc.
|
||||
Report of Independent Accountants
|
F-73 | |||
Balance Sheet of Assurant, Inc. at
October 10, 2003
|
F-74 | |||
Notes to Balance Sheet of Assurant, Inc.
|
F-74 |
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Fortis, Inc.:
In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, of changes in stockholders equity and of cash
flows present fairly, in all material respects, the financial
position of Fortis, Inc. and its subsidiaries at
December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys 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
auditing standards generally accepted in the United States of
America, 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 our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
F-2
Table of Contents
FORTIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At December 31,
2002
2001
(in thousands except
number of shares and per
share amounts)
$
8,035,530
$
7,630,432
271,700
247,139
841,940
868,754
69,377
68,236
684,350
626,727
125,870
159,217
10,028,767
9,600,505
549,648
559,304
401,094
384,437
4,649,909
4,751,654
126,761
106,161
1,313,594
1,094,765
250,785
233,473
168,200
336,450
834,138
2,089,704
215,245
308,933
268,252
285,759
3,411,616
4,698,732
$
22,218,009
$
24,449,877
$
5,806,847
$
5,547,141
3,207,636
3,267,196
3,374,140
3,250,306
348,188
366,174
167,688
133,694
183,838
215,814
462,470
542,271
1,204,602
1,281,610
25,191
223,300
3,411,616
4,698,732
18,192,216
19,526,238
1,446,074
1,446,074
24,660
25,160
775
775
15
15
40
40
2,064,025
2,064,025
245,219
1,289,346
244,985
98,204
2,555,059
3,452,405
$
22,218,009
$
24,449,877
See the accompanying notes to the consolidated financial statements
F-3
FORTIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
Years Ended December 31,
2002
2001
2000
(in thousands except number of shares
and per share amounts)
$
5,681,596
$
5,242,185
$
5,144,375
631,828
711,782
690,732
(118,372
)
(119,016
)
(44,977
)
79,801
68,296
10,284
10,672
61,688
11,994
246,675
221,939
399,571
6,532,200
6,186,874
6,211,979
3,429,145
3,238,925
3,208,054
876,185
875,703
766,904
1,738,077
1,620,931
1,801,196
113,300
106,773
14,001
24,726
118,396
118,370
110,142
6,161,803
5,981,230
6,017,795
370,397
205,644
194,184
110,657
107,591
104,500
259,740
98,053
89,684
(1,260,939
)
$
(1,001,199
)
$
98,053
$
89,684
8,300,002
8,300,002
8,208,335
$
31.29
$
11.81
$
10.93
(151.92
)
$
(120.63
)
$
11.81
$
10.93
See the accompanying notes to the consolidated financial statements
F-4
FORTIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
Accumulated
Additional
Other
Outstanding
Common
Paid-in
Retained
Comprehensive
Shares of
Stock
Capital
Earnings
Income (Loss)
Total
Common Stock
(in thousands except number of shares and per share amounts)
$
775
$
2,064,025
$
1,234,073
$
(134,576
)
$
3,164,297
7,750,000
55
(55
)
550,002
(21,111
)
(21,111
)
(947
)
(947
)
89,684
89,684
139,375
139,375
(3,585
)
(3,585
)
225,474
830
2,064,025
1,301,644
1,214
3,367,713
8,300,002
(109,298
)
(109,298
)
(1,053
)
(1,053
)
98,053
98,053
102,623
102,623
(5,633
)
(5,633
)
195,043
830
2,064,025
1,289,346
98,204
3,452,405
8,300,002
(41,876
)
(41,876
)
(1,052
)
(1,052
)
(1,001,199
)
(1,001,199
)
173,699
173,699
8,332
8,332
(35,250
)
(35,250
)
(854,418
)
$
830
$
2,064,025
$
245,219
$
244,985
$
2,555,059
8,300,002
See the accompanying notes to the consolidated financial statements
F-5
FORTIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
Years Ended December 31,
2002
2001
2000
(in thousands except number of shares
and per share amounts)
$
(1,001,199
)
$
98,053
$
89,684
1,260,939
101,745
335,306
(577,739
)
(23,406
)
(82,085
)
(20,954
)
46,867
43,599
61,897
(126,424
)
(195,648
)
(297,670
)
(20,600
)
49,223
(15,954
)
113,300
106,773
325,894
130,621
928,405
(102,996
)
4,449
46,068
(17,986
)
28,729
9,063
33,994
129,254
42,340
(31,976
)
(63,315
)
79,651
(79,801
)
(68,296
)
(10,284
)
(108,050
)
(11,259
)
48,675
118,372
119,016
44,977
(10,672
)
(61,688
)
(11,994
)
30,091
(33,103
)
9,878
394,792
536,156
532,816
3,626,752
3,607,260
3,246,522
113,866
169,124
268,931
10,488
5,985
971
75,658
55,141
131,010
860,927
528,483
383,127
(4,780,009
)
(4,164,948
)
(3,483,522
)
(131,775
)
(212,736
)
(225,159
)
(74,667
)
(47,783
)
(37,454
)
(42,311
)
(115,853
)
(102,617
)
26,814
52,862
42,132
(57,623
)
(187,340
)
95,101
(1,141
)
(3,182
)
(20,501
)
12,000
137,840
(326,666
)
$
(361,021
)
$
(175,147
)
$
(28,125
)
F-6
CONSOLIDATED STATEMENTS OF CASH
FLOWS
Years Ended December 31,
2002
2001
2000
(in thousands except number of shares
and per share amounts)
$
$
45,577
$
231,779
(79,646
)
(453,204
)
7,258
33,200
549,888
(3,664
)
(500
)
216,924
81,996
(455,907
)
(850,256
)
(41,876
)
(109,298
)
(21,111
)
(1,052
)
(1,053
)
(947
)
(43,428
)
(379,809
)
(428,655
)
(9,657
)
(18,800
)
76,036
559,305
578,104
502,068
$
549,648
$
559,304
$
578,104
$
215,866
$
144,767
$
42,284
$
117,114
$
133,667
$
112,816
35,250
8,332
(5,633
)
(3,585
)
3,000
55
See the accompanying notes to the consolidated financial statements
F-7
FORTIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Nature of
Operations
Fortis, Inc. (the Company) is a
holding company provider of specialized insurance products and
related services in North America and selected other markets.
The Company is incorporated in the State of Nevada and is
indirectly wholly owned by Fortis N.V. of The Netherlands and
Fortis SA/NV of Belgium (collectively, the Parent)
through their affiliates, including their wholly owned
subsidiary, Fortis Insurance N.V. (see note 11).
Through its operating subsidiaries, the Company
provides creditor-placed homeowners insurance, manufactured
housing homeowners insurance, debt protection administration,
credit insurance, warranties and extended service contracts,
individual health and small employer group health insurance,
group dental insurance, group disability insurance, group life
insurance and pre-funded funeral insurance. The Company had
certain individual life insurance policies, annuity contracts
and mutual fund operations during 2001 and 2000, which were sold
to The Hartford Financial Services Group (The
Hartford) (see note 4).
2. Summary of
Significant Accounting Policies
The accompanying consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(GAAP). The preparation of financial statements in
conformity with GAAP requires management to make estimates when
recording transactions resulting from business operations based
on information currently available. The most significant items
on the Companys balance sheet that involve accounting
estimates and actuarial determinations are the value of business
acquired, goodwill, reinsurance recoverables, valuation of
investments, deferred acquisition costs (DAC),
liabilities for future policy benefits and expenses, and claims
and benefits payable. The accounting estimates and actuarial
determinations are sensitive to market conditions, investment
yields, mortality, morbidity, commissions and other acquisition
expenses, and terminations by policyholders. As additional
information becomes available, or actual amounts are
determinable, the recorded estimates will be revised and
reflected in operating results. Although some variability is
inherent in these estimates, the Company believes the amounts
provided are reasonable.
Dollar amounts are presented in U.S. dollars
and all amounts are in thousands except for number of shares and
securities and per share and per security amounts.
The consolidated financial statements include the
accounts of the Company and all of its wholly owned
subsidiaries. All significant inter-company transactions and
balances are eliminated in consolidation. See notes 3 and 4
for acquisitions and dispositions of businesses.
Comprehensive income is comprised of net income
and other comprehensive income, which includes foreign currency
translation, unrealized gains and losses on securities
classified as available for sale, less deferred income taxes and
direct charges for additional minimum pension liability.
Certain amounts in the 2001 and 2000 financial
statements have been reclassified to conform to the 2002
presentation.
F-8
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The Company considers cash on hand, all operating
cash and working capital cash to be cash equivalents. These
amounts are carried principally at cost, which approximates fair
value.
The Companys investment strategy is
developed based on many factors including appropriate insurance
asset and liability management, rate of return, maturity, credit
risk, tax considerations and regulatory requirements.
Fixed maturities and equity securities are
classified as available-for-sale and reported at fair value. If
the fair value is higher than the amortized cost for debt
securities or the purchase cost for equity securities, the
excess is an unrealized gain; and if lower than cost, the
difference is an unrealized loss. The net unrealized gains and
losses, less deferred income taxes and amounts attributable to
universal life and annuity contracts, are included in
accumulated other comprehensive income.
Commercial mortgage loans on real estate are
reported at unpaid balances, adjusted for amortization of
premium or discount, less allowance for losses. Allowances, if
necessary, are established for mortgage loans based on the
difference between the unpaid loan balance and the estimated
fair value of the underlying real estate when such loans are
determined to be in default as to scheduled payments. The change
in the allowance for losses is recorded as realized gains and
losses on investments. Such allowances are based on the present
value of expected future cash flows discounted at the
loans effective interest rate or at the loans
observable market price, or the fair market value of the
collateral if the loan is collateral dependent.
Policy loans are reported at unpaid principal
balances, which do not exceed the cash surrender value of the
underlying policies.
Short-term investments include all investment
cash and highly liquid investments. These amounts are carried
principally at cost, which approximates fair value.
Other investments consist primarily of
investments in joint ventures and partnerships. The joint
ventures and partnerships are valued according to the equity
method.
The Company regularly monitors its investment
portfolio to ensure that investments that may be other than
temporarily impaired are identified in a timely fashion and
properly valued, and that any impairments are charged against
earnings in the proper period. The Companys methodology to
identify potential impairments requires professional judgment.
Changes in individual security values are monitored on a
semi-monthly basis in order to identify potential problem
credits. In addition, securities whose market price is equal to
85% or less of their original purchase price along with any
other holdings related to this issuer that the Company believes
warrant monitoring, are added to the impairment watchlist, which
is discussed at monthly meetings attended by members of the
Companys investment, accounting and finance departments.
Any security whose price decrease is deemed other-than-temporary
is written down to its then current market level. Inherently,
there are risks and uncertainties involved in making these
judgments. Changes in circumstances and critical assumptions
such as a continued weak economy, a more pronounced economic
downturn or unforeseen events which affect one or more
companies, industry sectors or countries could result in
additional writedowns in future periods for impairments that are
deemed to be other-than-temporary.
Realized gains and losses on sales of investments
and declines in value judged to be other-than-temporary are
recognized on the specific identification basis.
Investment income is recorded as earned net of
investment expenses.
F-9
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The Company anticipates prepayments of principal
in the calculation of the effective yield for mortgage-backed
securities and structured securities. For such securities, the
credit quality of which, is high and cannot be contractually
prepaid, the retrospective method is used to adjust the
effective yield.
Reinsurance recoverables include amounts related
to paid benefits and estimated amounts related to unpaid policy
and contract claims, future policyholder benefits and
policyholder contract deposits. The cost of reinsurance is
accounted for over the terms of the underlying reinsured
policies using assumptions consistent with those used to account
for the policies. Amounts recoverable from reinsurers are
estimated in a manner consistent with claim and claim adjustment
expense reserves or future policy benefits reserves and are
reported in the consolidated balance sheets. The ceding of
insurance does not discharge the Companys primary
liability to insureds. An estimated allowance for doubtful
accounts is recorded on the basis of periodic evaluations of
balances due from reinsurers, reinsurer solvency,
managements experience and current economic conditions.
The costs of acquiring new business that vary
with and are primarily related to the production of new business
have been deferred to the extent that such costs are deemed
recoverable from future premiums or gross profits. Acquisition
costs primarily consist of commissions, policy issuance
expenses, premium tax and certain direct marketing expenses.
A premium deficiency is recognized immediately by
a charge to the statement of operations as a reduction of DAC to
the extent that future policy premiums, including anticipation
of interest income, are not adequate to recover all DAC and
related claims, benefits and expenses. If the premium deficiency
is greater than unamortized DAC, a liability will be accrued for
the excess deficiency.
DAC relating to property contracts, warranty and
extended service contracts, and single premium credit insurance
contracts are amortized over the term of the contracts in
relation to premiums earned.
Acquisition costs on small group medical, group
term life and group disability consist primarily of commissions
to agents and brokers, which are level, and compensation to
representatives, which is spread out and is not front-end
loaded. These costs do not vary with the production of new
business. As a result, these costs are not deferred, but rather
they are recorded in the statement of operations in the period
in which they are incurred.
Acquisition costs for pre-funded funeral life
insurance policies and life insurance policies no longer offered
are deferred and amortized in proportion to anticipated premiums
over the premium-paying period.
For pre-funded funeral investment-type annuities
and universal life and investment-type annuities no longer
offered, DAC is amortized in proportion to the present value of
estimated gross margins or profits from investment, mortality,
expense margins and surrender charges over the estimated life of
the policy or contract. The assumptions used for the estimates
are consistent with those used in computing the policy or
contract liabilities.
Acquisition costs relating to individual medical
contracts are deferred and amortized over the estimated average
terms of the underlying contracts. These acquisition costs
relate to commissions and policy issuance expenses. Commissions
represent the majority of deferred costs and result from
commission schedules that
F-10
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
pay significantly higher rates in the first year.
The majority of deferred policy issuance expenses are the costs
of separately underwriting each individual medical contract.
Acquisition costs on the FFG and long-term care
(LTC) disposed businesses were written off when the
businesses were sold.
Property and equipment are reported at cost less
accumulated depreciation. Depreciation is calculated on a
straight-line basis over estimated useful lives with a maximum
of 39.5 years for buildings and 7 years for furniture
and equipment. Expenditures for maintenance and repairs are
charged to income as incurred. Expenditures for improvements are
capitalized and depreciated over the remaining useful life of
the asset.
Goodwill represents the excess of acquisition
costs over the net fair values of identifiable assets acquired
and liabilities assumed in a business combination. The Company
adopted Statement of Financial Accounting Standards No. 142
(FAS 142),
Goodwill and Other Intangible
Assets,
as of January 1, 2002. Pursuant to
FAS 142, goodwill is deemed to have an indefinite life and
should not be amortized, but rather tested at least annually for
impairment. The goodwill impairment test has two steps. The
first identifies potential impairments by comparing the fair
value of a reporting unit with its book value, including
goodwill. If the fair value of the reporting unit exceeds the
carrying amount, goodwill is not impaired and the second step is
not required. If the carrying value exceeds the fair value, the
second step calculates the possible impairment loss by comparing
the implied fair value of goodwill with the carrying amount. If
the implied goodwill is less than the carrying amount, a
writedown is recorded. Prior to the adoption of FAS 142,
goodwill was amortized over 20 years. Upon the adoption of
FAS 142, the Company ceased amortizing goodwill, and the
Company recognized a $1,260,939 impairment charge as the
cumulative effect of a change in accounting principle. The
measurement of fair value was determined based on a valuation
report prepared by an independent valuation firm. The valuation
was based on an evaluation of ranges of future discounted
earnings, public company trading multiples and acquisitions of
similar companies. Certain key assumptions considered include
forecasted trends in revenues, operating expenses and effective
tax rates.
The value of businesses acquired
(VOBA) is the identifiable intangible asset
representing the value of the insurance businesses acquired. The
amount is determined using best estimates for mortality, lapse,
maintenance expenses and investment returns at date of purchase.
The amount determined represents the purchase price paid to the
seller for producing the business. Similar to the amortization
of DAC, the amortization of VOBA is over the premium payment
period for traditional life insurance policies and a small block
of limited payment policies. For the remaining limited payment
policies, all universal life policies and annuities, the
amortization of VOBA is over the expected lifetime of the
policies.
VOBA is tested for recoverability annually. If it
is determined that future policy premiums and investment income
or gross profits are not adequate to cover related losses or
loss expenses, then VOBA is charged to current earnings.
Assets and liabilities associated with separate
accounts relate to premium and annuity considerations for
variable life and annuity products for which the
contract-holder, rather than the Company, bears the investment
risk. Separate account assets are reported at fair value.
Revenues and expenses related to the
F-11
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
separate account assets and liabilities, to the
extent of benefits paid or provided to the separate account
policyholders, are excluded from the amounts reported in the
accompanying consolidated statements of operations. Through
April 1, 2001, the Company received administrative fees for
managing the funds and other fees for assuming mortality and
certain expense risks. Such fees were included in net earned
premiums and other considerations in the consolidated statements
of operations. Since April 1, 2001, all fees have been
ceded to The Hartford (see note 4).
Current federal income taxes are charged to
operations based upon amounts estimated to be payable or
recoverable as a result of taxable operations for the current
year. Deferred income taxes are recognized for temporary
differences between the financial reporting basis and income tax
basis of assets and liabilities, based on enacted tax laws and
statutory tax rates applicable to the periods in which we expect
the temporary differences to reverse.
Other assets include prepaid items and intangible
assets. Identifiable intangible assets with finite lives,
including costs capitalized relating to developing software for
internal use, are amortized on a straight line basis over their
estimated useful lives. The Company tests the intangible assets
for impairment whenever circumstances warrant, but at least
annually. If impairment exists, the excess of the unamortized
balance over the fair value of the intangible assets will be
charged to income at that time. Other assets also include the
Companys approximately 25% interest in Private Health Care
Systems, Inc. (PHCS). The Company was a co-founder
of PHCS, a provider network. The Company accounts for PHCS
according to the equity method.
For those foreign affiliates where the foreign
currency is the functional currency, unrealized foreign exchange
gains (losses) net of income taxes have been reflected in
Stockholders Equity under the caption Accumulated
other comprehensive income.
The Companys short duration contracts are
those on which the Company recognizes revenue on a pro-rata
basis over the contract term. The Companys short duration
contracts primarily include group term life, group disability,
medical and dental, property, credit insurance, warranties and
extended service contracts.
Currently, the Companys long duration
contracts being sold are pre-funded funeral life insurance and
investment-type annuities. For pre-funded funeral life insurance
policies, any excess of the gross premium over the net premium
is deferred and is recognized in income in a constant
relationship with the insurance in force. For pre-funded funeral
investment-type annuity contracts, revenues consist of charges
assessed against policy balances.
For traditional life insurance contracts sold by
the PreNeed segment that are no longer offered, revenue is
recognized when due from policyholders.
For universal life insurance and investment-type
annuity contracts sold by the Solutions segment that are no
longer offered, revenues consist of charges assessed against
policy balances.
F-12
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Premiums for LTC insurance and traditional life
insurance contracts within FFG are recognized as revenue when
due from the policyholder. For universal life insurance and
investment-type annuity contracts within FFG, revenues consist
of charges assessed against policy balances. For the FFG and LTC
businesses previously sold, all revenue is ceded to The Hartford
and John Hancock, respectively.
Reinsurance premiums assumed are calculated based
upon payments received from ceding companies together with
accrual estimates which are based on both payments received and
in force policy information received from ceding companies. Any
subsequent differences arising on such estimates are recorded in
the period in which they are determined.
The Company derives income from fees received
from providing administration services. Fee income is earned
when services are performed.
Reserves are established according to generally
accepted actuarial principles and are based on a number of
factors. These factors include experience derived from
historical claim payments and actuarial assumptions to arrive at
loss development factors. Such assumptions and other factors
include trends, the incidence of incurred claims, the extent to
which all claims have been reported, and internal claims
processing charges. The process used in computing reserves
cannot be exact, particularly for liability coverages, since
actual claim costs are dependent upon such complex factors as
inflation, changes in doctrines of legal liability and damage
awards. The methods of making such estimates and establishing
the related liabilities are periodically reviewed and updated.
For short duration contracts, claims and benefits
payable reserves are recorded when insured events occur. The
liability is based on the expected ultimate cost of settling the
claims. The claims and benefits payable reserves include
(1) case base reserves for known but unpaid claims as of
the balance sheet date; (2) incurred but not reported
(IBNR) reserves for claims where the insured event
has occurred but has not been reported to the Company as of the
balance sheet date; and (3) loss adjustment expense
reserves for the expected handling costs of settling the claims.
For group disability the case base reserves and
the IBNR are calculated based on historical experience and on
assumptions relating to claim severity, frequency, and other
factors. These assumptions are modified as necessary to reflect
anticipated trends, with any adjustment being reflected in
current operations. We establish reserves for disability
policies in an amount equal to the net present value of the
expected claims future payments. Group long-term disability
reserves are discounted to the valuation date at the valuation
interest rate. The valuation interest rate is determined by
taking into consideration actual and expected earned rates on
our asset portfolio, with adjustments for investment expenses
and provisions for adverse deviation.
The Company has exposure to asbestos,
environmental and other general liability claims arising from
its participation in various reinsurance pools from 1971 through
1983. The Company carried case reserves for these liabilities as
recommended by the various pool managers and bulk reserves for
claims incurred but not yet reported of $40,000 (before
reinsurance) and $39,000 (after reinsurance) in the aggregate at
December 31, 2002. Any estimation of these liabilities is
subject to greater than normal variation and uncertainty due to
the general lack of sufficient detailed data, reporting delays,
and absence of a generally accepted actuarial
F-13
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
methodology for those exposures. There are
significant unresolved industry legal issues, including such
items as whether coverage exists and what constitutes an
occurrence. In addition, the determination of ultimate damages
and the final allocation of losses to financially responsible
parties are highly uncertain.
Unearned premium reserves are maintained for the
portion of the premiums on short duration contracts that is
related to the unexpired period of the policy.
Future policy benefits and expense reserves on
LTC, life insurance policies that are no longer offered,
individual medical and the traditional life insurance contracts
within FFG are recorded at the present value of future benefits
to be paid to policyholders and related expenses less the
present value of the future net premiums. These amounts are
estimated and include assumptions as to the expected investment
yield, inflation, mortality, morbidity and withdrawal rates as
well as other assumptions that are based on the Companys
experience. These assumptions reflect anticipated trends and
include provisions for possible unfavorable deviations.
Future policy benefits and expense reserves for
pre-funded funeral investment-type annuities, universal life
insurance policies and investment-type annuity contracts no
longer offered, and the variable life insurance and
investment-type annuity contracts in FFG consist of policy
account balances before applicable surrender charges and certain
deferred policy initiation fees that are being recognized in
income over the terms of the policies. Policy benefits charged
to expense during the period include amounts paid in excess of
policy account balances and interest credited to policy account
balances.
Future policy benefits and expense reserves for
pre-funded funeral life insurance contracts are recorded as the
present value of future benefits to policyholders and related
expenses less the present value of future net premiums. Reserve
assumptions are selected using best estimates for expected
investment yield, inflation, mortality and withdrawal rates.
These assumptions reflect current trends, are based on Company
experience and include provision for possible unfavorable
deviation. An unearned premium reserve is also recorded for
these contracts which represents the balance of the excess of
gross premiums over net premiums that is still to be recognized
in future years income in a constant relationship to
insurance in force.
Changes in the estimated liabilities are charged
or credited to operations as the estimates are revised.
The Company accounts for the Fortis, Inc. stock
option plan as prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25) and related interpretations.
Accordingly, compensation cost is charged to income over the
service period (vesting period) and is adjusted for subsequent
changes in the market value of the stock that are subsequently
amortized over the vesting period.
F-14
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The following table illustrates the effect of
applying the fair value recognition provisions of FAS 123,
Accounting for Stock Based Compensation
on net income and
earnings per share. Pro forma information of net (loss) income
and net (loss) income per share assuming the Company had applied
the fair value recognition provisions of FAS 123, is as
follows:
The fair value of each option granted was
estimated at the date of grant using the Black-Scholes multiple
option approach with the following assumptions for options
granted during the three-year period ended December 31,
2002.
Effective July 1, 2001, the Company adopted
Financial Accounting Standard 141,
Business
Combinations
(FAS 141). FAS 141 requires
that all business combinations initiated after June 30,
2001 be accounted for under the purchase method of accounting
and establishes specific criteria for the recognition of
intangible assets separately from goodwill. The Company followed
this statement for the acquisitions of the Dental Benefits
Division (DBD) of Protective Life Corporation
(Protective) and CORE, Inc. (CORE) (see
note 3). For the years ended December 31, 2002 and
2001, the Company recognized $2,700 and $0, respectively, of
amortization expense related to other identifiable intangible
assets, which are included in underwriting, general and
administrative expenses in the consolidated statements of
operations.
In June 2002, the Financial Accounting Standards
Board (FASB) issued FAS 146,
Accounting for
Costs Associated with Exit or Disposal Activities
(FAS 146). This statement addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
(EITF) Issue 94-3,
Liability Recognition for
Certain Employee Termination Benefits and Other Costs to
F-15
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Exit on Activity (Including Certain Costs
Incurred in Restructuring
(EITF 94-3). EITF 94-3 required accrual of
liabilities related to exit and disposal activities at a plan
(commitment) date. FAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
when the liability is incurred. The provisions of this statement
are effective for exit or disposal activities that are initiated
after December 31, 2002. The Company adopted this Statement
on January 1, 2003. The adoption of this standard did not
have a material impact on the Companys financial position
or the results of operations.
In November 2002, the FASB issued
Interpretation 45,
Guarantors Accounting and
Disclosure Requirements for Guarantees
(FIN 45). FIN 45 requires that a liability
be recognized at the inception of certain guarantees for the
fair value of the obligation, including the ongoing obligation
to stand ready to perform over the term of the guarantee.
Guarantees, as defined in FIN 45, include contracts that
contingently require the Company to make payments to a
guaranteed party based on changes in an underlying obligation
that is related to an asset, liability or equity security of the
guaranteed party, performance guarantees, indemnification
agreements and indirect guarantees of indebtedness of others.
This new accounting standard is effective for certain guarantees
issued or modified after December 31, 2002. In addition,
FIN 45 requires certain additional disclosures. The Company
adopted this standard on January 1, 2003, and the adoption
did not have a material impact on the Companys financial
position or the results of operations.
In December 2002, the FASB issued FAS 148,
Accounting for Stock-Based CompensationTransition and
Disclosurean Amendment of FAS No. 123
(FAS 148). FAS 148 provides alternative
methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee
compensation. FAS 148 also amends the disclosure
requirements of FAS 123,
Accounting for Stock-Based
Compensation,
to require prominent disclosures in both
annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect
of the method used on reported results. This guidance is
effective for fiscal years ending after December 15, 2002,
for transition guidance and annual disclosure provisions and is
effective for interim reports beginning after December 15,
2002, for interim disclosure provisions. The Company accounts
for stock-based employee compensation as prescribed by
APB No. 25 and its interpretations. Therefore, the
transition requirements of FAS 148 do not apply. However,
the Company adopted the disclosure requirements of this standard
for the year ended December 31, 2002.
In January 2003, the FASB issued
Interpretation 46 (FIN 46),
Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51
(ARB 51), which clarifies the consolidation
accounting guidance in ARB 51,
Consolidated Financial
Statements,
as it applies to certain entities in which
equity investors who do not have the characteristics of a
controlling financial interest or do not have sufficient equity
at risk for the entities to finance their activities without
additional subordinated financial support from other parties.
Such entities are known as variable interest entities
(VIEs). FIN 46 requires that the primary
beneficiary of a VIE consolidates the VIE. FIN 46 also
requires new disclosures for significant relationships with
VIEs, whether or not consolidation accounting is used or
anticipated. The consolidation requirements of FIN 46 apply
immediately to VIEs created after January 31, 2003. They
apply in the first fiscal year or interim period beginning after
June 15, 2003 to VIEs in which an enterprise holds a
variable interest that was acquired before February 1,
2003. On October 8, 2003, the FASB deferred the adoption of
FIN 46 until reporting periods ending after
December 15, 2003. The Company is assessing whether the
adoption of this interpretation will have a material impact on
the Companys financial position or the results of
operations.
In April 2003, the FASBs Derivative
Implementation Group (DIG) released FAS 133
Implementation Issue B36,
Embedded Derivatives: Modified
Coinsurance Arrangements and Debt Instruments that Incorporate
Credit Risk Exposures that are Unrelated or Only Partially
Related to the Creditworthiness of the Obligor under those
Instruments
(DIG B36). DIG B36
addresses whether FAS 133 requires bifurcation of a debt
instrument into a debt host contract and an embedded derivative
if the debt instrument incorporates
F-16
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
both interest rate risk and credit risk exposures
that are unrelated or only partially related to the
creditworthiness of the issuer of that instrument. Under
DIG B36, modified coinsurance and coinsurance with funds
withheld reinsurance agreements as well as other types of
receivables and payables where interest is determined by
reference to a pool of fixed maturity assets or a total return
debt index are examples of arrangements containing embedded
derivatives requiring bifurcation. The effective date of the
implementation guidance is October 1, 2003. The Company is
assessing whether adoption of DIG B36 will have a material
impact on the Companys financial position or the results
of operations.
In April 2003, the FASB issued FAS 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities
(FAS 149). This
statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under
FAS 133,
Accounting for Derivative Instruments and
Hedging Activities
. This Statement is effective
prospectively for contracts entered into or modified after
June 30, 2003 and prospectively for hedging relationships
designated after June 30, 2003. The Company has assessed
that the adoption of this standard will not have a material
impact on the Companys financial position or the results
of operations.
In May 2003, the FASB issued FAS 150,
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity
(FAS 150). This statement improves the
accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity, and
requires that these instruments be classified as liabilities in
the consolidated balance sheets. This statement is effective
prospectively for financial instruments entered into or modified
after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after
June 15, 2003. This statement shall be implemented by
reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance
date of the statement and still existing at the beginning of the
interim period of adoption. The Company has assessed that the
adoption of this standard will result in a reclassification of
mandatorily redeemable preferred securities of subsidiary trusts
and mandatorily redeemable preferred stock from mezzanine to
liabilities, and will not have a material impact on the
Companys results of operations.
On July 7, 2003, the Accounting Standards
Executive Committee (AcSEC) of the American
Institute of Certified Public Accountants (AICPA)
issued Statement of Position 03-1,
Accounting and Reporting
by Insurance Enterprises for Certain Nontraditional Long
Duration Contracts and for Separate Accounts
(SOP
03-1). SOP 03-1 provides guidance on a number of topics
unique to insurance enterprises, including separate account
presentation, interest in separate accounts, gains and losses on
the transfer of assets from the general account to a separate
account, liability valuation, returns based on a contractually
referenced pool of assets or index, accounting for contracts
that contain death or other insurance benefit features,
accounting for reinsurance and other similar contracts,
accounting for annuitization benefits and sales inducements to
contract holders. SOP 03-1 will be effective for the
Companys financial statements on January 1, 2004. The
Company is assessing whether adoption of this statement will
have a material impact on the Companys financial position
or the results of operations.
3. Acquisitions
The following transactions have been accounted
for under the purchase method. Consequently, the purchase price
has been allocated to assets acquired and liabilities assumed
based on the relative fair values. The results of operations of
the businesses acquired have been included in the consolidated
financial statements since the date of acquisition.
F-17
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
On December 31, 2001, the Company acquired
DBD, including the acquisition through reinsurance of
Protectives indemnity dental, life, and disability
businesses and purchase of the stock of its prepaid dental
subsidiaries.
Protectives Dental Benefits Division at the
time of acquisition was a leading provider of voluntary
(employee-paid) indemnity dental and prepaid dental coverage for
employee groups. As a result of the acquisition, the Company
expects to be a leading provider of dental insurance products in
the voluntary (employee-paid) market. It also expects to reduce
costs through economies of scale.
The following table summarizes the purchase price
and net cash paid for the transaction:
Of the $54,300 of acquired intangible assets,
$5,600 was assigned to licenses that are not subject to
amortization. The remaining $48,700 consists of the current
groups in force and a dental provider network, which are
amortized on a straight-line basis over their estimated useful
lives, which range from 20 to 30 years.
The following table reflects the Companys
results of operations on an unaudited pro forma basis as if the
acquisition of DBD had been completed on January 1, 2000.
The pro forma results include estimates and assumptions which
management believes are reasonable. However, pro forma results
do not include the effects of synergies and cost reduction
initiatives directly related to the acquisitions. The pro forma
financial information is not necessarily indicative of the
operating results that would have occurred had the acquisitions
been consummated as of the dates indicated, nor are they
necessarily indicative of future operating results.
On July 12, 2001, the Company acquired 100%
of the outstanding common shares of CORE for approximately
$57,000 in cash. CORE at the time of acquisition was a leading
national provider of employee absence management services and a
major provider of disability reinsurance management services to
middle-market insurance carriers. As a result of the
acquisition, the Employee Benefits segment derives expertise in
disability services and solutions, including clinical disability
management and Family and Medical Leave Act
F-18
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
administration. The segment also expects to
realize improvements in pricing accuracy and duration care
management through direct access to COREs data.
On October 1, 2000, the Company acquired
100% of the outstanding common shares of AMLIC from Service
Corporation International (SCI) for $210,420 in
cash. AMLIC is a South Dakota-based pre-funded funeral insurance
company. At the date of purchase the Company entered into a
10-year exclusive North American pre-funded funeral insurance
marketing agreement with SCI. Goodwill of $14,806 was recorded
on the purchase.
The following table summarizes the estimated fair
values of the assets and liabilities at the date of acquisition.
The following table reflects the Companys
results of operations on an unaudited pro forma basis as if the
acquisition of AMLIC had been completed on January 1, 2000.
The pro forma results for 2000 include estimates and assumptions
which management believes are reasonable. However, pro forma
results do not include the effects of synergies and cost
reduction initiatives directly related to the acquisition. The
pro forma financial information is not necessarily indicative of
the operating results that would have occurred had the
acquisition been consummated as of the date indicated, nor is it
necessarily indicative of future operating results.
4. Dispositions
On June 28, 2002, the Company sold its 50%
ownership in NHP to NHP Holding LLC for $12,000. NHP is a
Florida Health Maintenance Organization. The Company recorded a
pre-tax gain on sale of $10,672.
F-19
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
On April 2, 2001, the Company sold its FFG
business to The Hartford for $1,086,752, net of expenses. FFG
included certain individual life insurance policies,
investment-type annuity contracts and mutual fund operations.
The transaction was structured as a stock sale for the mutual
fund management operations and as a reinsurance arrangement for
the insurance operations (see note 13).
The sale resulted in a total pre-tax gain of
$623,071 of which $61,688 was for the mutual fund operations and
$3,854 was for property and equipment. The total pre-tax gain
was derived by deducting the value of assets and liabilities
sold or ceded from the net proceeds. The net proceeds
attributable to the mutual fund operations and reinsurance
arrangement were determined based on relative values of the
business sold. Such valuations were based on analyses from
external consultants.
Of the total pre-tax gain, $557,529 related to
the reinsurance contracts and was deferred. The reinsurance
contracts did not legally replace the Company as the insurer to
policyholders or extinguish the Companys liabilities to
its policyholders. The reserves for this block of business are
included in the Companys reserves (see note 14). The
deferred gain is being amortized over the remaining life of the
underlying business. The amortization of the deferred gain is
more rapid in the first few years after sale and will be slower
as the liabilities in the reinsured block decrease. During 2002
and 2001, the Company recognized pre-tax income of approximately
$73,024 and $59,647, respectively, reflecting the amortization
of a portion of the deferred gain in the results of operations.
On May 11, 2000, the Company sold 100% of
the issued and outstanding stock of ACSIA to Conseco Corporation
for approximately $32,905 in cash. ACSIA is a distributor of
long-term care insurance. The Company recorded a pre-tax gain on
sale of $11,994.
On March 1, 2000, the Company sold its LTC
business to John Hancock Mutual Life Insurance Company for
$164,000. The business was sold via a 100% coinsurance agreement
whereby the Company ceded substantially all assets and
liabilities related to its long-term care business. The
reinsurance contracts entered into did not legally replace the
Company as the insurer to policyholders or extinguish its
liabilities to these policyholders. Therefore, the transaction
resulted in a deferred pre-tax gain of $51,431, which is being
recognized over the remaining lives of the related contracts.
The pre-tax gain was derived by deducting the value of assets
and liabilities sold or ceded from the net proceeds. During
2002, 2001 and 2000, the Company recognized pre-tax income of
approximately $5,297, $6,979 and $8,384, respectively,
reflecting the amortization of a portion of the deferred gain in
the results of operations. As part of the sale, the Company
transferred various other assets and liabilities and recorded
reinsurance recoverables of $321,000.
F-20
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
5. Investments
The amortized cost and fair value of fixed
maturities and equity securities at December 31, 2002 were
as follows:
F-21
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The amortized cost and fair value of fixed
maturities and equity securities at December 31, 2001 were
as follows:
The amortized cost and fair value of fixed
maturities at December 31, 2002 by contractual maturity are
shown below. Expected maturities may differ from contractual
maturities because issuers of the securities may have the right
to call or prepay obligations with or without call or prepayment
penalties.
Proceeds from sales of available for sale
securities were $3,740,619, $3,857,865 and $3,515,453 during
2002, 2001 and 2000 respectively. Gross gains of $117,612,
$115,202 and $59,917 and gross losses of $150,951, $140,472 and
$114,077 were realized on these sales in 2002, 2001 and 2000,
respectively.
F-22
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Major categories of net investment income were as
follows:
The net realized gains (losses) recorded in
income for 2002, 2001 and 2000 are summarized as follows:
The Company recorded $85,295, $78,232 and $5,421
of pre-tax realized losses in 2002, 2001 and 2000, respectively,
associated with other-than-temporary declines in value of
available for sale securities.
The Company has made commercial mortgage loans,
collateralized by the underlying real estate, on properties
located throughout the United States. At December 31, 2002,
approximately 47% of the outstanding principal balance of
commercial mortgage loans were concentrated in the states of
California, New York, Connecticut, Pennsylvania and Florida.
Although the Company has a diversified loan portfolio, an
economic downturn could have an adverse impact on the ability of
its debtors to repay their loans. The outstanding balance of
commercial mortgage loans range in size from $1 to $9,495 at
December 31, 2002. The mortgage loan balance is net of an
allowance for losses of $19,106 and $25,091 at December 31,
2002 and 2001, respectively.
At December 31, 2002, loan commitments
outstanding totaled approximately $29,050. Furthermore, at
December 31, 2002, the Company is committed to funding
additional capital contributions of $27,000 to certain
investments in limited partnerships.
The Company had fixed maturities carried at
$216,055 and $262,694 at December 31, 2002 and 2001,
respectively, on deposit with various governmental authorities
as required by law.
Security lending
The Company engages in transactions in which
fixed maturities, especially bonds issued by the United States
Government and Government agencies and authorities, are loaned
to selected broker/ dealers. Collateral, greater than or equal
to 102% of the fair value of securities lent plus interest, is
received in the form
F-23
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
of cash or marketable securities. The Company
monitors the fair value of securities loaned and the collateral
received on a daily basis, with additional collateral obtained
as necessary. The Company is subject to the risk of loss to the
extent that the loaned securities are not returned and the value
of the collateral is less than the market value of the
securities loaned. Management believes such an event is
unlikely. At December 31, 2002 and 2001, securities with a
fair value of $419,000 and $289,000, respectively, were on loan
to selected brokers.
6. Property and
Equipment
Property and equipment consist of the following:
Depreciation expense for 2002, 2001 and 2000
amounted to $46,871, $39,958 and $45,213, respectively.
Depreciation expense is included in underwriting, general and
administrative expenses in the consolidated results of
operations.
7. Premiums and
Accounts Receivable
Receivables are reported at the estimated amounts
collectable net of an allowance for uncollectible items. A
summary of such items is as follows:
F-24
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Mandatorily redeemable preferred securities of
subsidiary trusts consisted of the following as of
December 31:
Distributions on preferred securities of
subsidiary trusts were $118,396, $118,370 and $110,142 for the
years ended December 31, 2002, 2001 and 2000, respectively.
In March 2000, two subsidiary trusts of the
Company, Fortis Capital Proceeds Trust 2000-1 and Fortis Capital
Proceeds Trust 2000-2, issued 150,000 8.48% and 400,000 8.40%
trust capital securities (collectively, the 2000 Trust
Capital Securities), respectively, to Fortis Insurance
N.V. (formerly, Fortis Insurance Holding N.V.), in each case
with a liquidation amount of $1,000 per security.
Fortis Capital Proceeds Trust 2000-1 and Fortis
Capital Proceeds Trust 2000-2 used the proceeds from the sale of
the applicable 2000 Trust Capital Securities and trust common
securities to purchase $150,001 and $400,001, respectively, of
the Companys 8.48% and 8.40% subordinated debentures due
2030 (collectively, the 2000 Subordinated
Debentures), respectively. These debentures are the sole
assets of the trusts.
The payments the Company makes on the applicable
2000 Subordinated Debentures are the sole source of funds
available for the applicable trust to make the distributions on
the applicable 2000 Trust Capital Securities. Interest on the
2000 Subordinated Debentures is payable semi-annually, except
the Company has the right to extend the interest payment period
under the applicable 2000 Subordinated Debentures for up to ten
consecutive semi-annual periods, during which periods interest
will compound semi-annually. Distributions on the 2000 Trust
Capital Securities are cumulative and payable semi-annually,
except distributions are deferrable to the extent the Company
exercises its right described in the preceding sentence.
The 2000 Subordinated Debentures restrict the
Companys ability to (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire or make a
liquidation payment on, any of the Companys capital stock,
(ii) make any payment of principal, interest or premium, if
any, on or repay or repurchase or redeem any of the
Companys debt securities that rank pari passu with or
junior in right of payment to the applicable 2000 Subordinated
Debentures or (iii) make any guarantee payments with
respect to any guarantee by the Company of any securities of any
subsidiary of the Company if such guarantee ranks pari passu or
junior in right of payment to the applicable 2000 Subordinated
Debentures, if at any time (1) any 2000 Subordinated
Debentures are held by Fortis Capital Proceeds Trust 2000-1 or
2, as applicable, and there shall have occurred and be
continuing an event of default under the declaration of trust of
Fortis Capital Proceeds Trust 2000-1 or 2, as applicable,
(2) there shall have occurred and be continuing an event of
default under the applicable indenture pursuant to which the
applicable 2000 Subordinated Debentures were issued or
(3) the Company shall have given notice of its election to
extend the interest payment period under the applicable 2000
F-25
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Subordinated Debentures as described above and
the Company shall not have rescinded such notice, and such
extension period has commenced and is continuing.
On or after April 2005 and April 2010,
respectively, the Company has the right to redeem the applicable
2000 Subordinated Debentures, respectively, in each case at a
redemption price equal to 100% of the principal amount, plus
accrued and unpaid interest. The 2000 Trust Capital Securities
are mandatorily redeemable upon the maturity of the applicable
2000 Subordinated Debentures in March 2030 or such earlier
date as the applicable 2000 Subordinated Debentures may be
redeemed. On April 1, 2005 and April 1, 2010, Fortis
Insurance N.V., as holder of the 2000 Trust Capital Securities,
has the right to require Fortis Capital Proceeds Trust 2000-1
and 2, respectively, to repurchase all (but not less than all)
of Fortis Insurance N.V.s applicable 2000 Trust Capital
Securities at a purchase price equal to 100% of the liquidation
amount of the applicable 2000 Trust Capital Securities plus an
amount equal to accumulated and unpaid distributions, in which
case the Company would be required to repurchase all the
applicable 2000 Subordinated Debentures at a repurchase price
equal to the principal amount, plus accrued and unpaid interest.
In April 1999, two subsidiary trusts of the
Company, 1999 Fortis Capital Trust I and 1999 Fortis
Capital Trust II, issued 200,000 7.60% and 499,850 7.876%
trust capital securities (collectively, the 1999 Trust
Capital Securities), respectively, to Fortis Capital
Funding LP and Fortis Insurance N.V. (formerly, Fortis Insurance
Holding N.V.), respectively, in each case with a liquidation
amount of $1,000 per security.
1999 Fortis Capital Trust I and 1999 Fortis
Capital Trust II used the proceeds from the sale of the
applicable 1999 Trust Capital Securities and trust common
securities to purchase $200,001 and $499,851, respectively, of
the Companys 7.60% and 7.876% subordinated debentures due
2029 (collectively, the 1999 Subordinated
Debentures), respectively. These debentures are the sole
assets of the trusts.
The payments the Company makes on the applicable
1999 Subordinated Debentures are the sole source of funds
available for the applicable trust to make the distributions on
the applicable 1999 Trust Capital Securities. Interest on the
1999 Subordinated Debentures is payable quarterly, except the
Company has the right to extend the interest payment period
under the applicable 1999 Subordinated Debentures for up to
twenty consecutive quarterly periods, during which periods
interest will compound quarterly. Distributions on the 1999
Trust Capital Securities are cumulative and payable quarterly,
except distributions are deferrable to the extent the Company
exercises its right described in the preceding sentence.
The 1999 Subordinated Debentures restrict the
Companys ability to (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire or make a
liquidation payment on, any of the Companys capital stock,
(ii) make any payment of principal, interest or premium, if
any, on or repay or repurchase or redeem any of the
Companys debt securities that rank pari passu with or
junior in right of payment to the applicable 1999 Subordinated
Debentures or (iii) make any guarantee payments with
respect to any guarantee by the Company of any securities of any
subsidiary of the Company if such guarantee ranks pari passu or
junior in right of payment to the applicable 1999 Subordinated
Debentures, if at any time (1) any 1999 Subordinated
Debentures are held by 1999 Fortis Capital Trust I or II,
as applicable, and there shall have occurred and be continuing
an event of default under the declaration of trust of 1999
Fortis Capital Trust I or II, as applicable, (2) there
shall have occurred and be continuing an event of default under
the applicable indenture pursuant to which the applicable 1999
Subordinated Debentures were issued or (3) the Company
shall have given notice of its election to extend the interest
payment period under the applicable 1999 Subordinated Debentures
as described above and the Company shall not have rescinded such
notice, and such extension period has commenced and is
continuing.
F-26
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
On June 30, 2009 or any interest payment
date thereafter, the Company has the right to redeem the 1999
Subordinated Debentures at a redemption price equal to 100% of
the principal amount or the principal amount multiplied by a
percentage that ranges from 103.8% to 100.0%, depending on the
year of redemption and depending on the series, plus accrued and
unpaid interest. The 1999 Trust Capital Securities are
mandatorily redeemable upon the maturity of the applicable 1999
Subordinated Debentures in April 2029 or such earlier date
as the applicable 1999 Subordinated Debentures may be redeemed.
In May 1997, Fortis Capital Trust, a trust
declared and established by the Company and other parties,
issued 150,000 8.40% capital securities (the 1997 Capital
Securities I) to purchasers and 4,640 8.40% common
securities (the 1997 Common Securities I) to
the Company, in each case with a liquidation amount of $1,000
per security. Fortis Capital Trust used the proceeds from the
sale of the 1997 Capital Securities I and the 1997 Common
Securities I to purchase $154,640 of the Companys
8.40% junior subordinated debentures due 2027 (the 1997
Junior Subordinated Debentures I). These debentures
are the sole assets of Fortis Capital Trust.
In July 1997, Fortis Capital Trust II,
a trust declared and established by the Company and other
parties, issued 50,000 7.94% capital securities (the 1997
Capital Securities II and, together with the 1997
Capital Securities, the 1997 Capital Securities) to
purchasers and 1,547 7.94% common securities (the 1997
Common Securities II) to the Company, in each case with a
liquidation amount of $1,000 per security. Fortis Capital
Trust II used the proceeds from the sale of the 1997
Capital Securities II and the 1997 Common
Securities II to purchase $51,547 of the Companys
7.94% junior subordinated debentures due 2027 (the 1997
Junior Subordinated Debentures II and, together with
the 1997 Junior Subordinated Debentures I, the 1997
Junior Subordinated Debentures). These debentures are the
sole assets of Fortis Capital Trust II.
With respect to each of Fortis Capital Trust and
Fortis Capital Trust II, the Company, Fortis SA/NV and
Fortis N.V. entered into a junior subordinated guarantee of the
distributions and payments on the liquidation and redemption of
the 1997 Capital Securities I and the 1997 Capital
Securities II, respectively, but only to the extent the
funds are held by Fortis Capital Trust and Fortis Capital
Trust II, respectively. Fortis SA/NV and Fortis N.V. also
entered into a junior subordinated guarantee of the payment of
the principal, premium, if any, and interest on the 1997 Junior
Subordinated Debentures. The 1997 Junior Subordinated Debentures
and the guarantees are unsecured, junior subordinated
obligations.
The payments the Company or the guarantors make
on the applicable 1997 Junior Subordinated Debentures are the
sole source of funds available for the applicable trust to make
the distributions on the applicable 1997 Capital Securities.
Interest on the 1997 Junior Subordinated Debentures are payable
semi-annually, except the Company, so long as no event of
default has occurred or is continuing and with the consent of
the guarantors, may exercise its right to defer payment on the
1997 Junior Subordinated Debentures for up to ten consecutive
semi-annual periods, during which periods interest will compound
semi-annually. Distributions on the 1997 Capital Securities are
cumulative and payable semi-annually, except distributions are
deferrable to the extent the Company exercises its right
described in the preceding sentence.
The 1997 Junior Subordinated Debentures I
and the 1997 Junior Subordinated Debentures II each
restrict the Companys and the guarantors ability to:
(i) declare or pay any dividends on or distributions on or
redeem, purchase, acquire or make a liquidation payment on any
of the capital stock of the Company or such guarantor,
(ii) make any payment of principal, premium, if any, or
interest on or repay, redeem or repurchase any debt securities
that rank pari passu with or junior to the applicable 1997
Junior Subordinated Debentures or the guarantees or
(iii) make any guarantee payment with respect to any
guarantee of the debt securities of any subsidiary if such
guarantee ranks pari passu with or junior to the applicable 1997
Junior Subordinated
F-27
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Debentures or the guarantees, if at any time
(1) the Company elects to defer payment on the applicable
1997 Junior Subordinated Debentures, (2) at any time there
has occurred any event of which the Company or a guarantor has
knowledge that would constitute an event of default under the
applicable 1997 Junior Subordinated Debentures and that the
Company and the guarantors have not taken reasonable steps to
cure or (3) the Company or the guarantors are in default
with respect to the payment of obligations under the guarantees.
The 1997 Capital Securities rank pari passu with
the 1997 Common Securities with respect to cash distributions
and amounts payable on liquidation, except that the 1997 Common
Securities will be subordinated to the 1997 Capital Securities
if an event of default has occurred and is continuing as a
result of any failure by the Company to pay amounts when due in
respect of the applicable 1997 Junior Subordinated Debentures.
The 1997 Junior Subordinated Debentures I
and the 1997 Junior Subordinated Debentures II mature in
May and July 2027, respectively.
The 1997 Capital Securities are subject to
mandatory redemption, in whole or in part, upon repayment of the
applicable 1997 Junior Subordinated Debentures at their stated
maturity or earlier redemption. The 1997 Junior Subordinated
Debentures are redeemable prior to maturity at the
Companys option in whole at any time or in part from time
to time at redemption prices calculated according to a specified
formula.
Events of default under the 1997 Junior
Subordinated Debentures include: (i) failure for
30 days to pay interest when due (subject to any deferral
as described above), (ii) failure to pay principal or
premium, if any, when due, (iii) failure to perform the
covenants in the indenture for 90 days after notice and
(iv) certain events of bankruptcy, insolvency or
reorganization of the Company or the guarantors. Events of
default under the guarantees of the 1997 Capital Securities
include the failure of the Company or the guarantors to perform
any payment obligations thereunder or to perform any non-payment
obligation for 30 days.
The Company and the guarantors have also agreed
to guarantee to each person to whom the applicable trust becomes
indebted or liable, the full payment of any costs, expenses or
liabilities of the trust (other than the obligations to pay
amounts due to the holders of the 1997 Capital Securities and
the 1997 Common Securities pursuant to their terms).
F-28
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
9. Income
Taxes
The Company and the majority of its subsidiaries
are subject to U.S. tax and file a U.S. consolidated federal
income tax return. Certain life insurance subsidiaries that were
acquired in 1997, 1998, 1999 and 2000 are not included in the
consolidated return. Information about current and deferred tax
expense follows:
The provision for foreign taxes includes amounts
attributable to income from U.S. possessions that are considered
foreign under U.S. tax laws. International operations of the
Company are subject to income taxes imposed by the jurisdiction
in which they operate.
A reconciliation of the federal income tax rate
to the Companys effective income tax rate follows:
F-29
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The tax effects of temporary differences that
result in significant deferred tax assets and deferred tax
liabilities are as follows:
Deferred taxes have not been provided on the
undistributed earnings of wholly owned foreign subsidiaries
since the Company intends to indefinitely reinvest these
earnings. The cumulative amount of undistributed earnings for
which the Company has not provided deferred income taxes is
approximately $134,000. Upon distribution of such earnings in a
taxable event, the Company would incur additional U.S. income
taxes in the amount of $34,000 net of anticipated foreign tax
credits.
Under pre-1984 life insurance company income tax
laws, a portion of a life insurance companys gain
from operations was not subject to current income taxation
but was accumulated, for tax purposes, in a memorandum account
designated as policyholders surplus account.
Amounts in this account only become taxable upon the occurrence
of certain events. The approximate amount in this account was
$95,163 at December 31, 2002 and 2001. Deferred taxes have
not been provided on amounts in this account since the Company
neither contemplates any action nor foresees any events
occurring that would create such tax.
At December 31, 2002, the Company and its
subsidiaries had capital loss carryforwards for U.S. federal
income tax purposes. Capital loss carryforwards total $84,007
and will expire if unused as follows:
The Company has three classes of mandatorily
redeemable preferred stock: Series A, Series B and
Series C. The carrying value equals the redemption value
for all classes of preferred stock. The Companys board of
directors has the authority, without further action of the
Parent, to issue up to 20,000,000 shares of
F-30
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
preferred stock, par value $1.00 per share, in
one or more series and to fix the powers, preferences, rights
and qualifications, limitations or restrictions thereof, which
may include dividend rights, conversion rights, voting rights,
terms of redemption, liquidation preferences and the number of
shares constituting any series or the designations of the series.
Information about the preferred stock is as
follows:
There was no change in the outstanding shares of
Series A or Series C for the years ended
December 31, 2002, 2001 and 2000. Changes in the number of
Series B shares outstanding are as follows:
All shares have a liquidation price of $1,000 per
share and rank senior to common stock with respect to rights to
receive dividends and to receive distributions upon the
liquidation, dissolution or winding up of the Company.
Series A: Series A shares were redeemed
in 1999 and have the status of authorized and unissued preferred
stock and may be reissued by the Company.
Series B and C: Holders of the Series B
Preferred Stock are entitled to receive cumulative dividends at
the rate of 4.0% per share per annum, multiplied by the $1,000
per share liquidation price, and holders of the Series C
Preferred Stock are entitled to receive dividends at the rate of
4.5% per share per annum multiplied by the $1,000 per share
liquidation price. All dividends are payable in arrears on a
quarterly basis. Any dividend that is not paid on a specified
dividend payment date with respect to a share of such Preferred
Stock shall be deemed added to the liquidation price of such
share for purposes of computing the future dividends on such
share, until such delinquent dividend has been paid.
Holders of the Series B Preferred Stock may
elect to have any or all of their shares redeemed by the Company
at any time after April 1, 2002, and the Company must
redeem all shares of the Series B Preferred Stock no later
than July 1, 2017. Holders of the Series C Preferred
Stock may elect to have any or all of their shares redeemed by
the Company any time after April 1, 2022, and the Company
must redeem all shares of the Series C Preferred Stock no
later than July 1, 2027. The Company also has the right and
the obligation to redeem the Series B Preferred Stock and
Series C Preferred Stock upon the occurrence of certain
specified events. The redemption price in all cases shall equal
the $1,000 per share liquidation price plus all accumulated and
unpaid dividends. The Company is not required to establish any
sinking fund or similar funds
F-31
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
with respect to such redemptions. None of the
shares of Series B Preferred Stock or Series C Preferred
Stock are convertible into common stock or any other equity
security of the Company. However, holders of the Series B
Preferred Stock and Series C Preferred Stock are entitled
to one vote per share owned of record on all matters voted upon
by the Company stockholders, voting with the holders of common
stock as a single class, and not as a separate class or classes.
The shares of Series B Preferred Stock and Series C
Preferred Stock are subject to certain restrictions on
transferability, and the Company has the right of first refusal
to acquire the shares if any holder thereof desires to make a
transfer not otherwise permitted by the terms thereof.
11. Stockholders
Equity
The Board of Directors of the Company has
authorized 80,000,000 shares of common stock with a par value of
$0.10 per share, designated as Class A, Class B and
Class C shares. The Class B and Class C shares
rank senior to the Class A shares solely with respect to
dividend payments and payments on liquidation. There are 150,001
Class B shares and 400,001 Class C shares outstanding,
all of which are owned by Fortis (US) Funding Partners I LP
(Partnership I) and Fortis (US) Funding
Partners II LP (Partnership II),
respectively. Affiliates of Fortis own the general partnership
and limited partnership interests in Partnership I and
Partnership II. Partnership I and Partnership II
have each issued a series of Preference Securities.
The following dividends have been paid for the
years ended December 31:
The Board of Directors of the Company has
designated Preferred Stock shares as Series A,
Series B and Series C (see Note 10) and in
connection with the stock option plan designated certain shares
as Series D (see Note 20 Incentive Plans
Fortis, Inc. Stock Option Plan).
12. Statutory
Information
The Companys insurance subsidiaries prepare
financial statements on the basis of statutory accounting
practices (SAP) prescribed or permitted by the
insurance departments of their states of domicile. Prescribed
SAP includes the Accounting Practices and Procedures Manual of
the National Association of Insurance Commissioners
(NAIC) as well as state laws, regulations and
administrative rules.
The principal differences between SAP and GAAP
are: (1) policy acquisition costs are expensed as incurred
under SAP, but are deferred and amortized under GAAP;
(2) the value of business acquired is not capitalized under
SAP but is under GAAP; (3) amounts collected from holders
of universal life-type and annuity products are recognized as
premiums when collected under SAP, but are initially recorded as
contract deposits under GAAP, with cost of insurance recognized
as revenue when assessed and other contract charges recognized
over the periods for which services are provided; (4) the
classification and carrying amounts of investments in certain
securities are different under SAP than under GAAP; (5) the
criteria for providing asset valuation allowances, and the
methodologies used to determine the amounts thereof, are
different under
F-32
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
SAP than under GAAP; (6) the timing of
establishing certain reserves, and the methodologies used to
determine the amounts thereof, are different under SAP than
under GAAP; and (7) certain assets are not admitted for
purposes of determining surplus under SAP.
The combined statutory net income and capital and
surplus of the insurance subsidiaries follow:
Insurance enterprises are required by state
insurance departments to adhere to minimum risk-based capital
(RBC) requirements developed by the NAIC. All of the
Companys insurance subsidiaries exceed minimum RBC
requirements.
The payment of dividends to the Company by the
Companys insurance subsidiaries in excess of a certain
amount (i.e., extraordinary dividends) must be approved by the
subsidiaries domiciliary state department of insurance.
Ordinary dividends, for which no regulatory approval is
generally required, are limited to amounts determined by
formula, which varies by state. The formula for the majority of
the states in which the Companys subsidiaries are
domiciled is the lesser of (i) 10% of the statutory surplus
as of the end of the prior year or (ii) the prior
years statutory net income. In some states, the formula is
the greater amount of clauses (i) and (ii). Some states,
however, have an additional stipulation that dividends may only
be paid out of earned surplus. If insurance regulators determine
that payment of an ordinary dividend or any other payments by
the Companys insurance subsidiaries to the Company (such
as payments under a tax sharing agreement or payments for
employee or other services) would be adverse to policyholders or
creditors, the regulators may block such payments that would
otherwise be permitted without prior approval. As part of the
regulatory approval process for the acquisition of American
Bankers Insurance Group (ABIG) in 1999, the Company
entered into an agreement with the Florida Insurance Department
pursuant to which American Bankers Insurance Company and
American Bankers Life Assurance Company have agreed to limit the
amount of ordinary dividends they would pay to the Company to an
amount no greater than 50% of the amount otherwise permitted
under Florida law. This agreement expires in August 2004. In
addition, the Company entered into an agreement with the New
York Insurance Department as part of the regulatory approval
process for the merger of Bankers American Life Assurance
Company, one of the Companys New York-domiciled insurance
subsidiaries, into First Fortis Life Insurance Company
(FFLIC) in 2001, pursuant to which FFLIC agreed not
to pay any dividends to the Company until fiscal year 2004. No
assurance can be given that there will not be further regulatory
actions restricting the ability of the Companys insurance
subsidiaries to pay dividends. Based on the dividend
restrictions under applicable laws and regulations, the maximum
amount of dividends that the Companys subsidiaries could
pay to the Company in 2003 without regulatory approval is
approximately $289,806. The Company expects that as a result of,
among other things, statutory accounting for sold businesses,
the maximum amount of dividends the Companys subsidiaries
will be able to pay to the Company will be significantly lower
in 2004.
Effective January 1, 2001, the NAIC revised
the Accounting Practices and Procedures Manual in a process
referred to as Codification. The domiciliary states of the
Companys insurance subsidiaries have adopted the
provisions of the revised manual with certain exceptions.
Codification has changed, to some extent, prescribed statutory
accounting practices and resulted in changes to the accounting
practices that the Companys insurance subsidiaries use to
prepare their statutory basis financial statements. The
cumulative effect of all changes resulting from the Codification
guidance was recorded as a direct adjustment to statutory
surplus on January 1, 2001. The effect of adoption
increased statutory surplus by approximately $85,000.
F-33
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
13. Reinsurance
In the ordinary course of business, the Company
is involved in both the assumption and cession of reinsurance
with non-affiliated companies. The following table provides
details of the reinsurance recoverables balance for the years
ended December 31:
The effect of reinsurance on premiums earned and
benefits incurred was as follows:
The Company had $451,135 of assets held in trusts
as of December 31, 2002 for the benefit of others related
to certain reinsurance arrangements.
The Company utilizes ceded reinsurance for loss
protection and capital management, business dispositions, and,
in the Solutions segment, for client risk and profit sharing.
As part of the Companys overall risk and
capacity management strategy, the Company purchases reinsurance
for certain risks underwritten by the Companys various
segments, including significant individual or catastrophic
claims, and to free up capital to enable the Company to write
additional business.
For those product lines where there is exposure
to catastrophes, the Company closely monitors and manages the
aggregate risk exposure by geographic area and the Company has
entered into reinsurance treaties to manage exposure to these
types of events.
Under indemnity reinsurance transactions in which
the Company is the ceding insurer, the Company remains liable
for policy claims if the assuming company fails to meet its
obligations. To limit this risk, the Company has control
procedures in place to evaluate the financial condition of
reinsurers and to monitor the
F-34
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
concentration of credit risk to minimize this
exposure. The selection of reinsurance companies is based on
criteria related to solvency and reliability and, to a lesser
degree, diversification as well as on developing strong
relationships with the Companys reinsurers for the sharing
of risks.
The Company has used reinsurance to exit certain
businesses, such as the disposals of FFG and LTC (see
note 4). Reinsurance was used in these cases to facilitate
the transactions because the businesses shared legal entities
with business segments that the Company retained. Assets backing
the liabilities ceded related to these businesses are held in
trusts for the benefit of the Company and the separate accounts
relating to FFG are still reflected in the Companys
balance sheet.
The reinsurance recoverable from The Hartford was
$1,679,681 and $1,748,099 as of December 31, 2002 and 2001,
respectively. The reinsurance recoverable from John Hancock was
$693,373 and $545,690 as of December 31, 2002 and 2001,
respectively. The Company would be responsible for administering
this business in the event of a default by reinsurers. In
addition, under the reinsurance agreement, The Hartford is
obligated to contribute funds to increase the value of the
separate accounts relating to the business sold if such value
declines. If The Hartford fails to fulfill these obligations,
the Company will be obligated to make these payments.
The Solutions segment writes business produced by
its clients, such as mortgage lenders and servicers and
financial institutions, and reinsures all or a portion of such
business to insurance subsidiaries of the clients. Such
arrangements allow significant flexibility in structuring the
sharing of risks and profits on the underlying business.
A substantial portion of Solutions
reinsurance activities are related to agreements to reinsure
premiums generated by certain clients to the clients own
captive insurance companies or to reinsurance subsidiaries in
which the clients have an ownership interest. Collateral is
obtained in amounts equal to the outstanding reserves when
captive companies are not authorized to operate in the
Companys insurance subsidiarys state of domicile as
required by statutory accounting principles.
The Companys reinsurance agreements do not
relieve the Company from its direct obligation to its insured.
Thus, a credit exposure exists to the extent that any reinsurer
is unable to meet the obligations assumed in the reinsurance
agreements. To minimize its exposure to reinsurance
insolvencies, the Company evaluates the financial condition of
its reinsurers and holds substantial collateral (in the form of
funds, trusts, and letters of credit) as security under the
reinsurance agreements.
F-35
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
14. Reserves
The following table provides reserve information
by the Companys major lines of business at the dates shown:
The following table provides a roll forward of
the claims and benefits payable for the Companys group
term life, group disability, medical and property and warranty
lines of business. These are the Companys product lines
with the most significant short duration claims and benefits
payable balances. The majority of the Companys credit life
and disability claims and benefits payable are ceded to
reinsurers. The Companys net retained credit life and
disability claims and benefits payable were $134,715, $191,343
and $238,528 at December 31, 2002, 2001 and 2000,
respectively.
F-36
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
F-37
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The claims and benefits payable include claims in
process as well as provisions for incurred but not reported
claims. Such amounts are developed using actuarial principles
and assumptions that consider, among other things, contractual
requirements, historical utilization trends and payment
patterns, benefits changes, medical inflation, seasonality,
membership, product mix, legislative and regulatory environment,
economic factors, disabled life mortality and claim termination
rates and other relevant factors. The Company consistently
applies the principles and assumptions listed above from year to
year, while also giving due consideration to the potential
variability of these factors.
Because claims and benefits payable include
estimates developed from various actuarial methods, the
Companys actual losses incurred may be more or less than
the Companys previously developed estimates. As shown in
the table above, for each of the years ended December 31,
2002, 2001 and 2000 the amounts listed on the line labeled
Incurred losses related to: Prior year are negative
(redundant) for the Medical, Group Term Life, Group Disability
and Property and Warranty lines of business. This means that the
Companys actual losses incurred related to prior years for
these lines were less than the estimates previously made by the
Company.
The Group Disability reserve redundancies
described above, and the related downward revisions in our Group
Disability reserve estimates, arose as a result of our actual
claim recovery rates exceeding those assumed in our
beginning-of-year case reserves, after taking into account an
offset of one less year of discounting reflected in the
Companys end-of-year case reserves.
F-38
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
A portion of the Group Term Life reserve
redundancies described above, and the related downward revision
in our Group Term Life reserve estimates, were caused by actual
mortality rates being lower than assumed in our
beginning-of-year reserves and recovery rates being higher than
assumed in our beginning-of-year waiver of premium reserves. The
remaining redundancy and related downward revision was due to
shorter-than-expected lags between incurred claim dates and paid
claim dates. These amounts were offset by one less year of
discounting reflected in the Companys end-of-year waiver
of premium reserves.
The redundancies in our Medical line of business,
and the related downward revisions in our Medical reserve
estimates, were caused by our claims developing more favorably
than expected. Our actual claims experience reflected lower
medical provider utilization and lower medical inflation than
assumed in our prior-year pricing and reserving processes.
The redundancies in our Property and Warranty
lines of business, and the related downward revisions in our
estimated reserves in 2001 and 2000 occurred mostly in our
credit unemployment and credit property insurance coverages,
whereas the other coverages showed immaterial adjustments to
prior years incurred losses. These changes reflect
experience gains from actual claim frequencies being more
favorable than best estimate claim frequencies, and differences
in actual versus best estimate paid claim lag rates. The drop in
redundancy from 2001 to 2002 largely reflected a shift in the
mix of business away from the credit property and unemployment
product lines. In addition, an increase in the claim frequency
of unemployment contributed to additional development in 2002
and thus lower reserve redundancies in the credit unemployment
product line.
For the longer-tail Property and Warranty
coverages (e.g. asbestos, environmental, other general liability
and personal accident), there were no changes in estimated
amounts for incurred claims in prior years for all years.
Long Duration
Contracts
The Companys long duration contracts are
comprised of pre-funded funeral life insurance policies and
annuity contracts, life insurance policies no longer offered,
universal life and annuities no longer offered and FFG and LTC
disposed businesses. The principal products and services
included in these categories are described in the summary of
significant accounting policies (see note 2).
The Companys PreNeed segment distributes
pre-funded funeral insurance products through two separate
divisions, the independent division and the AMLIC division. The
reserves for future policy benefits and expenses for pre-funded
funeral life and annuity contracts and life insurance no longer
offered by the PreNeed segment differ by division and are
established based upon the following assumptions:
Independent
Division
Interest and discount rates for pre-funded
funeral life insurance are level, vary by year of issuance and
product, and ranged from 7.0% to 7.3% in 2002 and 2001 before
provisions for adverse deviation, which ranged from 0.2% to 0.5%
in both 2002 and 2001.
Interest and discount rates for pre-funded life
insurance no longer offered vary by year of issuance and
products and were 7.5% grading to 5.25% over 20 years in
2002 and 2001 with the exception of a block of pre-1980 business
which had a level 8.75% discount rate in both 2002 and 2001.
Mortality assumptions are based upon pricing
assumptions and modified to allow provisions for adverse
deviation. Surrender rates vary by product and are based upon
pricing assumptions. The weighted average lapse rate, including
surrenders, for all life policies issued by the independent
channel was approximately 3.2% and 3.8% in 2002 and 2001,
respectively.
F-39
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Future policy benefit increases on pre-funded
life insurance policies ranged from 2.5 to 6.5% in 2002 and
2001. Some policies have future policy benefit increases, which
are guaranteed or tied to equal some measure of inflation. The
inflation assumption for these inflation-linked benefits was
3.0% in 2002 and 2001. Traditional life products issued by the
PreNeed segment have level benefits.
The reserves for annuities issued by the
independent division are based on assumed interest rates
credited on deferred annuities, which vary by year of issuance,
and ranged from 3.5% to 5.0% in 2002 and 2001. Withdrawal
charges, if any, generally range from 7.0% to 0%, grading to
zero over a period of seven years for business issued in the
United States. Canadian annuity products have a surrender charge
that varies by product series and premium paying period,
typically grading to zero after all premiums have been paid.
AMLIC
Division
Interest and discount rates for pre-funded
funeral life insurance policies issued October 2000 and beyond
vary by issue year and are based on pricing assumptions and
modified to allow for provisions for adverse deviation. 2002
issues used a level 5.75% discount rate, 2001 issues used a
level 6% discount rate and 2000 issues used a discount rate of
7% grading to 6.25% over nine years. Pre-funded funeral life
insurance policies issued prior to October 2000 and all
traditional life policies issued by the AMLIC division use
discount rates, which vary by issue year and product and ranged
from 2.5% to 7.5% in 2002 and 2001.
Mortality assumptions for pre-funded funeral life
insurance products issued in October 2000 and beyond are based
upon pricing assumptions and modified to allow for provisions
for adverse deviation. Surrender rates for pre-funded funeral
life insurance products issued in October 2000 and beyond vary
by product and are based upon pricing assumptions. Mortality
assumptions for all pre-funded funeral life insurance and
traditional life insurance issued by the AMLIC division prior to
October 2000 are based on Statutory valuation requirements with
no explicit provision for lapses. The weighted average lapse
rate, including surrenders, for all life policies issued by the
AMLIC division was approximately 1.1% and 1.3% in 2002 and 2001,
respectively.
Future policy benefit increases are based upon
pricing assumptions. First-year guaranteed benefit increases
range from 0.0% to 6.0% in 2002 and 2001. Renewal guaranteed
benefit increases range from 0.0% to 3.0% in 2002 and 2001. For
contracts with minimum benefit increases associated with an
inflation index, assumed benefit increases equaled the discount
rate less 3% in 2002 and 2001.
The reserves for annuities issued by the AMLIC
division are based on assumed interest rates credited on
deferred annuities and ranged from 1.0% to 6.5% in 2002 and
2001. Withdrawal charges ranged from 0.0% to 8.0% grading to
zero over eight years for business issued in the United States.
Canadian annuity products have a flat 35% surrender charge.
Nearly all the deferred annuities contracts have a 3.0%
guaranteed interest rate.
The reserves for universal life and annuity
products no longer offered in the Assurant Solutions segment
have been established based on the following assumptions:
Interest rates credited on annuities, which vary by product and
time when funds were received, ranged from 4.0% to 5.0% in 2001
and were universally 4.0% in 2002. Guaranteed crediting rates on
annuities range from 3.5% to 4.0%. Annuities are also subject to
surrender charges, which vary by contract year and grade to zero
over a period no longer than seven years. Surrender values will
never be less than the amount of paid-in premiums regardless of
the surrender charge. Credited interest rates on universal life
funds vary by product and the funds received ranged from 4.0% to
5.5% in 2002 and 4.0% to 7.0% in 2001. Guaranteed crediting
rates where present are equal to 4%. Additionally, universal
life funds are subject to surrender charges that vary by
product, age, sex, year of issue, risk class and face amount
grading to zero over a period not longer than 20 years.
F-40
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
FFG
and LTC
A description of the disposal of FFG and LTC can
be found in the dispositions footnote (see note 4). The
reserves for these blocks of business are included in the
Companys reserves in accordance with FAS 113,
Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts.
The Company maintains an
offsetting reinsurance recoverable related to these reserves
(see note 13).
Short
Duration Contracts
The Companys short duration contracts are
comprised of group term life, group disability, medical and
dental, property, credit, warranty and all other. The principal
products and services included in these categories are described
in the summary of significant accounting policies (see
note 2).
The disability category includes short and
long-term disability products. Claims and benefits payable for
long-term disability have been discounted at 6% through
June 30, 2003. In July, 2003, the discount rate was lowered
to 5.25% to reflect the most current valuation interest rate.
Group long-term disability reserves are discounted because the
payment pattern and ultimate cost are fixed and determinable on
an individual claim basis. The December 31, 2002 and 2001
liabilities include $1,286,463 and $1,190,618, respectively, of
such reserves. The amount of discounts deducted from outstanding
reserves as of December 31, 2002 and 2001 are $405,507 and
$390,803, respectively.
Statement of Financial Accounting Standards
No. 107,
Disclosures About Fair Value of Financial
Instruments
(FAS 107) requires disclosure
of fair value information about financial instruments, as
defined therein, for which it is practicable to estimate such
fair value. These financial instruments may or may not be
recognized in the consolidated balance sheets. In the
measurement of the fair value of certain financial instruments,
if quoted market prices were not available other valuation
techniques were utilized. These derived fair value estimates are
significantly affected by the assumptions used. Additionally,
FAS 107 excludes certain financial instruments including
those related to insurance contracts.
In estimating the fair value of the financial
instruments presented, the Company used the following methods
and assumptions:
F-41
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The fair value of the Companys liabilities
for insurance contracts other than investment-type contracts are
not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into
consideration in the Companys overall management of
interest rate risk, such that the Companys exposure to
changing interest rates is minimized through the matching of
investment maturities with amounts due under insurance contracts.
The Company and its subsidiaries participate in a
noncontributory defined benefit pension plan covering
substantially all of their employees. Benefits are based on
certain years of service and the employees compensation
during certain such years of service. The Companys funding
policy is to contribute amounts to the plan sufficient to meet
the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, plus such additional
amounts as the Company may determine to be appropriate from time
to time up to the maximum permitted. Contributions are intended
to provide not only for benefits attributed to service to date,
but also for those expected to be earned in the future. The
Company also has noncontributory, nonqualified supplemental
programs covering certain employees.
In addition, the Company provides certain life
and healthcare benefits for retired employees and their
dependents. Substantially all employees of the Company may
become eligible for these benefits depending on age and years of
service. The Company has the right to modify or terminate these
benefits.
F-42
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Summarized information on the Companys
qualified pension benefits and postretirement plans for the
years ended December 31 is as follows:
The curtailment and settlement gains in 2001
resulted from the sale of FFG (see note 4).
The Companys nonqualified plans are
unfunded. At December 31, 2002, 2001 and 2000 these plans
had projected benefit obligations of $64,118, $52,790 and
$45,780, respectively, and accumulated benefit obligations of
$53,511, $44,495 and $38,803, respectively.
F-43
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Determination of the projected benefit obligation
was based on the following weighted average assumptions at
December 31:
Components of net pension cost for the year ended
December 31 were as follows:
A one percentage point change in assumed health
care cost trend rates would have the following effects:
The Company and its subsidiaries have a defined
contribution plan covering substantially all employees which
provides benefits payable to participants on retirement or
disability and to beneficiaries of participants in the event of
the participants death. Amounts contributed to the plan
and expensed by the Company were $23,669, $21,792 and $14,071 in
2002, 2001 and 2000, respectively.
F-44
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Information about deferred acquisition costs
follows:
18. Goodwill and
VOBA
Information about goodwill and VOBA follows:
As of December 31, 2002, the majority of the
outstanding balance of VOBA is in the Companys PreNeed
segment. VOBA in this segment assumes an interest rate ranging
from 6.5% to 7.5%.
At December 31, 2002, the estimated
amortization of VOBA for the next five years is as follows:
Prior to January 1, 2002, goodwill was
amortized over 20 years. Upon the adoption of FAS 142,
amortization of goodwill ceased and the Company recognized a
$1,260,939 impairment reflecting the
F-45
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
cumulative effect of change in accounting
principle. Had the provisions of FAS 142 been applied as of
January 1, 2000 net income would have been adjusted as
follows:
19. Segment
Information
The Company has five reportable segments, which
are defined based on the nature of the products and services
offered: Solutions, Health, Employee Benefits, PreNeed and
Corporate and Other. Solutions provides credit insurance,
including life, disability and unemployment, debt protection
administration services, creditor-placed homeowners insurance
and manufactured housing homeowners insurance. Health provides
individual, short-term and small group health insurance.
Employee Benefits provides employee-paid dental insurance and
employer-paid dental, disability and life insurance products and
related services. PreNeed provides life insurance policies and
annuity products that provide benefits to fund pre-arranged
funerals. Corporate and Other includes activities of the holding
company, financing expenses, realized gains (losses) on
investments, interest income earned from short-term investments
held and interest income from excess surplus of insurance
subsidiaries not allocated to other segments. Corporate and
Other also includes results of operations of FFG for 2000 and
the period from January 1 through March 31, 2001 and
LTC (from January 1 through March 1, 2000). Corporate
and Other also includes the amortization of deferred gains
associated with the portions of the sale of FFG and LTC sold
through reinsurance agreements.
The Company evaluates performance based on
segment income after tax, excluding realized gains (losses) on
investments. The Company determines reportable segments in a
manner consistent with the way the Company organizes for
purposes of making operating decisions and assessing
performance. The accounting policies of the reportable segments
are the same as those described in the summary of significant
accounting policies.
The Company allocates a notional amount of
invested assets to the segments primarily based on future policy
benefits, claims and unearned premiums and capital allocated to
each segment. The Company assigns net deferred acquisition
costs, value of businesses acquired, reinsurance recoverables
and other assets and liabilities to the respective segments
where those assets or liabilities originate.
Net investment income is allocated based on a
segments proportional share of assets and capital required
to support their business.
F-46
Basis of Presentation
Principles of Consolidation
Comprehensive Income
Reclassifications
Table of Contents
Cash and Cash Equivalents
Investments
Table of Contents
Reinsurance
Deferred Acquisition Costs
Short Duration Contracts
Long Duration Contracts
Table of Contents
Property and Equipment
Goodwill
Value of Businesses Acquired
Separate Accounts
Table of Contents
Income Taxes
Other Assets
Foreign Currency Translation
Premiums
Short Duration Contracts
Long Duration Contracts
Table of Contents
Reinsurance Assumed
Fee Income
Reserves
Short Duration Contracts
Table of Contents
Long Duration Contracts
Stock Based Compensation
Table of Contents
Years Ended December 31,
2002
2001
2000
$
(1,001,199
)
$
98,053
$
89,684
(630
)
(740
)
(874
)
(703
)
(A)
454
$
(1,001,829
)
$
96,610
$
89,264
$
(120.63
)
$
11.81
$
10.93
$
(120.70
)
$
11.64
$
10.87
(A)
Represents reversal of expense accrual due to
reduction of intrinsic value.
2002
2001
2000
5.03
%
5.09
%
6.44
%
4.92
%
4.75
%
5.07
%
8.50
8.30
8.10
32.70
%
32.70
%
32.70
%
1.98
%
1.98
%
1.98
%
Business Combinations
Recent Accounting
Pronouncements
Table of Contents
Table of Contents
Table of Contents
Dental Benefits Division (DBD)
of Protective Life Corporation
(Protective)
As of
December 31,
2001
$
33,200
16,200
156,400
54,300
60,300
320,400
72,000
$
248,400
Unaudited Pro Forma
Information for the
Year Ended
December 31,
2001
2000
$
6,508,774
$
6,546,379
$
119,353
$
113,084
CORE, Inc. (CORE)
Table of Contents
American Memorial Life Insurance Company
(AMLIC)
As of
October 1,
2000
$
774,076
14,806
170,171
329,014
1,288,067
743,956
333,691
1,077,647
$
210,420
Unaudited
Pro Forma
Information for
the Year Ended
December 31,
2000
$
6,528,839
$
109,828
Neighborhood Health Partnership
(NHP)
Table of Contents
Fortis Financial Group
(FFG)
Associated California State Insurance
Agencies, Inc. (ACSIA)
Long-Term Care (LTC) Insurance
Business
Table of Contents
Cost or
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
$
1,576,339
$
70,549
$
(26
)
$
1,646,862
196,186
15,441
(115
)
211,512
202,154
19,096
(17,413
)
203,837
834,021
54,940
(9,875
)
879,086
4,821,876
298,955
(26,598
)
5,094,233
$
7,630,576
$
458,981
$
(54,027
)
$
8,035,530
$
19
$
$
(12
)
$
7
14,043
1,410
(1,641
)
13,812
2,392
1,737
(95
)
4,034
248,181
7,592
(1,926
)
253,847
$
264,635
$
10,739
$
(3,674
)
$
271,700
Table of Contents
Cost or
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
$
1,160,207
$
35,412
$
(3,778
)
$
1,191,841
239,174
10,235
(1,042
)
248,367
229,145
5,542
(450
)
234,237
1,228,057
37,056
(29,324
)
1,235,789
4,614,058
183,033
(76,893
)
4,720,198
$
7,470,641
$
271,278
$
(111,487
)
$
7,630,432
$
28,555
$
3,305
$
(4,486
)
$
27,374
18,734
5,198
(39
)
23,893
196,063
3,306
(3,497
)
195,872
$
243,352
$
11,809
$
(8,022
)
$
247,139
Amortized
Cost
Fair Value
$
271,422
$
273,644
1,990,498
2,084,678
1,646,665
1,732,441
2,312,687
2,482,623
6,221,272
6,573,386
1,409,304
1,462,144
$
7,630,576
$
8,035,530
Table of Contents
Years ended December 31,
2002
2001
2000
$
510,121
$
564,207
$
540,215
22,674
31,075
26,560
77,913
81,816
97,946
3,511
7,109
12,607
8,510
6,604
9,509
19,546
17,656
6,171
9,079
15,274
14,055
(19,526
)
(11,959
)
(16,331
)
$
631,828
$
711,782
$
690,732
Years ended December 31,
2002
2001
2000
$
(120,939
)
$
(90,727
)
$
(77,964
)
2,305
(12,776
)
18,382
(118,634
)
(103,503
)
(59,582
)
80
(356
)
281
182
(15,157
)
14,324
$
(118,372
)
$
(119,016
)
$
(44,977
)
Table of Contents
As of
December 31,
2002
2001
$
8,788
$
8,788
135,627
136,949
345,162
299,556
489,577
445,293
(238,792
)
(211,820
)
$
250,785
$
233,473
As of
December 31,
2002
2001
$
303,049
$
272,959
134,010
143,639
(35,965
)
(32,161
)
$
401,094
$
384,437
Table of Contents
8.
Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts
Security
Interest Rate
Maturity
2002
2001
8.48
%
03/01/30
$
150,000
$
150,000
8.40
%
03/01/30
400,000
400,000
7.60
%
04/26/29
200,000
200,000
7.876
%
04/26/29
499,850
499,850
8.40
%
05/30/27
150,000
150,000
7.94
%
07/31/27
46,224
46,224
$
1,446,074
$
1,446,074
2000 Trust Capital Securities and
Subordinated Debentures
Table of Contents
1999 Trust Capital Securities and
Subordinated Debentures
Table of Contents
1997 Capital Securities I &
II
Table of Contents
Table of Contents
Years Ended December 31,
2002
2001
2000
$
11,688
$
256,045
$
13,430
8,910
11,721
9,675
20,598
267,766
23,105
92,209
(160,222
)
81,562
(2,150
)
47
(167
)
90,059
(160,175
)
81,395
$
110,657
$
107,591
$
104,500
December 31,
2002
2001
2000
35.0
%
35.0
%
35.0
%
(0.5
)
(1.1
)
(2.7
)
(0.2
)
(1.9
)
(2.8
)
(2.2
)
(0.9
)
0.3
0.2
0.8
1.4
2.9
19.2
19.8
(1.1
)
(2.3
)
(2.6
)
(1.3
)
(2.5
)
(2.3
)
5.4
0.6
4.8
29.9
%
52.3
%
53.8
%
Table of Contents
December 31,
2002
2001
$
754,921
$
701,492
159,620
126,880
66,792
101,967
981,333
930,339
380,872
354,326
291,908
184,781
140,353
54,782
813,133
593,889
$
168,200
$
336,450
Expiration Year
Amount
$
8
21
5,225
202
78,551
$
84,007
10.
Mandatorily Redeemable Preferred
Stocks
Table of Contents
December 31,
2002
2001
$
$
19,660
20,160
5,000
5,000
$
24,660
$
25,160
For the Years Ended
December 31,
2002
2001
2000
20,160
20,160
20,160
(500
)
19,660
20,160
20,160
Table of Contents
Common Stock
2002
2001
2000
Per Share
Total
Per Share
Total
Per Share
Total
$
$
$
8.65
$
67,000
$
$
74.69
11,204
75.44
11,316
37.66
5,649
76.68
30,672
77.45
30,982
38.65
15,462
$
41,876
$
109,298
$
21,111
Preferred Stock
Table of Contents
Years Ended and at
December 31,
2002
2001
2000
$
387,639
$
156,121
$
387,185
$
1,939,616
$
1,767,624
$
1,867,281
Table of Contents
2002
2001
$
2,451,700
$
2,348,208
1,277,238
1,495,887
743,899
751,535
177,072
156,024
$
4,649,909
$
4,751,654
Years Ended December 31,
2002
2001
2000
Long
Short
Long
Short
Long
Short
Duration
Duration
Total
Duration
Duration
Total
Duration
Duration
Total
$
1,961,426
$
5,852,112
$
7,813,538
$
1,935,214
$
5,927,158
$
7,862,372
$
1,297,845
$
6,132,332
$
7,430,177
59,813
455,853
515,666
82,663
152,953
235,616
79,539
210,989
290,528
(652,059
)
(1,995,549
)
(2,647,608
)
(748,872
)
(2,106,931
)
(2,855,803
)
(282,243
)
(2,294,087
)
(2,576,330
)
$
1,369,180
$
4,312,416
$
5,681,596
$
1,269,005
$
3,973,180
$
5,242,185
$
1,095,141
$
4,049,234
$
5,144,375
$
2,020,388
$
2,777,647
$
4,798,035
$
1,653,807
$
2,850,583
$
4,504,390
$
863,374
$
2,917,655
$
3,781,029
64,189
423,776
487,965
81,575
210,637
292,212
97,564
182,811
280,375
(1,046,195
)
(810,660
)
(1,856,855
)
(691,138
)
(866,539
)
(1,557,677
)
(60,825
)
(792,525
)
(853,350
)
$
1,038,382
$
2,390,763
$
3,429,145
$
1,044,244
$
2,194,681
$
3,238,925
$
900,113
$
2,307,941
$
3,208,054
Loss Protection and Capital
Management
Table of Contents
Business Dispositions
Solutions Segment Client Risk and
Profit Sharing:
Table of Contents
December 31, 2002
December 31, 2001
Future Policy
Claims and
Future Policy
Claims and
Benefits and
Unearned
Benefits
Benefits and
Unearned
Benefits
Expenses
Premiums
Payable
Expenses
Premiums
Payable
$
1,990,554
$
3,289
$
14,634
$
1,764,435
$
1,635
$
11,574
693,333
1,392
5,182
704,066
1,438
5,196
334,039
541
11,867
358,474
500
19,833
2,619,202
48,497
138,604
2,565,044
45,989
120,356
169,719
75,124
166,848
155,122
64,396
147,271
11,270
456,642
15,480
438,204
3,949
1,298,704
4,473
1,203,698
42,629
201,700
34,352
209,882
7,753
44,545
9,146
46,742
1,134,626
535,832
1,081,100
500,995
1,074,053
445,657
1,312,572
483,628
803,031
16,719
694,790
31,202
1,482
37,206
1,325
31,725
$
5,806,847
$
3,207,636
$
3,374,140
$
5,547,141
$
3,267,196
$
3,250,306
Property and
Group Term Life
Group Disability
Medical
Warranty
$
378,569
$
1,071,604
$
301,277
$
527,136
(42
)
(21,803
)
(8,238
)
(274,768
)
378,527
1,049,801
293,039
252,368
245,253
345,939
1,108,450
312,734
(38,179
)
(9,992
)
(37,580
)
(23,486
)
207,074
335,947
1,070,870
289,248
Table of Contents
Property and
Group Term Life
Group Disability
Medical
Warranty
144,599
74,103
867,231
194,563
41,703
206,328
249,917
117,846
186,302
280,431
1,117,148
312,409
399,299
1,105,317
246,762
229,207
44
30,379
2,313
295,541
399,342
1,135,696
249,075
524,748
(44
)
(30,379
)
(2,313
)
(295,541
)
399,299
1,105,317
246,762
229,207
250,583
355,160
871,045
384,260
(34,580
)
(7,266
)
(48,266
)
(22,148
)
216,003
347,893
822,779
362,112
149,752
68,638
682,678
294,877
51,664
215,040
188,070
75,622
201,417
283,678
870,749
370,499
413,885
1,169,533
198,793
220,820
42
33,148
11,089
280,175
24,277
1,018
Table of Contents
Property and
Group Term Life
Group Disability
Medical
Warranty
438,204
1,203,698
209,882
500,995
(42
)
(33,148
)
(11,089
)
(280,175
)
438,162
1,170,551
198,793
220,820
243,855
353,439
757,580
432,717
(28,586
)
(2,896
)
(42,585
)
(1,312
)
215,269
350,543
714,995
431,405
148,484
63,809
577,233
293,781
50,667
225,450
147,746
109,293
199,151
289,259
724,979
403,074
454,280
1,231,835
188,809
249,151
2,362
66,869
12,891
286,681
$
456,642
$
1,298,704
$
201,700
$
535,832
(1)
The other in reinsurance ceded and
other includes $13.3 million, $10.5 million and
$1.7 million in 2002, 2001 and 2000, respectively, of
liability balances primarily related to Medical Savings Accounts.
(2)
Represents claims and benefits payable balances
assumed as part of the DBD acquisition.
Table of Contents
Table of Contents
Universal Life and Annuities No Longer
Offered
Table of Contents
15.
Fair Value Disclosures
Cash, cash equivalents and short-term
investments:
the carrying amount
reported approximates fair value because of the short maturity
of the instruments.
Fixed maturity
securities:
the fair value for fixed
maturity securities is based on quoted market prices, where
available. For fixed maturity securities not actively traded,
fair values are estimated using values obtained from independent
pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality, and
maturity of the investments.
Equity securities:
fair value of equity securities and non-sinking fund preferred
stocks is based upon quoted market prices.
Commercial mortgage loans and policy
loans:
the fair values of mortgage
loans are estimated using discounted cash flow analyses, based
on interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Mortgage loans with
similar characteristics are aggregated for purposes of the
calculations. The carrying amounts of policy loans reported in
the balance sheets approximate fair value.
Table of Contents
Other investments:
the fair values of joint ventures are calculated based on fair
market value appraisals. The carrying amounts of the remaining
other investments approximate fair value.
Policy reserves under investment
products:
the fair values for the
Companys policy reserves under the investment products are
determined using cash surrender value.
Separate account assets and
liabilities:
separate account assets
and liabilities are reported at their estimated fair values in
the balance sheet.
December 31, 2002
December 31, 2001
Carrying
Fair
Carrying
Fair
Value
Value
Value
Value
$
549,648
$
549,648
$
559,304
$
559,304
8,035,530
8,035,530
7,630,432
7,630,432
271,700
271,700
247,139
247,139
841,940
969,247
868,754
930,140
69,377
69,377
68,236
68,236
684,350
684,350
626,727
626,727
125,870
158,571
159,217
180,971
3,411,616
3,411,616
4,698,732
4,698,732
$
533,721
$
527,575
$
523,726
$
513,813
3,411,616
3,411,616
4,698,732
4,698,732
16.
Retirement and Other Employee
Benefits
Table of Contents
Pension Benefits
Retirement Health Benefits
2002
2001
2000
2002
2001
2000
$
(236,500
)
$
(216,588
)
$
(177,608
)
$
(37,763
)
$
(33,334
)
$
(14,359
)
(12,166
)
(11,317
)
(9,322
)
(1,913
)
(1,662
)
(527
)
(16,806
)
(16,481
)
(13,894
)
(2,847
)
(2,604
)
(1,120
)
13,654
13,511
7,724
1,200
1,010
652
(18,141
)
(21,494
)
(492
)
(3,785
)
(2,960
)
958
(2,524
)
(22,996
)
(18,938
)
(1,297
)
3,910
1,787
14,483
(269,959
)
(236,500
)
(216,588
)
(46,405
)
(37,763
)
(33,334
)
178,966
190,508
182,881
(24,961
)
(2,798
)
16,940
35,000
20,000
1,200
1,010
652
(13,654
)
(13,511
)
(7,724
)
(1,200
)
(1,010
)
(652
)
(750
)
(750
)
(1,589
)
(14,483
)
174,601
178,966
190,508
(95,358
)
(57,534
)
(26,080
)
(46,405
)
(37,763
)
(33,334
)
84,215
22,756
(13,303
)
1,777
(2,008
)
(4,988
)
(179
)
17,743
20,689
22,937
14,438
15,780
18,938
$
6,600
$
(14,089
)
$
(16,625
)
$
(30,190
)
$
(23,991
)
$
(19,384
)
$
(59,624
)
$
(14,089
)
$
(16,625
)
$
(30,190
)
$
(23,991
)
$
(19,384
)
17,743
48,481
$
6,600
$
(14,089
)
$
(16,625
)
$
(30,190
)
$
(23,991
)
$
(19,384
)
Table of Contents
Retirement Health
Pension Benefits
Benefits
2002
2001
2000
2002
2001
2000
6.75
%
7.40
%
7.75
%
6.75
%
7.40
%
7.75
%
8.25
%
9.00
%
9.00
%
Retirement Health
Pension Benefits
Benefits
2002
2001
2000
2002
2001
2000
$
12,166
$
11,317
$
9,322
$
1,913
$
1,662
$
527
16,805
16,481
13,894
2,846
2,604
1,120
(17,606
)
(15,849
)
(16,198
)
2,946
2,713
71
1,343
1,343
(171
)
(179
)
(393
)
(19
)
(332
)
2,059
28
913
$
14,311
$
17,463
$
6,517
$
6,102
$
5,618
$
1,315
Retirement Health
Benefits
2002
2001
2000
$
50
$
45
$
85
712
683
560
(48
)
(47
)
(78
)
(677
)
(650
)
(530
)
Table of Contents
17.
Deferred Acquisition Costs
December 31,
2002
2001
2000
$
1,094,765
$
1,283,966
$
907,684
1,002,585
1,075,473
1,069,441
(782,473
)
(729,223
)
(590,166
)
(531,329
)
(98,126
)
(1,283
)
(4,122
)
(4,867
)
$
1,313,594
$
1,094,765
$
1,283,966
Goodwill for the Year Ended
VOBA for the Year Ended
December 31,
December 31,
2002
2001
2000
2002
2001
2000
$
2,089,704
$
1,995,155
$
1,994,322
$
308,933
$
471,895
$
474,098
5,373
207,849
107,606
24
(4,482
)
174,535
(113,300
)
(106,773
)
(93,712
)
(146,480
)
(176,738
)
(12,000
)
(1,260,939
)
$
834,138
$
2,089,704
$
1,995,155
$
215,245
$
308,933
$
471,895
Year
Amount
$
23,825
21,420
19,169
17,310
15,714
Table of Contents
Years Ended December 31,
2002
2001
2000
$
(1,001,199
)
$
98,053
$
89,684
113,300
106,773
(1,001,199
)
211,353
196,457
$
(120.63
)
$
25.46
$
23.93
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
The following tables summarize selected financial
information by segment for the year ended or as of
December 31, 2002, 2001 and 2000:
Year Ended December 31, 2002
Employee
Corporate
Solutions
Health
Benefits
PreNeed
& Other
Consolidated
$
2,077,277
$
1,833,656
$
1,232,942
$
537,721
$
$
5,681,596
205,037
55,268
147,722
183,634
40,167
631,828
(118,372
)
(118,372
)
79,801
79,801
10,672
10,672
118,949
22,716
74,324
5,123
25,563
246,675
2,401,263
1,911,640
1,454,988
726,478
37,831
6,532,200
755,140
1,222,049
944,593
507,363
3,429,145
714,178
64,029
96,550
1,428
876,185
735,008
482,057
422,230
45,964
52,818
1,738,077
118,396
118,396
2,204,326
1,768,135
1,366,823
649,877
172,642
6,161,803
196,937
143,505
88,165
76,601
(134,811
)
370,397
64,782
49,059
31,048
26,943
(61,175
)
110,657
$
132,155
$
94,446
$
57,117
$
49,658
$
(73,636
)
$
259,740
(1,260,939
)
$
(1,001,199
)
$
6,937,529
$
1,058,935
$
2,432,411
$
3,418,977
$
7,536,019
$
21,383,871
834,138
$
22,218,009
F-47
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Year Ended December 31, 2001
Employee
Corporate
Solutions
Health
Benefits
PreNeed
& Other
Consolidated
$
1,906,426
$
1,837,839
$
933,594
$
506,716
$
57,610
$
5,242,185
218,213
58,073
144,378
179,093
112,025
711,782
(119,016
)
(119,016
)
68,296
68,296
61,688
61,688
97,685
14,229
39,568
3,336
67,121
221,939
2,222,324
1,910,141
1,117,540
689,145
247,724
6,186,874
639,905
1,306,477
737,802
484,736
70,005
3,238,925
733,186
42,967
85,008
14,542
875,703
711,137
452,528
316,310
35,864
105,092
1,620,931
132,371
132,371
2,084,228
1,801,972
1,054,112
605,608
322,010
5,867,930
138,096
108,169
63,428
83,537
(74,286
)
318,944
39,909
37,548
22,184
29,260
(21,310
)
107,591
$
98,187
$
70,621
$
41,244
$
54,277
$
(52,976
)
$
211,353
(113,300
)
$
98,053
$
7,018,257
$
1,066,290
$
2,117,443
$
3,316,830
$
8,841,353
$
22,360,173
2,089,704
$
24,449,877
F-48
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Year Ended December 31, 2000
Employee
Corporate
Solutions
Health
Benefits
PreNeed
& Other
Consolidated
$
1,780,547
$
1,966,982
$
903,148
$
276,640
$
217,058
$
5,144,375
211,596
58,319
135,470
128,396
156,951
690,732
(44,977
)
(44,977
)
10,284
10,284
11,994
11,994
68,284
11,253
8,171
1,532
310,331
399,571
2,060,427
2,036,554
1,046,789
406,568
661,641
6,211,979
525,270
1,498,060
701,704
279,437
203,583
3,208,054
646,160
37,572
50,426
32,746
766,904
658,254
433,661
280,004
25,103
404,174
1,801,196
134,868
134,868
1,829,684
1,969,293
981,708
354,966
775,371
5,911,022
230,743
67,261
65,081
51,602
(113,730
)
300,957
75,837
23,047
23,011
18,180
(35,575
)
104,500
$
154,906
$
44,214
$
42,070
$
33,422
$
(78,155
)
$
196,457
(106,773
)
$
89,684
The Company operates primarily in the United
States and Canada. The following table summarizes selected
financial information by geographic location for the years ended
or at December 31:
Long-lived
Location
Revenues
Assets
$
6,335,645
$
245,936
196,555
4,849
$
6,532,200
$
250,785
$
6,001,842
$
230,006
185,032
3,467
$
6,186,874
$
233,473
$
6,046,972
$
226,165
165,007
3,759
$
6,211,979
$
229,924
Revenue is based in the country where the product was sold and long-lived assets are based on the physical location of those assets. The Company has no reportable major customers.
F-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
20. Incentive Plans
Fortis Appreciation Incentive Rights Plan (FAIR Plan): |
Since January 1, 1999, the Company has maintained the Fortis Appreciation Incentive Rights Plan, which provides key employees with the right to receive long-term incentive cash compensation based on the appreciation in value of incentive units of the Company and incentive units of each of its operating business segments. The FAIR Plan is administered by a committee appointed by the Companys board of directors. See note 23 for subsequent amendment to the FAIR Plan.
The Company accounts for the FAIR Plan as a variable plan in accordance with the provisions of APB 25 and its interpretations. Therefore, compensation expense is recognized based on the intrinsic value method.
The value of each right is based on an independent valuation of the Company performed by a qualified appraiser. Each year, the appraiser determines a fair market value for Fortis, Inc. and the individual business segments. Based on this valuation, phantom share prices are established for Fortis, Inc. and each business segment. These share prices are calculated by dividing the market value, as determined by the appraiser of Fortis, Inc. or a business segment by the number of outstanding phantom shares in Fortis, Inc. or in that segment.
The phantom share price established for a given grant year becomes the strike price for that year and the exercise price for prior grant years. When the phantom share price determined by subsequent annual valuations increases above the strike price, the rights accrue intrinsic value that will be paid in cash when exercised.
Employees of Fortis, Inc. receive 75% of their award value in Fortis, Inc. incentive rights and the remaining 25% in equal portions of incentive rights from the business segments. Segment participants receive 75% of their award value from their own particular business segment and 25% from Fortis, Inc.
The incentive rights vest over a three-year period from the date of grant and are exercisable for a period of 7 years from the date the rights are fully vested. Unexercised vested incentive rights are exercised automatically following the tenth anniversary of the date of grant. If upon expiration of the award the strike price is below the exercise price, then the award is automatically forfeited.
The Company recognized $19,570, $7,605, and $5,484 of compensation expense for the FAIR Plan in 2002, 2001, and 2000, respectively.
Fortis, Inc. Stock Option Plan (Stock Option Plan): |
Under the Companys Stock Option Plan, the compensation committee of the Board of Directors may award nonqualified stock options to acquire shares of Series D Preferred Stock to eligible members of senior management. The Stock Option Plan was adopted in 1998.
The Series D Preferred Stock consists of 10,000,000 authorized, non-redeemable shares, none of which are outstanding at December 31, 2002 and 2001. Because the intention of the Stock Option Plans is to permit senior management to participate in the growth in value of the Parent, as a consolidated group, certain terms of the Series D Preferred Stock are based upon the performance and value of the capital stock of Fortis N.V. and Fortis SA/NV.
The Series D Preferred Stock has a liquidation price per share equal to the fair market value of one unit of Euro Fortis Stock, which is defined as the aggregate of (i) nine-tenths (.9) of one share of the common stock of Fortis N.V. and (ii) nine-tenths (.9) of one share of the common stock of Fortis SA/NV.
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The exercise price of the option is set by the compensation committee of the Board of Directors and may not be less than the market value of the Parents common stock on the date of the grant. Under the stock option plan, 33% of the award vests annually starting the year of grant. Additionally, the option can be exercised upon vesting and it expires in a ten year period from the date of grant.
The Company accounts for the Stock Option Plan as a variable plan in accordance with the provisions of APB 25 and its interpretations. Therefore, compensation expense is recognized based on the intrinsic value method. Compensation cost charged to income was $0, $(1,081) (represents reversal of expense accrual due to reduction of intrinsic value), and $698 for the years ended December 31, 2002, 2001 and 2000, respectively.
Summarized information about the Companys
Stock Option Plan as of December 31, 2002, 2001 and 2000, and
changes during the years ended on those dates is presented below:
2002
2001
2000
Weighted-Average
Weighted-Average
Weighted-Average
Exercise Price
Exercise Price
Exercise Price
Options
Per Share
Options
Per Share
Options
Per Share
314,250
$
46.66
243,601
$
49.49
204,050
$
54.68
83,000
47.75
72,400
46.25
55,750
43.44
(56,550
)
55.71
(1,751
)
51.80
(16,199
)
50.06
340,700
45.42
314,250
48.73
243,601
52.42
189,800
$
54.84
186,350
$
48.47
102,334
$
45.01
$
14.21
$
16.45
$
14.61
The following table summarizes certain stock
option information at December 31, 2002:
Exercise
# of Options
Remaining
# of Options
Price
Outstanding
Contractual Life
Exercisable
83,000
9.2
51,750
7.2
51,750
73,600
5.7
73,600
67,900
8.2
64,450
6.2
64,450
340,700
189,800
Fortis Investment Plan (FIP) |
The Company has adopted the FIP, which provides key employees the ability to exchange a portion of their compensation for options to purchase certain third-party mutual funds. The plan became effective as of January 1, 1999 and is administered by the Companys Senior Vice PresidentCompensation and Benefits, who is referred to as the administrator. Under the FIP, a participant may exchange all or a portion of his or her eligible compensation for a specific number of options under the plan. Each option represents the right to purchase shares of a third-party mutual fund, as selected by the participant. Each option is exercisable for a dollar amount equal to the greater of 25% of the trading price of the applicable mutual fund units at the date the option is granted and 50% of the trading price of the applicable mutual fund units on the date the option is exercised. Each option is fully vested and exercisable on the grant date. Options may not be exercised more
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
than twice in any calendar year, except with the consent of the administrator. For most options, the exercise period generally will expire on the earlier of 120 months after the participants death, disability or retirement and 60 months after the participants termination of employment for any other reason. Until the options are exercised, a participant may instruct the administrator to exchange some or all of the options to purchase different underlying mutual fund units. Employee compensation exchanged for options is included as compensation expense prior to the exchange. Subsequent to the exchange, as the options increase or decrease in value with the underlying investments, offsetting asset and liability balances are adjusted on a quarterly basis. When options are exercised, the investment and liability balances are reduced accordingly. The amounts included in other assets and other liabilities was $55,311 and $50,028 at December 31, 2002 and 2001, respectively.
21. | Other Comprehensive Income (Loss) |
The Companys components of other
comprehensive income (loss) net of tax at December 31
are as follows:
Accumulated
Foreign
Unrealized
Other
Currency
Gains
Pension
Comprehensive
Translation
(Losses) on
Under-
Income
Adjustment
Securities
funding
(Loss)
$
1,360
$
(135,936
)
$
(134,576
)
(3,585
)
139,375
135,790
(2,225
)
3,439
1,214
(5,633
)
102,623
96,990
(7,858
)
106,062
98,204
8,332
173,699
(35,250
)
146,781
$
474
$
279,761
$
(35,250
)
$
244,985
22. | Related Party Transactions |
In the ordinary course of business, the Company has entered into a number of agreements with the Parent.
Historically, the Parent has maintained a $1,000,000 commercial paper facility that the Company has been able to access (via intercompany loans) for up to $750,000. The Company has used the commercial paper facility to cover any cash shortfalls, which may occur from time to time. The Company had no intercompany loans with the Parent associated with this commercial paper facility during the year ended December 31, 2002. In 2001, $217,000 in commercial paper was issued and redeemed by the Parent on the Companys behalf. The Company had no outstanding intercompany loans with the Parent related to this commercial paper facility at year-end December 31, 2002 and 2001.
In addition, we previously had indebtedness outstanding in the amount of $225,000 to Fortis Finance N.V., which was repaid in April 2001.
During 2002, 2001 and 2000, the Company paid $749, $516 and $0, respectively, to Fortis for costs representing salary, benefits and other expenses of a director of the Company, who was then an employee of one of the Parents subsidiaries, and his support staff. We discontinued these payments as of October 3, 2003.
The other related party transactions are disclosed in notes 1, 8, 10 and 11.
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
23. | Subsequent Events |
Assurant, Inc. (Assurant) was incorporated in October 2003 as a Delaware corporation and a wholly owned subsidiary of Fortis, Inc. On September 25, 2003, the Parent announced its intention to sell the Company in an initial public offering (IPO). On October 24, 2003, the Company, under its planned name Assurant, Inc., filed a registration statement with the U.S. Securities and Exchange Commission related to the proposed IPO. In connection with the planned IPO, the board of directors of Assurant and the Company, as sole stockholder, approved certain employee benefits programs on October 15, 2003 as follows:
2004 Long-Term Incentive Plan |
The 2004 Long-Term Incentive Plan will be effective as of the closing of the initial public offering.
The 2004 Long-Term Incentive Plan authorizes the granting of awards to employees, officers, and directors in the following forms: (1) options to purchase shares of Assurants common stock, which may be non-statutory stock options or incentive stock options under the U.S. tax code; (2) stock appreciation rights, which give the holder the right to receive the difference between the fair market value per share on the date of exercise over the grant price; (3) performance awards, which are payable in cash or stock upon the attainment of specified performance goals; (4) restricted stock, which is subject to restrictions on transferability and subject to forfeiture on terms set by the Compensation Committee; (5) dividend equivalents, which entitle the participant to payments equal to any dividends paid on the shares of stock underlying an award; and (6) other stock-based awards in the discretion of the Compensation Committee, including unrestricted stock grants.
There are 10,000,000 shares reserved and available for issuance under the plan.
No awards will be granted under the plan prior to its effective date. Any awards will be made at the discretion of the Compensation Committee. Therefore, it is not presently possible to determine the benefits or amounts that will be received by any individuals or groups pursuant to the 2004 Long-Term Incentive Plan in the future.
2004 Employee Stock Purchase Plan |
The 2004 Employee Stock Purchase Plan will go into effect as of the earliest of July 1 or January 1 following the closing of the initial public offering.
The purpose of the stock purchase plan is to enhance the proprietary interest among the employees of the Company. The stock purchase plan is designed to allow eligible employees to purchase shares of Assurants common stock, at defined intervals, with their accumulated payroll deductions. Employees are eligible to participate if they are designated by the Compensation Committee and if they are customarily employed for at least 20 hours per week and five months per calendar year, and provided they have served as an employee for at least six months. A total of 5,000,000 shares of Assurants common stock have been reserved for issuance under the stock purchase plan.
Executive Management Incentive Plan |
The Executive Management Incentive Plan will be effective as of January 1, 2004. Participation in the Executive Management Incentive Plan is limited to senior officers of the Company and its subsidiaries who are selected to participate in the plan for a given year by the Compensation Committee. The plan provides for the payment of annual monetary awards to each participant equal to a percentage of such participants base salary based upon the achievement of certain designated performance goals.
F-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The amount of awards under the plan will be determined at the discretion of the Compensation Committee. Therefore, it is not presently possible to determine the benefits or amounts that will be received by any individuals or groups pursuant to this plan.
Amendment to Fortis Appreciation Incentive Rights Plan (FAIR Plan) |
The FAIR Plan was amended to provide for the cash-out and replacement of Fortis, Inc. incentive rights with stock appreciation rights on the Assurant common stock from and after the closing of the initial public offering contemplated. The business segment rights outstanding under the plan will not be changed or effected. The conversion of outstanding Fortis, Inc. incentive rights will take place as described in this paragraph. The Fortis, Inc. incentive rights will be valued as of December 31, 2003 using a special valuation method, as follows. The measurement value of each Fortis, Inc. incentive right as of December 31, 2002 will be adjusted to reflect dividends paid by Fortis, Inc., consistent with past practice; such adjusted value shall then be multiplied by the arithmetic average of the change during calendar year 2003 in the Dow Jones Life Insurance Index, the Dow Jones Property Casualty Index, and the Dow Jones Healthcare Providers Index; and the result will be the measurement value of a Fortis, Inc. incentive right as of December 31, 2003. As soon as practical after this special valuation is completed, and before the closing of the initial public offering contemplated, each Fortis, Inc. incentive right then outstanding under the plan will be cashed out for a cash payment equal to the difference, if any, between the measurement value of the Fortis, Inc. incentive rights as of December 31st immediately preceeding the date of grant, and the measurement value of that right determined as of December 31, 2003, pursuant to the special valuation. Each outstanding Fortis, Inc. incentive right, whether or not vested, will be cancelled effective as of the date it is cashed out. Following the cash-out and cancellation of Fortis, Inc. incentive rights, Assurant will grant to each participant whose rights were cashed out a number of stock appreciation rights on Assurants common stock (referred to as replacement rights). The number of replacement rights to be granted to a participant will equal (1) the measurement value of the participants cashed-out Fortis, Inc. incentive rights, divided by (2) the initial public offering price. Each replacement right that replaces a vested cashed-out right will be vested immediately, and each replacement right that replaces a non-vested cashed-out right will become vested on the vesting date for the corresponding cashed-out right, but no replacement right, whether or not vested, may be exercised sooner than one year from the closing date of the initial public offering contemplated. After that waiting period, each replacement right will be exercisable for the remaining term of the corresponding cancelled right.
See note 2 for a discussion of recent accounting pronouncements issued and not adopted which contains a description of the Companys current status of adopting such pronouncements as of October 20, 2003.
See note 22 for a description of a change in a related party transaction as of October 3, 2003.
See note 24 for a description of an October 1, 2003 grand jury of Mower County, Minnesota, indictment of American Bankers Insurance Company and two corporate officers of the Solutions segment.
24. | Commitments and Contingencies |
The Company and its subsidiaries lease office space and equipment under operating lease arrangements. Certain facility leases contain escalation clauses based on increases in the lessors operating expenses. At
F-54
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
December 31, 2002, the aggregate future
minimum lease payments under operating lease agreements that
have initial or non-cancelable terms in excess of one year are:
$
39,840
34,682
31,564
27,304
22,556
52,860
$
208,806
Rent expense was $43,412, $32,546 and $32,931 for 2002, 2001 and 2000 respectively.
In the normal course of business, letters of credit are issued primarily to support reinsurance arrangements. These letters of credit are supported by commitments with financial institutions. The Company had approximately $108,000 and $109,000 of letters of credit outstanding as of September 30, 2003 and December 31, 2002, respectively. Additionally, as of September 30, 2003, the Company had an unused $50,000 letter of credit facility.
The Company is regularly involved in litigation in the ordinary course of business, both as a defendant and as a plaintiff. The Company may from time to time be subject to a variety of legal and regulatory actions relating to the Companys current and past business operations. While the Company cannot predict the outcome of any pending or future litigation, examination or investigation, the Company does not believe that any pending matter will have a material adverse effect on the Companys financial condition or results of operations.
The Solutions segment is subject to a number of pending actions, primarily in the State of Mississippi, many of which allege that the Companys credit insurance products were packaged and sold with lenders products without buyer consent. The judicial climate in Mississippi is such that the outcome of these cases is extremely unpredictable. The Company has been advised by legal counsel that the Company has meritorious defenses to all claims being asserted against the Company. The Company believes, based on information currently available, that any losses are not expected to significantly differ from amounts previously accrued.
American Bankers Insurance Group, part of the Solutions segment, on behalf of certain of its subsidiaries, including American Bankers Insurance Company (ABIC) and American Bankers Life Assurance Company (ABLAC), previously entered into a Consent Order and a comprehensive Compliance Plan with 43 participating states relating to compliance with the often disparate state insurance laws, regulations and administrative interpretations which have been difficult to apply to the marketing of ABIGs credit insurance products through financial institutions, retailers and other entities offering consumer financing as a regular part of their business. In addition to an initial settlement of $12,000, ABIG agreed to a multi-state market conduct examination commencing November 23, 1999, for review of ABIGs implementation of the Compliance Plan. A final report was issued on December 19, 2001, and ABIG paid a final settlement of $3,000 to participating states.
In February 2002, the State of Minnesota initiated an enforcement action against ABIC and ABLAC, two of the Companys subsidiaries, in connection with certain alleged regulatory violations. Thereafter, ABIC and ABLAC filed suit in Minnesota state court seeking to enjoin the enforcement action because the alleged regulatory matters included within the enforcement action were resolved as a part of the above-described Consent Order and Compliance Plan to which Minnesota was a party. In February 2003, the State of Minnesota, ABIC and ABLAC reached a final settlement of all matters included within the enforcement action and the separate state court action filed by ABIC and ABLAC. Pursuant to the settlement, ABIC and
F-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
ABLAC each agreed to pay $100 to the State of Minnesota and agreed to compensate the state for its investigative costs which totaled $1,800. In addition, ABIC and ABLAC agreed to stop selling insurance in Minnesota for five years, though they could apply for reinstatement in 20 months. Other member companies of the Solutions segment with product lines that overlap those offered by ABIC and ABLAC currently remain authorized to do business in the State of Minnesota. The Company does not believe that the effect of the settlement during the next five years will have a material impact on the Companys financial condition or results of its operations.
On October 1, 2003, a grand jury in Mower County, Minnesota issued an indictment of ABIC and two corporate officers of the Solutions segment. The indictment alleges that ABIC and its two named corporate officers each violated the Minnesota Fair Campaign Practices Act in connection with two contributions by ABIC to the Republican National State Election Committee totaling $15. The maximum penalty for ABIC is a $40 fine for each alleged violation and/or forfeiture of ABICs license to conduct business in Minnesota. In addition, the maximum monetary penalty for each officer would be $20 per violation, which we may reimburse under certain circumstances. Other member companies of the Solutions segment with product lines that overlap those offered by ABIC currently remain authorized to conduct business in the State of Minnesota. ABIC believes that it has meritorious defenses to the claims being asserted against it, and the Company believes, based on information currently available, that any liabilities that could result are not expected to have a material effect on the Companys financial condition or results of operations.
In addition, one of the Companys subsidiaries, American Reliable Insurance Company (ARIC), participated in certain excess of loss reinsurance programs in the London market and, as a result, reinsured certain personal accident, ransom and kidnap insurance risks from 1995 to 1997. ARIC and a foreign affiliate ceded a portion of these risks to other reinsurers (retrocessionaires). ARIC ceased reinsuring such business in 1997. However, certain risks continued beyond 1997 due to the nature of the reinsurance contracts written. ARIC and some of the other reinsurers involved in the programs are seeking to avoid certain treaties on various grounds, including material misrepresentation and non-disclosure by the ceding companies and intermediaries involved in the programs. Similarly, some of the retrocessionaires are seeking avoidance of certain treaties with ARIC and the other reinsurers and some reinsureds are seeking collection of disputed balances under some of the treaties. The disputes generally involve multiple layers of reinsurance, and allegations that the reinsurance programs involved interrelated claims spirals devised to disproportionately pass claims losses to higher-level reinsurance layers. Many of the companies involved in these programs, including ARIC, are currently involved in negotiations, arbitration and/or litigation between multiple layers of retrocessionaires, reinsurers, ceding companies and intermediaries, including brokers, in an effort to resolve these disputes. Many of those disputes relating to the 1995 program year, including those involving ARIC, were settled on December 3, 2003. Based on information currently available to the Company, the reserves reflected in the Companys financial statements reflect managements best estimate of future liabilities. However, the inherent uncertainty of arbitrations and lawsuits, including the uncertainty of estimating whether any settlements the Company may enter into in the future would be on favorable terms, makes it difficult to predict the outcomes with certainty.
As a result of regulatory scrutiny of the Companys industry practices or its businesses, such as examinations of race-based premiums charged in the past by two of the Companys acquired subsidiaries, it is possible that the Company may be subject to legal proceedings in the future relating to those practices and businesses.
F-56
FORTIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
December 31,
2003
2002
(in thousands except
number of shares and
per share amounts)
$
8,848,260
$
8,035,530
433,357
271,700
909,174
841,940
69,171
69,377
328,931
684,350
125,024
125,870
10,713,917
10,028,767
441,468
549,648
415,529
401,094
4,530,227
4,649,909
138,579
126,761
1,384,744
1,313,594
284,906
250,785
90,007
168,200
834,138
834,138
197,627
215,245
280,953
268,252
3,561,202
3,411,616
$
22,873,297
$
22,218,009
See the accompanying notes to the consolidated interim financial statements
F-57
FORTIS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS(Continued)
September 30,
December 31,
2003
2002
(in thousands except
number of shares and
per share amounts)
$
6,124,757
$
5,806,847
3,194,138
3,207,636
3,461,960
3,374,140
348,854
348,188
103,783
167,688
171,185
183,838
410,236
462,470
1,182,978
1,204,602
90,747
25,191
1,446,074
24,160
3,561,202
3,411,616
20,120,074
18,192,216
1,446,074
24,660
775
775
15
15
40
40
2,064,025
2,064,025
326,602
245,219
361,766
244,985
2,753,223
2,555,059
$
22,873,297
$
22,218,009
See the accompanying notes to the consolidated interim financial statements
F-58
FORTIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
Nine Months Ended
September 30,
2003
2002
(in thousands except
number of shares and
per share amounts)
$
4,533,503
$
4,217,145
456,608
472,324
14,808
(92,407
)
52,235
59,941
10,672
181,588
182,741
5,238,742
4,850,416
2,657,193
2,560,851
732,657
671,577
1,367,289
1,244,185
87,854
88,122
4,844,993
4,564,735
393,749
285,681
130,464
86,349
263,285
199,332
(1,260,939
)
$
263,285
$
(1,061,607
)
8,300,002
8,300,002
$
31.72
$
24.02
(151.92
)
$
31.72
$
(127.90
)
See the accompanying notes to the consolidated interim financial statements
F-59
FORTIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
Accumulated
Other
Outstanding
Additional
Comprehensive
Shares of
Common
Paid-in
Retained
Income
Common
Stock
Capital
Earnings
(Loss)
Total
Stock
(in thousands except number of shares and per share amounts)
$
830
$
2,064,025
$
245,219
$
244,985
$
2,555,059
8,300,002
(181,187
)
(181,187
)
(715
)
(715
)
263,285
263,285
95,847
95,847
20,934
20,934
380,066
$
830
$
2,064,025
$
326,602
$
361,766
$
2,753,223
8,300,002
See the accompanying notes to the consolidated interim financial statements
F-60
FORTIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
Nine Months Ended
September 30,
2003
2002
(in thousands except
number of shares and
per share amounts)
$
263,285
$
(1,061,607
)
119,687
114,220
(13,270
)
(64,306
)
30,393
38,080
(49,865
)
(76,251
)
1,260,939
(11,554
)
(32,006
)
347,163
246,905
(17,545
)
52,531
666
(81,086
)
(63,905
)
(30,454
)
(12,653
)
(14,750
)
(52,235
)
(59,941
)
82,902
(180,564
)
(14,808
)
92,407
(10,672
)
(18,509
)
14,983
589,752
208,428
974,627
2,797,755
105,021
72,103
17,326
1,483
976,153
586,677
(2,545,974
)
(3,759,976
)
(264,793
)
(109,962
)
(82,798
)
(62,374
)
(64,423
)
34,044
368,114
106,670
330
(219
)
887
1,593
12,000
$
(515,530
)
$
(320,206
)
(500
)
(181,187
)
(41,876
)
(715
)
(789
)
(182,402
)
(42,665
)
(108,180
)
(154,443
)
549,648
559,304
$
441,468
$
404,861
$
42,644
$
209,953
97,151
97,151
20,934
7,411
See the accompanying notes to the consolidated interim financial statements
F-61
FORTIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
Fortis, Inc. (the Company) is a holding company provider of specialized insurance products and related services in North America and selected other markets. The Company is incorporated in the State of Nevada and is indirectly wholly owned by Fortis N.V. of The Netherlands and Fortis SA/ NV of Belgium (collectively, the Parent) through their affiliates, including their wholly owned subsidiary, Fortis Insurance N.V.
On September 25, 2003, the Parent announced its intention to sell the Company in an initial public offering (IPO). On October 24, 2003, the Company, under its planned name Assurant, Inc., filed a registration statement with the U.S. Securities and Exchange Commission related to the proposed IPO.
Through its operating subsidiaries, the Company provides creditor-placed homeowners insurance, manufactured housing homeowners insurance, debt protection administration, credit insurance, warranties and extended service contracts, individual health insurance and small employer group health insurance, group dental insurance, group disability insurance, group life insurance and pre-funded funeral insurance.
2. Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for (GAAP) interim financial information. Accordingly, these statements 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 (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified to conform to the 2003 presentation.
Dollar amounts are presented in U.S. dollars and all amounts are in thousands except number of shares and securities and per share and per security amounts.
Operating results for the nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. The accompanying interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2002.
The balance sheet at December 31, 2002, presented herein, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
3. Recently Adopted Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (FAS 146). This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit on Activity (including Certain Costs Incurred in Restructuring (EITF 94-3). EITF 94-3 required accrual of liabilities related to exit and disposal activities at a plan (commitment) date. FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of this statement are effective for exit or disposal
F-62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
activities that are initiated after December 31, 2002. The Company adopted this Statement on January 1, 2003. The adoption of this standard did not have a material impact on the Companys financial position or the results of operations.
In November 2002, the FASB issued Interpretation 45, Guarantors Accounting and Disclosure Requirements for Guarantees (FIN 45). FIN 45 requires that a liability be recognized at the inception of certain guarantees for the fair value of the obligation, including the ongoing obligation to stand ready to perform over the term of the guarantee. Guarantees, as defined in FIN 45, include contracts that contingently require the Company to make payments to a guaranteed party based on changes in an underlying obligations that is related to an asset, liability and equity security of the guaranteed party, performance guarantees, indemnification agreements and indirect guarantees of indebtedness of others. This new accounting standard is effective for certain guarantees issued or modified after December 31, 2002. In addition, FIN 45 requires certain additional disclosures. The Company adopted this statement on January 1, 2003, and the adoption did not have a material impact on the Companys financial position or the results of operations.
In December 2002, the FASB issued FAS 148, Accounting for Stock-Based Compensation Transition and Disclosure an Amendment of FAS No. 123 (FAS 148). FAS 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. FAS 148 also amends the disclosure requirements of FAS 123, Accounting for Stock-Based Compensation, to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This guidance is effective for fiscal years after December 15, 2002 for transition guidance and annual disclosure provisions and is effective for interim reports beginning after December 15, 2002 for interim disclosure provisions. The Company accounts for stock-based employee compensation as prescribed by APB No. 25 and its interpretations. Therefore, the transition requirements of FAS 148 do not apply. However, the Company adopted the disclosure requirements of the standard.
In April 2003, the FASB issued FAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (FAS 149). This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities under FAS 133, Accounting for Derivative Instruments and Hedging Activities . This Statement is effective prospectively for contracts entered into or modified after June 30, 2003 and prospectively for hedging relationships designated after June 30, 2003. The Company adopted this statement on July 1, 2003. The adoption of this statement did not have a material impact on the Companys financial position or the results of operations.
In May 2003, the FASB issued FAS 150, Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity (FAS 150). This statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity, and requires that these instruments be classified as liabilities in the consolidated balance sheets. This statement is effective prospectively for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has assessed that the adoption of this standard will result in a reclassification of mandatorily redeemable preferred securities of subsidiary trusts and mandatorily redeemable preferred stock from mezzanine to liabilities in the September 30, 2003 balance sheet; however, this statement is not retroactive so these items will remain in the mezzanine category at December 31, 2002. The adoption of this statement will not have a significant impact on the Companys results of operations.
F-63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (ARB 51), which clarifies the consolidation accounting guidance in ARB 51, Consolidated Financial Statements, as it applies to certain entities in which equity investors who do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other parties. Such entities are known as variable interest entities (VIEs). FIN 46 requires that the primary beneficiary of a VIE consolidate the VIE. FIN 46 also requires new disclosures for significant relationships with VIEs, whether or not consolidation accounting is either used or anticipated. The consolidation requirements of FIN 46 apply immediately to VIEs created after January 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. They apply in the first fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest that is acquired before February 1, 2003. On October 8, 2003, the FASB deferred the adoption of FIN 46 until reporting periods ending after December 15, 2003. The Company is currently evaluating the impact of adoption of this interpretation and believes that the impact on its results of operations and financial position will not be significant.
In April 2003, the FASBs Derivative Implementation Group (DIG) released FAS 133 Implementation Issue B36, Embedded Derivatives: Modified Coinsurance Arrangement and Debt Instrument that Incorporate Credit Rate Risk Exposures that are Unrelated or Only Partially Related to the Creditworthiness of the Obligor Under Those Instruments (DIG B36). DIG B36 addresses whether FAS 133 requires bifurcation of a debt instrument into a debt host contract and an embedded derivative if the debt instrument incorporates both interest rate risk and credit risk exposures that are unrelated or only partially related to the creditworthiness of the issuer of that instrument. Under DIG B36, modified coinsurance and coinsurance with funds withheld reinsurance agreements as well as other types of receivables and payables where interest is determined by reference to a pool of fixed maturity assets or a total return debt index are examples of arrangements containing embedded derivatives requiring bifurcation. The effective date of the implementation guidance is October 1, 2003. The Company is currently evaluating the impact of adoption of DIG B36 and believes that such impact on its results of operations and financial position will not be significant.
On July 7, 2003, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long Duration Contracts and for Separate Accounts (SOP 03-1). SOP 03-1 provides guidance on a number of topics unique to insurance enterprises, including separate account presentation, interest in separate accounts, gains and losses on the transfer of assets from the general account to a separate account, liability valuation, returns based on a contractually referenced pool of assets or index, accounting for contracts that contain death or other insurance benefit features, accounting for reinsurance and other similar contracts, accounting for annuitization benefits and sales inducements to contract holders. SOP 03-1 will be effective for the Companys financial statements on January 1, 2004. The Company has evaluated this statement and has concluded that the adoption of this statement will not have a material impact on the Companys financial position or the result of operations.
F-64
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
5. Dividends Per
Common Share
The Company has Class A, Class B and
Class C Common Stock. The following dividends have been
paid for the nine months ended September 30, 2003 and 2002:
6. Stock Based
Compensation
For the Nine Months Ended September 30,
2003
2002
Per share
Total
Per share
Total
$
17.98
$
139,310
$
$
74.69
11,204
74.69
11,204
76.68
30,673
76.68
30,672
$
181,187
$
41,876
The following pro forma information of
net income (loss) and net income (loss) per share was
determined as if the Company had accounted for the Stock Option
Plan under the fair value method of FAS 123:
For the Nine Months
Ended
September 30,
2003
2002
$
263,285
$
(1,061,607
)
(475
)
(472
)
$
262,810
$
(1,062,079
)
$
31.72
$
(127.90
)
$
31.66
$
(127.96
)
In contemplation of the IPO, the Companys Stock Option Plan was terminated effective as of September 22, 2003, and all stock options thereunder were cancelled in exchange for a payment of the fair value of such options, as determined by an independent third party. Payments totaling $2,237 were made in the fourth quarter. There is no further obligation associated with the Companys Stock Option Plan.
7. Segment Information
The Company has five reportable segments, which are defined based on the nature of the products and services offered: Solutions, Health, Employee Benefits, PreNeed and Corporate and Other. Solutions provides credit insurance, including life, disability and unemployment, debt protection administration services, creditor-placed homeowners insurance and manufactured housing homeowners insurance. Health provides individual, short-term and small group health insurance. Employee Benefits provides employee-paid dental insurance and employer-paid dental insurance, disability and life insurance products and related services. PreNeed provides
F-65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
life insurance policies and annuity products that provide benefits to fund pre-arranged funerals. Corporate and Other includes activities of the holding company, financing expenses, realized gains (losses) on investments, interest income earned from short-term investments held and interest income from excess surplus of insurance subsidiaries not allocated to other segments. Corporate and Other also includes the amortization of deferred gains from the sales of Fortis Financial Group (FFG) and Long-Term Care (LTC) via reinsurance agreements.
The Company evaluates performance based on segment income after tax, excluding realized gains (losses) on investments. The Company determines reportable segments in a manner consistent with the way the Company organizes its businesses for purposes of making operating decisions and assessing performance. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.
The Company allocates a notional amount of invested assets to the segments primarily based on future policy benefits, claims and unearned premiums and capital allocated to each segment. The Company assigns net deferred acquisition costs, value of businesses acquired, reinsurance recoverables and other assets and liabilities to the respective segments where those assets or liabilities originate.
In August 2003, the Company began to utilize derivative instruments in managing the PreNeed segments exposure to inflation risk. The derivative instrument, a Consumer Price Index Cap (the CPI CAP), limits the inflation risk on certain policies to a maximum of 5% and has a notional amount of $454,000 amortizing to zero over 20 years. The CPI CAP does not qualify under GAAP as an effective hedge; therefore, it is marked-to-market on a quarterly basis and the accumulated gain or loss is recognized in the results of operations in fees and other income. As of September 30, 2003, the CPI CAP included in other assets amounted to $8,530 and the loss recorded in the results of operations totaled $170.
F-66
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Nine Months Ended September 30, 2003
Employee
Corporate &
Solutions
Health
Benefits
PreNeed
Other
Consolidated
1,736,816
1,475,537
920,296
400,854
4,533,503
142,192
36,460
104,429
139,861
33,666
456,608
14,808
14,808
52,235
52,235
99,391
23,731
36,895
3,655
17,916
181,588
1,978,399
1,535,728
1,061,620
544,370
118,625
5,238,742
632,148
965,203
667,683
392,159
2,657,193
598,550
56,095
1,926
76,086
732,657
601,563
372,485
317,197
33,537
42,507
1,367,289
87,854
87,854
1,832,261
1,393,783
986,806
501,782
130,361
4,844,993
146,138
141,945
74,814
42,588
(11,736
)
393,749
46,034
49,353
26,185
14,725
(5,833
)
130,464
$
100,104
$
92,592
$
48,629
$
27,863
$
(5,903
)
$
263,285
$
263,285
$
6,915,524
$
1,137,182
$
2,393,572
$
3,651,737
$
7,941,144
$
22,039,159
834,138
$
22,873,297
F-67
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Nine Months Ended September 30, 2002
Employee
Corporate &
Solutions
Health
Benefits
PreNeed
Other
Consolidated
$
1,513,761
$
1,365,430
$
929,456
$
408,498
$
$
4,217,145
153,066
41,595
109,535
138,930
29,198
472,324
(92,407
)
(92,407
)
59,941
59,941
10,672
10,672
88,044
16,112
56,460
2,812
19,313
182,741
1,754,871
1,423,137
1,095,451
550,240
26,717
4,850,416
545,281
908,534
717,889
389,147
2,560,851
558,716
38,713
420
72,173
1,555
671,577
500,429
361,315
320,023
29,006
33,412
1,244,185
88,122
88,122
1,604,426
1,308,562
1,038,332
490,326
123,089
4,564,735
150,445
114,575
57,119
59,914
(96,372
)
285,681
49,876
39,487
20,117
21,048
(44,179
)
86,349
$
100,569
$
75,088
$
37,002
$
38,866
$
(52,193
)
$
199,332
(1,260,939
)
$
(1,061,607
)
F-68
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
Year Ended December 31, 2002
Employee
Corporate
Solutions
Health
Benefits
PreNeed
and Other
Consolidated
$
6,937,529
$
1,058,935
$
2,432,411
$
3,418,977
$
7,536,019
$
21,383,871
834,138
$
22,218,009
8. Subsequent Events
Assurant, Inc. (Assurant) was incorporated in October 2003 as a Delaware corporation and a wholly owned subsidiary of Fortis, Inc. In connection with the planned IPO, the board of directors of Assurant and the Company, as sole stockholder, approved certain employee benefits programs on October 15, 2003 as follows:
2004 Long-Term Incentive Plan |
The 2004 Long-Term Incentive Plan will be effective as of the closing of the initial public offering.
The 2004 Long-Term Incentive Plan authorizes the granting of awards to employees, officers, and directors in the following forms: (1) options to purchase shares of Assurants common stock, which may be non-statutory stock options or incentive stock options under the U.S. tax code; (2) stock appreciation rights, which give the holder the right to receive the difference between the fair market value per share on the date of exercise over the grant price; (3) performance awards, which are payable in cash or stock upon the attainment of specified performance goals; (4) restricted stock, which is subject to restrictions on transferability and subject to forfeiture on terms set by the Compensation Committee of the Board of Directors (Compensation Committee); (5) dividend equivalents, which entitle the participant to payments equal to any dividends paid on the shares of stock underlying an award; and (6) other stock-based awards in the discretion of the Compensation Committee, including unrestricted stock grants.
There are 10,000,000 shares reserved and available for issuance under the plan.
No awards will be granted under the plan prior to its effective date. Any awards will be made at the discretion of the Compensation Committee. Therefore, it is not presently possible to determine the benefits or amounts that will be received by any individuals or groups pursuant to the 2004 Long-Term Incentive Plan in the future.
2004 Employee Stock Purchase Plan |
The 2004 Employee Stock Purchase Plan will go into effect as of the earliest of July 1 or January 1 following the closing of the initial public offering.
The purpose of the stock purchase plan is to enhance the proprietary interest among the employees of the Company. The stock purchase plan is designed to allow eligible employees to purchase shares of the Assurants common stock, at defined intervals, with their accumulated payroll deductions. Employees are eligible to participate if they are designated by the Compensation Committee and if they are customarily employed for at least 20 hours per week and five months per calendar year, and provided they have served as
F-69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
an employee for at least six months. A total of 5,000,000 shares of Assurants common stock have been reserved for issuance under the stock purchase plan.
Executive Management Incentive Plan |
The Executive Management Incentive Plan will be effective as of January 1, 2004. Participation in the Executive Management Incentive Plan is limited to senior officers of the Company and its subsidiaries who are selected to participate in the plan for a given year by the Compensation Committee. The plan provides for the payment of annual monetary awards to each participant equal to a percentage of such participants base salary based upon the achievement of certain designated performance goals.
The amount of awards under the plan will be determined at the discretion of the Compensation Committee. Therefore, it is not presently possible to determine the benefits or amounts that will be received by any individuals or groups pursuant to this plan.
Amendment to Fortis Appreciation Incentive Rights Plan (FAIR Plan) |
The FAIR Plan was amended to provide for the cash-out and replacement of Fortis, Inc. incentive rights with stock appreciation rights on the Assurant common stock from and after the closing of the initial public offering contemplated. The business segment rights outstanding under the plan will not be changed or effected. The conversion of outstanding Fortis, Inc. incentive rights will take place as described in this paragraph. The Fortis, Inc. incentive rights will be valued as of December 31, 2003 using a special valuation method, as follows. The measurement value of each Fortis, Inc. incentive right as of December 31, 2002 will be adjusted to reflect dividends paid by Fortis, Inc., consistent with past practices; such adjusted value shall then be multiplied by the arithmetic average of the change during calendar year 2003 in the Dow Jones Life Insurance Index, the Dow Jones Property Casualty Index, and the Dow Jones Healthcare Providers Index; and the result will be the measurement value of a Fortis, Inc. incentive right as of December 31, 2003. As soon as practical after this special valuation is completed, and before the closing of the initial public offering contemplated, each Fortis, Inc. incentive right then outstanding under the plan will be cashed out for a cash payment equal to the difference, if any, between the measurement value of the Fortis, Inc. incentive right as of December 31 immediately preceeding the date of grant, and the measurement value of that right determined as of December 31, 2003, pursuant to the special valuation. Each outstanding Fortis, Inc. incentive right, whether or not vested, will be cancelled effective as of the date it is cashed out. Following the cash-out and cancellation of Fortis, Inc. incentive rights, Assurant will grant to each participant whose rights were cashed out a number of stock appreciation rights on Assurants common stock (referred to as replacement rights). The number of replacement rights to be granted to a participant will equal (1) the measurement value of the participants cashed-out Fortis, Inc. incentive rights, divided by (2) the initial public offering price. Each replacement right that replaces a vested cashed-out right will be vested immediately, and each replacement right that replaces a non-vested cashed-out right will become vested on the vesting date for the corresponding cashed-out right, but no replacement right, whether or not vested, may be exercised sooner than one year from the closing date of the initial public offering contemplated. After that waiting period, each replacement right will be exercisable for the remaining term of the corresponding cancelled right.
9. Income Taxes
The effective tax rate for the nine months ended September 30, 2003 was 33.1%, as compared to 30.2% for the nine months ended September 30, 2002. The increase in the effective rate is primarily due to the release as of September 30, 2002 of approximately $9,000 of previously provided tax accruals that were no longer considered necessary based on the resolution of certain domestic tax matters.
F-70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
10. Commitments and Contingencies
The Company and its subsidiaries lease office
space and equipment under operating lease arrangements. Certain
facility leases contain escalation clauses based on increases in
the lessors operating expenses. At September 30,
2003, the aggregate future minimum lease payments under
operating lease agreements that have initial or non-cancelable
terms in excess of one year are:
$
10,371
37,629
34,633
31,264
25,859
66,501
$
206,257
Rent expense was $30,006 for the nine months ended September 30, 2003 and $34,312 for the nine months ended September 30, 2002.
In the normal course of business, letters of credit are issued primarily to support reinsurance arrangements. These letters of credit are supported by commitments with financial institutions. The Company had approximately $108,000 of letters of credit outstanding as of September 30, 2003. Additionally, as of September 30, 2003, the Company had an unused $50,000 letter of credit facility.
The Company is regularly involved in litigation in the ordinary course of business, both as a defendant and as a plaintiff. The Company may from time to time be subject to a variety of legal and regulatory actions relating to the Companys current and past business operations. While the Company cannot predict the outcome of any pending or future litigation, examination or investigation, the Company does not believe that any pending matter will have a material adverse effect on the Companys financial condition or results of operations.
The Solutions segment is subject to a number of pending actions, primarily in the State of Mississippi, many of which allege that the Companys credit insurance products were packaged and sold with lenders products without buyer consent. The judicial climate in Mississippi is such that the outcome of these cases is extremely unpredictable. The Company has been advised by legal counsel that the Company has meritorious defenses to all claims being asserted against the Company. The Company believes, based on information currently available, that any losses are not expected to significantly differ from amounts previously accrued.
American Bankers Insurance Group (ABIG), part of the Solutions segment, on behalf of certain of its subsidiaries, including American Bankers Insurance Company (ABIC) and American Bankers Life Assurance Company (ABLAC), previously entered into a Consent Order and a comprehensive Compliance Plan with 43 participating states relating to compliance with the often disparate state insurance laws, regulations and administrative interpretations which have been difficult to apply to the marketing of ABIGs credit insurance products through financial institutions, retailers and other entities offering consumer financing as a regular part of their business. In addition to an initial settlement of $12,000, ABIG agreed to a multi-state market conduct examination commencing November 23, 1999, for review of ABIGs implementation of the Compliance Plan. A final report was issued on December 19, 2001, and ABIG paid a final settlement of $3,000 to participating states.
In February 2002, the State of Minnesota initiated an enforcement action against ABIC and ABLAC, two of the Companys subsidiaries, in connection with certain alleged regulatory violations. Thereafter, ABIC and ABLAC filed suit in Minnesota state court seeking to enjoin the enforcement action because the alleged
F-71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
regulatory matters included within the enforcement action were resolved as a part of the above-described Consent Order and Compliance Plan to which Minnesota was a party. In February 2003, the State of Minnesota, ABIC and ABLAC reached a final settlement of all matters included within the enforcement action and the separate state court action filed by ABIC and ABLAC. Pursuant to the settlement, ABIC and ABLAC each agreed to pay $100 to the State of Minnesota and agreed to compensate the state for its investigative costs, which totaled $1,800. In addition, ABIC and ABLAC agreed to stop selling insurance in Minnesota for five years, though they could apply for reinstatement in 20 months. Other member companies of the Solutions segment with product lines that overlap those offered by ABIC and ABLAC currently remain authorized to do business in the State of Minnesota. The Company does not believe that the effect of the settlement during the next five years will have a material impact on the Companys financial condition or results of its operations.
On October 1, 2003, a grand jury in Mower County, Minnesota issued an indictment of ABIC and two corporate officers of the Solutions segment. The indictment alleges that ABIC and its two named corporate officers each violated the Minnesota Fair Campaign Practices Act in connection with two contributions by ABIC to the Republican National State Election Committee totaling $15. The maximum penalty for ABIC is a $40 fine for each alleged violation and/or forfeiture of ABICs license to conduct business in Minnesota. In addition, the maximum monetary penalty for each officer would be $20 per violation, which we may reimburse under certain circumstances. Other member companies of the Solutions segment with product lines that overlap those offered by ABIC remain authorized to conduct business in the State of Minnesota. ABIC believes that it has meritorious defenses to the claims being asserted against it, and the Company believes, based on information currently available, that any liabilities that could result would not be expected to have a material effect on the Companys financial condition or results of operations.
In addition, one of the Companys subsidiaries, American Reliable Insurance Company (ARIC), participated in certain excess of loss reinsurance programs in the London market and, as a result, reinsured certain personal accident, ransom and kidnap risks from 1995 to 1997. ARIC and a foreign affiliate ceded a portion of these risks to other reinsurers (retrocessionaires). ARIC ceased writing such business in 1997. However, certain risks continued beyond 1997 due to the nature of the reinsurance contracts written. ARIC and some of the other reinsurers involved in the programs are seeking to avoid certain treaties on various grounds, including material misrepresentation and non-disclosure by the ceding companies and intermediaries involved in the programs. Similarly, some of the retrocessionaires are seeking avoidance of certain treaties with ARIC and the other reinsurers and some reinsureds are seeking collection of disputed balances under some of the treaties. The disputes generally involve multiple layers of reinsurance, and allegations that the reinsurance programs involved interrelated claims spirals devised to disproportionately pass claims losses to higher-level reinsurance layers. Many of the companies involved in these programs, including ARIC, are currently involved in negotiations, arbitration and/or litigation between multiple layers of retrocessionaires, reinsurers, ceding companies and intermediaries, including brokers, in an effort to resolve these disputes. Many of those disputes relating to the 1995 program year, including those involving ARIC, were settled on December 3, 2003. Based on information currently available to the Company, the reserves reflected in the Companys financial statements reflect managements best estimate of future liabilities. However, the inherent uncertainty of arbitrations and lawsuits, including the uncertainty of estimating whether any settlements the Company may enter into in the future would be on favorable terms, make it difficult to predict the outcomes with certainty.
As a result of regulatory scrutiny of the Companys industry practices or its businesses, such as examinations of race-based premiums charged in the past by two of the Companys acquired subsidiaries, it is possible that the Company may be subject to legal proceedings in the future relating to those practices and businesses.
F-72
Report of Independent Accountants
To the Board of Directors and Stockholders of
Assurant, Inc.:
In our opinion, the accompanying balance sheet
presents fairly, in all material respects, the financial
position of Assurant, Inc. (the Company) at
October 10, 2003 (date of incorporation) in conformity with
accounting principles generally accepted in the United States of
America. This financial statement is the responsibility of the
Companys management; our responsibility is to express an
opinion on this financial statement based on our audit. We
conducted our audit of this statement in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the balance sheet, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
F-73
Note 4 as to which the date is
January 9, 2004
Table of Contents
ASSURANT, INC.
BALANCE SHEET
$1.00
$1.00
NOTES TO BALANCE SHEET OF ASSURANT, INC.
1. | Organization and Purpose |
Assurant, Inc. was incorporated in Delaware on October 10, 2003, to become a wholly owned subsidiary of Fortis, Inc. Subject to the approval of the shareholders of Fortis, Inc., Fortis, Inc. will merge with and into Assurant, Inc., and all of the outstanding common stock of Fortis, Inc. will be exchanged for common stock of Assurant, Inc.
2. | Summary of Significant Accounting Policies Basis of Presentation |
The balance sheet has been prepared in accordance with accounting principles generally accepted in the United States of America. A separate income statement, statement of changes in stockholders equity, and statement of cash flows have not been presented in the financial statements as the activities of this entity are nominal.
3. | Stockholders Equity |
Assurant, Inc. is authorized to issue 80,000,000 shares of common stock, par value $0.01 per share. Fortis, Inc. has acquired 100 shares of Assurant, Inc. in exchange for $1.
4. | Subsequent Events |
The following changes to the Assurant, Inc. Certificate of Incorporation were approved by the Board of Directors and the stockholder on January 9, 2004.
The total number of shares of all classes of stock which the corporation shall have authority to issue is 1,000,550,002 consisting of (a) 200,000,000 shares of Preferred Stock, par value $1.00 per share (Preferred Stock), (b) 800,000,000 shares of Common Stock, par value $0.01 per share (Common Stock), (c) 150,001 shares of Class B Common Stock, par value $0.01 per share (Class B Common Stock), and (d) 400,001 shares of Class C Common Stock, par value $0.01 per share (Class C Common Stock).
The Board of Directors is authorized by resolution to provide, out of the unissued shares of Preferred Stock, the designation of each series of Preferred Stock, to fix the number of shares constituting each series, the voting power of each series, participation of each series, and any other rights, if any.
The holders of Preferred Stock, if provided by resolution, and the holders of Class B Common Stock and Class C Common Stock shall have preference over the holders of Common Stock as it relates to the payment of dividends and the rights to assets upon dissolution and liquidation of the corporation.
F-74
GLOSSARY OF SELECTED INSURANCE AND REINSURANCE TERMS
Accidental death and/or dismemberment | Form of accident insurance that indemnifies or pays a stated benefit to an insured or his/her beneficiary in the event of bodily injury or death due to accidental means (other than natural causes). | |
Administrative Services Only (ASO) | Services provided in an employee benefit plan. Specifically, as with a self-insured plan, the group may have an ASO contract with an insurance company or a third-party administrator to handle aspects of claims adjudication and administration. | |
Adverse selection | Process by which an applicant who believes himself to be uninsurable, or at greater than average risk, seeks to obtain a policy from an insurance company at a standard premium rate. | |
Annuity | A contract that provides for periodic payments to an annuitant, either beginning immediately (immediate annuity) or in the future (deferred annuity), for a specified period of time. In the case of the annuities sold by Assurant PreNeed, the benefits under the contract are scheduled to begin upon the death of the purchaser of the annuity and are used to fund the costs incurred in connection with pre-arranged funeral contracts. | |
Association | In the health insurance market, an entity that was formed and maintained in good faith for purposes other than obtaining insurance and does not make health insurance coverage offered through the association available other than in connection with a member of the association. The association is the policyholder, and individual association members may obtain certificates of coverage under the associations master policies. | |
Assumption basis | A form of reinsurance under which policy administration and the contractual relationship with the insured, as well as all liabilities, pass to the reinsurer; the novation of liability is evidenced by an assumption certificate issued to the insured who, in some jurisdictions, has the right to refuse the change in insurers. | |
Broker | One who negotiates contracts of insurance or reinsurance, receiving a commission for placement and other services rendered, between (i) a policyholder and a primary insurer, on behalf of the insured party, or (ii) a primary insurer and reinsurer, on behalf of the primary insurer or (iii) a reinsurer and a retrocessionaire on behalf of the reinsurer. | |
Captive agent | Representative of a single insurer or group of insurers who is obligated to submit business only to that company, or at a minimum, give that company first refusal rights on a sale. | |
Captive insurance company | A company that is controlled by the insured or a group of insureds and that is formed for the purpose of reinsuring risks associated with the activities of its shareholders or members. | |
Case management | A collaborative process which assesses, plans, implements, coordinates, monitors and evaluates options and services to meet an |
G-1
individuals health needs using
communication and available resources to promote quality
cost-effective outcomes.
Casualty insurance
Insurance that is primarily concerned with the
losses caused by injuries to third persons (in other words,
persons other than the policyholder) and the legal liability
imposed on the insured resulting therefrom.
Cede; Cedent; Ceding company
When a party reinsures its liability with
another, it cedes business and is referred to as the
cedent or ceding company.
Claims
Request by an insured or reinsured for
indemnification by an insurance company or reinsurance company
for loss incurred from an insured peril or event.
Claims expense
The expenses of settling claims, including legal
and other fees and the portion of general expenses allocated to
claim settlement costs.
Claims management
The use by an insurer of a variety of means to
mitigate the extent of losses incurred by those insured under
its policies and the corresponding benefit costs, for example,
efforts to improve the quality of medical care provided to its
insureds or efforts to assist its insureds with vocational
services.
Coinsurance
With respect to a direct medical contract between
an insurer and the insured, the insureds share of covered
losses in an arrangement pursuant to which the insured and the
insurer share in a specific ratio of the covered losses. With
respect to ceded reinsurance, a reinsurance arrangement in which
coverage ceded to the reinsurer on an individual policy is in
the same form as that of the direct policy issued to the
policyholder. The reinsurer receives its proportionate share of
the gross premium from the ceding company net of an expense
allowance intended to reimburse the ceding company for
commissions and other out of pocket expenses. The reinsurer
establishes its proportionate share of reserves and shares
proportionately in the risk of loss.
Consumer Price Index
Measurement of the rate of inflation according to
a weighted market basket of goods and services that includes
such items as transportation costs, health care costs, housing
costs and food costs. These statistics are released monthly by
the U.S. Bureau of Labor Statistics.
Co-payments
Partial payment of medical service expenses
required in group health insurance. Typically, such payment is
set at a fixed amount regardless of the expense of the services
rendered or the actual costs of drugs and medicines provided.
Credit insurance
Insurance issued to a creditor or lender to cover
the life (in the case of credit life insurance), unemployment
(in the case of credit unemployment) or disability (in the case
of credit disability) of a debtor or borrower for an outstanding
loan. If the debtor dies before repayment of the debt, the
policy will pay off the balance of the amount outstanding. If
the debtor is unemployed or becomes disabled before repayment of
the debt, the policy will typically pay any minimum amounts due
under the outstanding loan until the debtor is no longer
unemployed or disabled, as the case may be.
G-2
Debt protection | A non-insurance product that cancels or defers the required monthly payment on an outstanding loan when a covered event occurs. Examples of covered events include death, disability and unemployment. If the protected cardholder dies before repayment of the debt, the contract will cancel the outstanding balance at the time of death. If the protected cardholder is unemployed or becomes disabled before repayment of the debt, the contract will typically cancel or defer the required minimum monthly payment, during the period of unemployment or disability, if the cardholder is unemployed or disabled longer than the waiting period. | |
Deductibles | The amount of loss that an insured retains. | |
Disability insurance | Insurance that provides income payments to the insured wage earner when income is interrupted or terminated because of illness, sickness or accident. The insurance policy defines the nature of the disability it covers. Long-term disability policies typically provide coverage for a period greater than one year, which may be to age 65 or life. Short-term disability policies typically provide coverage for less than one year in duration. | |
Disease management | A system of coordinated healthcare interventions and communications for populations with conditions in which patient self-care efforts are significant. Disease management: (1) supports the physician or practitioner/ patient relationship and plan of care, (2) emphasizes prevention of exacerbations and complications utilizing evidence-based practice guidelines and patient empowerment strategies, and (3) evaluates clinical, humanistic and economic outcomes on an ongoing basis with the goal of improving overall health. | |
Duration corridor | Duration is a measure expressed in years of the price sensitivity of a financial instrument to changes in interest rates. The corridor refers to the minimum and maximum duration allowed. | |
Escrowed account | Funds that a lender collects monthly to pay monthly mortgage insurance premiums, homeowners insurance policy premiums and yearly property taxes. | |
Excess of loss | A generic term describing reinsurance that indemnifies the reinsured against all or a specified portion of losses on underlying insurance policies in excess of a specified amount, which is called a level or retention. Also known as non-proportional reinsurance. Excess of loss reinsurance is written in layers. A reinsurer or group of reinsurers accepts a band of coverage up to a specified amount. The total coverage purchased by the cedent is referred to as a program and will typically be placed with predetermined reinsurers in pre-negotiated layers. Any liability exceeding the outer limit of the program reverts to the ceding company, which also bears the credit risk of a reinsurers insolvency. | |
Fire and dwelling insurance | Fire insurance is coverage protecting the insured against the loss to real or personal property from damage caused by the peril of fire or lightning. Dwelling insurance is coverage for property damage to a building used as a dwelling, as well as its contents. The property |
G-3
coverage for the building includes items attached
to the building such as equipment and fixtures.
Flood insurance
Insurance that provides mortgage banking
institutions coverage for the peril of flood for those borrowers
who fail to provide proof of flood insurance on their mortgaged
property, thereby protecting the mortgagors collateral
interest in the property.
Generally accepted accounting principles
(GAAP)
United States generally accepted accounting
principles as defined by the American Institute of Certified
Public Accountants or statements of the Financial Accounting
Standards Board and other authoritative guidance.
Group insurance
Single policy under which individuals in a
natural group (such as employees of a business firm) and their
dependents are covered. More generally, the collection of all
such policies.
Group disability insurance
Coverage of a natural group, often an employee
group, whose members receive a disability income benefit,
subject to a maximum amount, if illness or an accident renders a
member disabled as defined in the policy. Common requirements
for disability are that the member is unable to perform the
material duties of his or her own occupation, or at other times
that the member is unable to perform the material duties of any
gainful occupation for which he or she is suited by education,
training or experience. Benefits are usually limited to a stated
length of time, and the maximum income benefit is limited to a
percentage of earnings prior to the disability or a flat dollar
amount.
Group life insurance
Typically one-year coverage, provided as group
insurance, that is renewable at the end of each year and that
provides benefits in the event of the death of an insured. The
premium rate upon renewal is based on the range of employee ages
and, if the group is subject to experience rating, the loss
record (deaths) of the group. Experience rating is a statistical
procedure used to calculate a premium rate based on the loss
experience of an insured group. The premiums paid are related to
actual claims and expense experience expected for that specific
group.
Guaranteed issue
The right to purchase insurance without physical
examination or the answering of health questions; the present
and past physical condition of the applicant are not considered.
Guaranteed renewable
With respect to an insurance policy, renewable at
the option of the insured for a specified number of years or to
a stated age. The insurance company cannot refuse to renew the
policy and cannot change any of its provisions except the
premium rate. In individual insurance, if the insurance company
changes the premium, it must do so for the entire class to which
a policyholder belongs, not just for one or a few members of the
class.
Guaranty fund
State-regulated mechanism that is financed by
assessing insurers doing business in those states. These funds
are maintained by contributions of companies operating in a
particular state in proportion to their business written in the
state. Should insolvencies
G-4
occur, these funds are available to meet some or
all of the insolvent insurers obligations to policyholders.
Health Reimbursement Accounts
(HRAs)
Employer-funded accounts provided to employees
for reimbursement of qualifying medical expenses, in which such
reimbursements are excludable from employee gross income.
Health Savings Accounts (HSAs)
A tax-sheltered savings account similar to an
Investment Retirement Account (IRA), but earmarked for medical
expenses. HSAs may be funded by tax-deductible contributions
from either employees or employers. Distributions from HSAs to
reimburse participants for medical care expenses are tax free.
Larger medical expenses are covered by a low-cost, high
deductible health insurance policy. Similar to an IRA, any
unused amounts in the account each year stay in the account and
continue to grow interest on a tax-favored basis to supplement
retirement savings.
Homeowners insurance
Package of policies that combines
(1) coverage against the insureds property being
destroyed or damaged by various perils and (2) coverage for
liability exposure of the insured. Our creditor-placed
homeowners insurance policies generally cover only the property,
including any adjacent structure of the home.
Incurred but not reported (IBNR)
reserves
Reserves for estimated losses and loss expenses
which have been incurred but not yet reported to the insurer.
Indemnity
Coverage for the percentage of the health care
costs paid by the health insurance company, which is typically a
specified percentage above the insureds deductible up to a
dollar amount. The insurance company then pays 100% of the costs
up to the policy limits. The insured may select a physician of
his or her choice.
Loss draft
Payment of insurance proceeds for a claim
resulting from a loss to insured mortgaged property.
Loss ratio
Policyholder benefits divided by net earned
premiums and other considerations.
Loss reserve
Liabilities established by insurers and
reinsurers to reflect the estimated cost of claims payments and
the related expenses that the insurer or reinsurer will
ultimately be required to pay in respect of insurance or
reinsurance it has written. Reserves are established for losses
and for loss expenses.
Losses and loss expenses
The expenses of settling claims, including legal
and other fees and the portion of general expenses allocated to
claim settlement costs (also known as claim adjustment expenses)
plus losses incurred with respect to claims.
Master contract
Single contract coverage on a group basis issued
to an employer. Group members receive certificates as evidence
of membership summarizing benefits provided.
Medical Savings Accounts (MSAs)
Savings accounts that have tax advantages
combined with health insurance plans for the benefit of the
employee. Both the employer and the employee are permitted to
contribute to the MSA. The
G-5
contributions can be directed to pay the
deductible under the health insurance plan and/or the medical
expenses not covered by the health insurance plan. Funds not
spent are allowed to accumulate in the MSA on a continuous
basis. When the employee reaches retirement age, the accumulated
funds may be allocated to the employees retirement income.
Modified coinsurance
A form of reinsurance that differs from
coinsurance only in that the reserves continue to be held by the
ceding company while the risk is transferred to the reinsurer.
The reinsurer transfers funds to the ceding company for future
reserve increases and receives funds from the ceding company for
future reserve declines. The ceding company is required to pay
interest to the reinsurer to replace the income that would have
been earned by the reinsurer if it had held the assets backing
the reserves in its own investment portfolio.
Morbidity; Morbidity rate
Morbidity refers to the incidence of
disease or disability in a specific population over a specific
period of time. The morbidity rate refers to the
relationship of the incidence of disease or disability
contracted by individual members of a group to the entire group
membership over a specific period of time.
Mortality; Mortality rate
Mortality refers to the number of
deaths in a specific population over a specific period of time.
The mortality rate refers to the relationship of the
frequency of deaths of individual members of a group to the
entire group membership over a specific period of time.
National Association of Insurance
Commissioners (NAIC)
A voluntary organization of state insurance
officials that promulgates model laws regulating the insurance
industry, values securities owned by insurers, develops and
modifies insurer financial reporting, statements and insurer
performance criteria and performs other services with respect to
the insurance industry.
Net earned premiums and other
considerations
The amount of net premiums written allocable to
the expired period of an insurance policy or policies, including
fees earned on interest sensitive policies.
Persistency
Percentage of insurance policies or annuity
contracts remaining in force between specified measurement
dates. Also used with respect to premiums, to measure the amount
of annualized premium remaining in force on a stated collection
of policies between specified measurement dates.
Pre-arranged funeral contracts
An arrangement between a funeral firm and an
individual whereby the funeral firm agrees to perform a selected
funeral upon the individuals death.
Preferred Provider Organization
(PPO)
An entity that acts as an intermediary between an
insurer and a network of hospitals, physicians, dentists or
other providers of health care who have agreed to provide care
to insureds subject to contractually established reimbursement
rates.
G-6
Pre-funded funeral insurance; Pre-need | Insurance policies designed to provide benefits to fund the costs incurred in connection with pre-arranged funeral contracts, which costs typically include funeral firm merchandise and services. | |
Pro rata reinsurance | A generic term describing all forms of reinsurance in which the reinsurer shares on a pro rata basis part of the original premiums and losses of the reinsured. Pro rata reinsurance is also known as proportional reinsurance, quota share reinsurance or participating reinsurance. | |
Referable location | Every occurrence of a practitioner at a location. For example, if a dentist practices at three locations, there are three referable locations; or, if a single dental office has ten dentists, then there are ten referable locations. | |
Reinsurance | An arrangement in which an insurance company, the reinsurer, agrees to indemnify another insurance or reinsurance company, the ceding company, against all or a portion of the insurance or reinsurance risks underwritten by the ceding company under one or more policies. Reinsurance can provide a ceding company with several benefits, including a reduction in net liability on individual risks and catastrophe protection from large or multiple losses. Reinsurance also provides a ceding company with additional underwriting capacity by permitting it to accept larger risks and write more business than would be possible without a concomitant increase in capital and surplus, and facilitates the maintenance of acceptable financial ratios by the ceding company. Reinsurance does not legally discharge the primary insurer from its liability with respect to its obligations to the insured. | |
Renewable term life insurance | Term life insurance coverage that is renewable at the option of the insured, who is not required to take a medical examination in order to renew existing amounts of coverage. | |
Renters insurance | Coverage for the contents of a renters home or apartment and for liability. These policies are similar to homeowners insurance, except that they do not cover the structure. They do, however, cover changes made to the inside structure, such as kitchen appliances and built-in-bookshelves. | |
Reserves | Liabilities established by insurers and reinsurers to reflect the estimated costs of claim payments and the related expenses that the insurer or reinsurer will ultimately be required to pay in respect of insurance or reinsurance it has written. Reserves are established for losses, for loss expenses and for unearned premiums. Loss reserves consist of case reserves, or reserves established with respect to individual reported claims. Unearned premium reserves constitute the portion of premium paid in advance for insurance or reinsurance that has not yet been provided. See also Loss reserves. | |
Retention | The amount or portion of risk that an insurer retains for its own account. Losses in excess of the retention level up to the outer limit of the program, if any, are paid by the reinsurer. |
G-7
Retrocessionaire | A transaction whereby a reinsurer cedes to another reinsurer, the retrocessionaire, all or part of the reinsurance that the first reinsurer has assumed. Reinsurance companies cede risks to retrocessionaires for reasons similar to those that cause primary insurers to purchase reinsurance: to reduce net liability on individual risks, to protect against catastrophic losses, to stabilize financial ratios and to obtain additional underwriting capacity. | |
Risk management | Procedure to minimize the adverse effect of a possible financial loss by (1) identifying potential sources of loss; (2) measuring the financial consequences of a loss occurring; and (3) using controls to minimize actual losses or their financial consequences. | |
Risk-based capital requirement (RBC) | A tool used by insurance regulators to analyze an insurance companys total adjusted capital, taking into consideration the risks associated with the companys particular assets, the risk that losses will be worse than expected, the companys exposure to interest rate risk and other business risks. | |
Separate account | Assets of insurance companies allocated under certain policies and contracts that are segregated from the general account and other separate accounts. The policyholder or contractholder bears the risk of investments held in a separate account. | |
Standard industry code | An industry code assigned to an operating establishment by a U.S. government agency or agencies on the basis of the operating establishments primary activity, which is determined by its principal product or group of products produced or distributed or services rendered. While recently superceded by North American Industry Classification System (NAICS) codes, SIC codes remain in common use, and templates for translating one code to the other are readily available. |
Statutory accounting principles
(SAP) |
Recording transactions and preparing financial statements in accordance with the rules and procedures prescribed or permitted by United States state insurance regulatory authorities including the NAIC, which in general reflect a liquidating, rather than going concern, concept of accounting. | |
Statutory assets | Assets determined in accordance with SAP. This valuation methodology is generally considered very conservative, but is deemed most appropriate by regulators in evaluating solvency. | |
Statutory earnings | Earnings based on the conservative reserve requirements of various states. | |
Statutory net income | Net income based on the conservative reserve requirements of various states. | |
Statutory surplus | The excess of statutory admitted assets over statutory liabilities as shown on an insurers statutory financial statements. Admitted assets are those assets which are permitted or admitted by the National Association of Insurance Commissioners or by the rules of a given state. The assets deemed as nonadmitted are those assets which are accorded limited or no value and are charged off directly |
G-8
to statutory capital and surplus. Nonadmitted
assets are ones which are specifically identified in the
statutory accounting principals as nonadmitted or not
specifically identified as admitted.
Surrender charge
Fee charged to a policyholder when a life
insurance policy or annuity is surrendered for its cash value
prior to the end of the surrender charge period. This fee is
intended to recover policy acquisition costs and subsequent
administrative expenses.
Term life insurance
Life insurance written for a specified period and
under which no cash value is generally available on surrender.
If an insured dies within that period, the beneficiary receives
the death payments. If the insured survives, the policy ends and
the beneficiary receives nothing.
True group
Group insurance in which the employer or other
group policyholder pays all or part of the premium on behalf of
the insured members. This term is contrasted to
voluntary group insurance, in which the insured
members pay their own premium.
Turnkey
Built, supplied or installed complete and ready
to operate.
Unearned premium
The portion of premium that is allocable to the
unexpired portion of the policy term and, therefore, that has
not yet been earned.
Utilization review
Review designed to control and limit medical
expenses. This review includes: (1) requirement of
certification for admission to a health care facility;
(2) continuous analysis of the reasons for the patient to
remain in the health care facility; (3) projected date for
release of the patient; and (4) cost-effective ways of
handling patients with catastrophic illnesses.
Variable insurance
Investment-oriented life insurance policy that
offers fixed premiums and a minimum death benefit as well as
providing a return linked to an underlying portfolio of
securities that may be in either a separate account or general
account of the insurer.
Waiver of premium
In life insurance, provision in a policy pursuant
to which an insured, with total disability that lasts for a
specified period, no longer has to pay premiums for the duration
of the disability or for a stated period, during which time the
life insurance coverage provides continued protection.
Whole life insurance
A form of life insurance that provides guaranteed
death benefits and guaranteed cash values to policyholders.
G-9
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
The following table sets forth the expenses
payable by the Registrant in connection with the issuance and
distribution of the common stock being registered hereby. All of
such expenses are estimates, other than the filing and listing
fees payable to the Securities and Exchange Commission, the
New York Stock Exchange and the National Association of
Securities Dealers, Inc.
Section 145 of the Delaware General
Corporation Law (the DGCL) provides, in summary,
that directors and officers of Delaware corporations are
entitled, under certain circumstances, to be indemnified against
all expenses and liabilities (including attorneys fees)
incurred by them as a result of suits brought against them in
their capacity as a director or officer, if they acted in good
faith and in a manner they reasonably believed to be in or not
opposed to our best interests, and, with respect to any criminal
action or proceeding, if they had no reasonable cause to believe
their conduct was unlawful; provided that no indemnification may
be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to
us, unless and only to the extent that the court in which such
action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all
the circumstances of the case, they are fairly and reasonably
entitled to indemnity for such expenses which the court shall
deem proper. Any such indemnification may be made by us only as
authorized in each specific case upon a determination by the
stockholders, disinterested directors or independent legal
counsel that indemnification is proper because the indemnitee
has met the applicable standard of conduct.
Our certificate of incorporation and by-laws
provide that we will indemnify our directors and officers to the
fullest extent permitted by law and that no director shall be
liable for monetary damages to us or our stockholders for any
breach of fiduciary duty, except to the extent provided by
applicable law.
Fortis currently maintains liability insurance
for our directors and officers. In connection with the offering,
we will obtain additional liability insurance for our directors
and officers. Such insurance would be available to our directors
and officers in accordance with its terms.
Reference is made to the form of underwriting
agreement to be filed as Exhibit 1.1 hereto for provisions
providing that the underwriters and Fortis Insurance N.V. are
obligated under certain circumstances, to indemnify our
directors, officers and controlling persons against certain
liabilities under the Securities Act of 1933, as amended
(Securities Act).
II-1
During the period from 2000 to 2003, pursuant to
the Assurant Investment Plan, the Company granted to key
employees, in exchange for all or a portion of such
employees eligible compensation, options to purchase
shares or other equity interests in certain third-party mutual
funds, which shares or other equity interests have been
registered under the Securities Act. The option grants were made
by the Company in reliance on the exemptions from the
registration requirements of the Securities Act provided by
(a) Rule 701 under the Securities Act as issuances by
a company not subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (Exchange Act),
pursuant to a written compensatory benefit plan of such company
established for its directors and senior employees, and/or
(b) Section 4(2) of the Securities Act as issuances to
a limited number of sophisticated investors in transactions not
involving any public offering.
II-2
(a) Exhibits
II-3
(b) Financial
Statement Schedules
II-4
(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 underwriter to permit prompt delivery to each
purchaser.
(b) The undersigned
Registrant hereby undertakes that:
II-5
ITEM 13.
OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION.
$
163,741.60
$
250,000
$
30,500
$
2,750,000
*
$
1,700,000
$
20,000
*
*
*
*
*
To be provided by amendment.
ITEM 14.
INDEMNIFICATION OF DIRECTORS AND
OFFICERS.
Table of Contents
ITEM 15.
RECENT SALES OF UNREGISTERED
SECURITIES.
Table of Contents
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES.
Exhibit
Number
Description of Document
1.1
Underwriting Agreement.*
2.1
Agreement and Plan of Merger, dated as of
January 12, 2004, between Fortis, Inc. and Assurant,
Inc.
3.1
Form of Restated Certificate of Incorporation of
the Registrant.
3.2
Amended and Restated By-Laws of the
Registrant.
3.3
Form of Shareholders Agreement between the
Registrant and Fortis Insurance N.V.
3.4
Form of Registration Rights Agreement between the
Registrant and Fortis Insurance N.V.
4.1
Specimen Common Stock Certificate.
5.1
Opinion of Simpson Thacher & Bartlett LLP.**
10.1
Form of Cooperation Agreement, among the
Registrant, Fortis Insurance N.V., Fortis SA/ NV and Fortis
N.V.
10.2
Stock Option Plan.**
10.3
Assurant 2004 Long-Term Incentive Plan.
10.4
Supplemental Executive Retirement Plan, as
amended.**
10.5
Executive Pension and 401(k) Plan.**
10.6
Change in Control Severance Agreement with J.
Kerry Clayton.**
10.7
Change in Control Severance Agreement with Robert
B. Pollock.**
10.8
Change in Control Severance Agreement with
Benjamin M. Cutler.**
10.9
Change in Control Severance Agreement with Philip
Bruce Camacho.**
10.10
Change in Control Severance Agreement with Lesley
Silvester.**
10.11
Letter Agreement, dated October 17, 1997,
between Fortis, Inc. and Philip Bruce Camacho.**
10.12
Assurant Directors Compensation Plan.
10.13
Assurant 2004 Employee Stock Purchase Plan.
10.14
Assurant Executive Management Incentive Plan.**
10.15
Administrative Services Agreement, dated as of
November 13, 1997, among United Family Life Insurance
Company, Liberty Insurance Services Corporation, Fortis, Inc.
and The Liberty Corporation (Certain portions of this exhibit
have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential
treatment. The symbol XXX has been inserted in place
of the portions so omitted.).
10.16
Assurant Appreciation Incentive Rights Plan.**
10.17
Investment Plan.**
10.18
Consulting, Non-Compete and Payments Agreement,
dated July 19, 1999, among Fortis, Inc., Allen R. Freedman
and Fortis Insurance N.V.**
10.19
Retirement Agreement, dated July 19, 1999,
among Fortis, Inc., Allen R. Freedman and Fortis Insurance N.V.,
as amended.**
10.20
Credit Agreement, dated as of December 19,
2003, by and among Fortis, Inc., as the borrower, certain banks
and financial institutions, as the lenders, Morgan Stanley
Senior Funding, Inc. (MSFF), as bookrunner and lead
arranger, Merrill Lynch Capital Corp., as syndication agent,
Credit Suisse First Boston, as documentation agent, and MSFF, as
administrative agent for the lenders.
Table of Contents
Exhibit
Number
Description of Document
10.21
Parent Guaranty, dated as of December 19,
2003, by Fortis N.V. and Fortis SA/ NV, in favor of Morgan
Stanley Senior Funding, Inc., as administrative agent for and
representative of the lenders.
10.22
Credit Agreement, dated as of December 19,
2003, by and among Fortis, Inc., as the borrower, certain banks
and financial institutions, as the lenders, Citigroup Global
Markets Inc. (CGMI) and Morgan Stanley Senior
Funding, Inc. (MSSF), as joint bookrunners, CGMI,
MSSF and Banc One Capital Markets, Inc., as joint lead
arrangers, MSSF, as syndication agent, Citicorp North America
Inc., as documentation agent, and Bank One, NA, as
administrative agent for the lenders.
10.23
Parent Guaranty, dated as of December 19,
2003, by Fortis N.V. and Fortis SA/ NV, in favor of Bank One,
NA, as administrative agent for and representative of the
lenders.
10.24
Lease Agreement, dated October 1, 2000,
between Fortis Benefits Insurance Company and Fortis, Inc., as
amended.
10.25
Agreement, dated September 1, 2003, between
Fortis Insurance Company and its affiliates Fortis Benefits
Insurance Company and John Alden Life Insurance Company and
National Administration Company, Inc.**
21.1
Subsidiaries of the Registrant.**
23.1
Consent of PricewaterhouseCoopers LLP.
23.2
Consent of PricewaterhouseCoopers LLP.
23.3
Consent of Simpson Thacher & Bartlett
LLP (included as part of Exhibit 5.1).**
24.1
Power of Attorney (previously included on
signature pages to this Registration Statement).
*
To be filed by amendment.
**
Previously filed.
Filed herewith.
Summary of Investments Other Than
Investments in Related Parties.
Condensed Financial Information of Fortis, Inc.
Supplementary Insurance Information.
Reinsurance.
Valuation and Qualifying Accounts.
Table of Contents
ITEM 17.
UNDERTAKINGS.
(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 upon Rule 430A and contained in a 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.
(c)
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, 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 whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, as amended, the Registrant has duly caused this
Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in New
York, New York, on the 13th day of January, 2004.
Pursuant to the requirements of the Securities
Act of 1933, as amended, this Amendment No. 2 to
Registration Statement has been signed by the following persons
in the capacities indicated on the 13th day of January, 2004.
II-6
II-7
ASSURANT, INC.
By:
/s/ J. KERRY CLAYTON
Name:
J. Kerry Clayton
Title:
President and Chief
Executive Officer
Table of Contents
Signature
Title
*
H. Carroll Mackin
Director
*
Gilbert Mittler
Director
*
Georges Valckenaere
Director
*By:
/s/ KATHERINE GREENZANG
Katherine Greenzang
Attorney-in-Fact
Table of Contents
EXHIBIT INDEX
REPORT OF INDEPENDENT ACCOUNTANTS ON
To the Board of Directors of Fortis, Inc.
Our audits of the consolidated financial statements of Fortis, Inc. referred to
in our report dated March 28, 2003, except as to Note 23 as to which the date is
October 20, 2003 appearing in this Registration Statement of Assurant, Inc. on
Amendment No. 2 to Form S-1 also included an audit of the financial statement schedules listed in
Item 16(b). In our opinion, these financial statement schedules present fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
FORTIS, INC. AND SUBSIDIARIES
SCHEDULE I SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
FORTIS, INC. AND SUBSIDIARIES
Schedule II - CONDENSED BALANCE SHEET (Parent Only)
FORTIS, INC. AND SUBSIDIARIES
Schedule II -
CONDENSED STATEMENT OF OPERATIONS (Parent Only), continued
FORTIS, INC. AND SUBSIDIARIES
Schedule II - CONDENSED CASH FLOWS (Parent Only), continued
FORTIS, INC. AND SUBSIDIARIES
SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION
FORTIS, INC. AND SUBSIDIARIES
SCHEDULE IV REINSURANCE
FORTIS, INC. AND SUBSIDIARIES
SCHEDULE IV REINSURANCE, continued
FORTIS, INC. AND SUBSIDIARIES
Exhibit
Number
Description of Document
1.1
Underwriting Agreement.*
2.1
Agreement and Plan of Merger, dated as of
January 12, 2004, between Fortis, Inc. and Assurant,
Inc.
3.1
Form of Restated Certificate of Incorporation of
the Registrant.
3.2
Amended and Restated By-Laws of the
Registrant.
3.3
Form of Shareholders Agreement between the
Registrant and Fortis Insurance N.V.
3.4
Form of Registration Rights Agreement between the
Registrant and Fortis Insurance N.V.
4.1
Specimen Common Stock Certificate.
5.1
Opinion of Simpson Thacher & Bartlett LLP.**
10.1
Form of Cooperation Agreement, among the
Registrant, Fortis Insurance N.V., Fortis SA/ NV and Fortis
N.V.
10.2
Stock Option Plan.**
10.3
Assurant 2004 Long-Term Incentive Plan.
10.4
Supplemental Executive Retirement Plan, as
amended.**
10.5
Executive Pension and 401(k) Plan.**
10.6
Change in Control Severance Agreement with J.
Kerry Clayton.**
10.7
Change in Control Severance Agreement with Robert
B. Pollock.**
10.8
Change in Control Severance Agreement with
Benjamin M. Cutler.**
10.9
Change in Control Severance Agreement with Philip
Bruce Camacho.**
10.10
Change in Control Severance Agreement with Lesley
Silvester.**
10.11
Letter Agreement, dated October 17, 1997,
between Fortis, Inc. and Philip Bruce Camacho.**
10.12
Assurant Directors Compensation Plan.
10.13
Assurant 2004 Employee Stock Purchase Plan.
10.14
Assurant Executive Management Incentive Plan.**
10.15
Administrative Services Agreement, dated as of
November 13, 1997, among United Family Life Insurance
Company, Liberty Insurance Services Corporation, Fortis, Inc.
and The Liberty Corporation (Certain portions of this exhibit
have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential
treatment. The symbol XXX has been inserted in place
of the portions so omitted.).
10.16
Assurant Appreciation Incentive Rights Plan.**
10.17
Investment Plan.**
10.18
Consulting, Non-Compete and Payments Agreement,
dated July 19, 1999, among Fortis, Inc., Allen R. Freedman
and Fortis Insurance N.V.**
10.19
Retirement Agreement, dated July 19, 1999,
among Fortis, Inc., Allen R. Freedman and Fortis Insurance N.V.,
as amended.**
10.20
Credit Agreement, dated as of December 19,
2003, by and among Fortis, Inc., as the borrower, certain banks
and financial institutions, as the lenders, Morgan Stanley
Senior Funding, Inc. (MSFF), as bookrunner and lead
arranger, Merrill Lynch Capital Corp., as syndication agent,
Credit Suisse First Boston, as documentation agent, and MSFF, as
administrative agent for the lenders.
Table of Contents
Exhibit
Number
Description of Document
10.21
Parent Guaranty, dated as of December 19,
2003, by Fortis N.V. and Fortis SA/ NV, in favor of Morgan
Stanley Senior Funding, Inc., as administrative agent for and
representative of the lenders.
10.22
Credit Agreement, dated as of December 19,
2003, by and among Fortis, Inc., as the borrower, certain banks
and financial institutions, as the lenders, Citigroup Global
Markets Inc. (CGMI) and Morgan Stanley Senior
Funding, Inc. (MSSF), as joint bookrunners, CGMI,
MSSF and Banc One Capital Markets, Inc., as joint lead
arrangers, MSSF, as syndication agent, Citicorp North America
Inc., as documentation agent, and Bank One, NA, as
administrative agent for the lenders.
10.23
Parent Guaranty, dated as of December 19,
2003, by Fortis N.V. and Fortis SA/ NV, in favor of Bank One,
NA, as administrative agent for and representative of the
lenders.
10.24
Lease Agreement, dated October 1, 2000,
between Fortis Benefits Insurance Company and Fortis, Inc., as
amended.
10.25
Agreement, dated September 1, 2003, between
Fortis Insurance Company and its affiliates Fortis Benefits
Insurance Company and John Alden Life Insurance Company and
National Administration Company, Inc.**
21.1
Subsidiaries of the Registrant.**
23.1
Consent of PricewaterhouseCoopers LLP.
23.2
Consent of PricewaterhouseCoopers LLP.
23.3
Consent of Simpson Thacher & Bartlett
LLP (previously included as part of Exhibit 5.1).**
24.1
Power of Attorney (included on signature pages to
this Registration Statement).
*
To be filed by amendment.
**
Previously filed.
Filed herewith.
Table of Contents
FINANCIAL STATEMENT SCHEDULES
March 28, 2003, except as to Note 23
as to which the date is October 20, 2003
Table of Contents
AT DECEMBER 31, 2002
AMOUNT AT
AMORTIZED
WHICH SHOWN IN THE
COST
FAIR VALUE
BALANCE SHEET
(in thousands)
$
1,576,339
$
1,646,862
$
1,646,862
196,186
211,512
211,512
202,154
203,837
203,837
834,021
879,086
879,086
4,821,876
5,094,233
5,094,233
7,630,576
8,035,530
8,035,530
19
7
7
14,043
13,812
13,812
2,392
4,034
4,034
248,181
253,847
253,847
264,635
271,700
271,700
841,940
841,940
69,377
69,377
684,350
684,350
125,870
125,870
$
9,616,748
$
10,028,767
Table of Contents
AT DECEMBER 31, 2002
December 31,
2002
2001
(in thousands except number of
shares and per share amounts)
$
2,898,147
$
3,731,940
770,000
770,000
601
312
3,668,748
4,502,252
238,802
206,015
22,420
155,922
380,511
353,862
$
4,310,481
$
5,218,051
$
273,707
$
191,399
10,981
103,013
284,688
294,412
1,446,074
1,446,074
24,660
25,160
775
775
15
15
40
40
Additional paid-in capital
2,064,025
2,064,025
245,219
1,289,346
244,985
98,204
2,555,059
3,452,405
$
4,310,481
$
5,218,051
Table of Contents
For the years ended December 31, 2002, 2001, and 2000
Years Ended December 31,
2002
2001
2000
(in thousands)
$
186,550
$
615,400
$
241,920
81,629
76,180
67,104
99,605
1,994
17,570
24,435
26,211
285,749
815,620
337,229
32,697
69,375
73,284
118,395
132,371
134,869
151,092
201,746
208,153
134,657
613,874
129,076
16,390
4,338
31,624
151,047
618,212
160,700
(1,152,246
)
(520,159
)
(71,016
)
$
(1,001,199
)
$
98,053
$
89,684
Table of Contents
For the years ended December 31, 2002, 2001 and 2000
2002
2001
2000
(in thousands)
$
(1,001,199
)
$
98,053
$
89,684
1,152,246
520,159
71,016
161,739
(199,389
)
(67,052
)
21,605
19,195
20,440
(97,923
)
54,374
42,665
10,192
30,543
(3,732
)
246,660
522,935
153,021
(136,422
)
(5,000
)
(60,000
)
203,665
19,252
(142,921
)
(207,642
)
195,000
(34,023
)
(76,836
)
(27,918
)
(170,445
)
(21,092
)
(81,308
)
549,888
(3,664
)
(500
)
216,924
81,996
(455,907
)
(800,256
)
(42,928
)
(110,351
)
(22,058
)
(43,428
)
(352,998
)
(190,430
)
32,787
148,845
(118,717
)
206,015
57,170
175,887
$
238,802
$
206,015
$
57,170
Table of Contents
As of and for the years ended December 31, 2002, 2001 and 2000
SEGMENT (1)
DEFERRED
ACQUISITION
COST
FUTURE POLICY
BENEFITS, LOSSES,
CLAIMS AND LOSS
EXPENSE
UNEARNED
PREMIUMS
OTHER
POLICY
CLAIMS AND
BENEFITS
PAYABLE
PREMIUM
REVENUE
NET
INVESTMENT
INCOME
(in thousands)
$
1,018,749
$
334,038
$
3,013,731
$
1,037,766
$
2,077,277
$
205,037
22,198
1,791,680
1,232,942
147,722
158,142
118,432
537,163
1,833,656
55,268
136,703
2,683,887
4,775
29,132
537,721
183,634
2,619,202
48,499
148,120
40,167
1,313,594
5,637,127
3,207,635
3,543,861
5,681,596
631,828
861,625
358,474
3,090,281
1,039,794
1,906,426
218,213
28,405
1,680,367
933,594
144,378
138,768
99,358
511,405
1,837,839
58,073
94,372
2,493,277
3,157
25,917
506,716
179,093
2,540,268
45,996
147,944
57,610
112,025
$
1,094,765
$
5,392,019
$
3,267,197
$
3,405,427
5,242,185
711,782
1,780,547
211,596
903,148
135,470
1,966,982
58,319
276,640
128,396
217,058
156,951
$
5,144,375
$
690,732
BENEFITS CLAIMS,
AMORTIZATION OF
LOSSES AND
DEFERRED
SETTLEMENT
ACQUISITION
OTHER OPERATING
PREMIUMS
SEGMENT (1)
EXPENSES
COSTS
EXPENSES
WRITTEN
$
755,140
$
638,074
$
811,112
$
1,109,819
944,593
422,230
1,222,049
64,029
482,057
507,363
80,370
62,144
54,246
3,429,145
782,473
1,831,789
1,109,819
639,905
613,607
830,716
1,058,619
737,802
316,310
1,306,477
42,967
452,528
484,736
64,936
55,936
70,005
7,713
111,921
3,238,925
729,223
1,767,411
1,058,619
525,270
493,692
810,722
1,017,156
701,704
280,004
1,498,060
37,572
433,661
279,437
39,448
36,081
203,583
19,454
417,466
$
3,208,054
$
590,166
$
1,977,934
$
1,017,156
Table of Contents
For the years ended December 31, 2002, 2001 and 2000
PERCENTAGE
CEDED TO
ASSUMED FROM
OF AMOUNT
GROSS
OTHER
OTHER
ASSUMED
2002:
AMOUNT
COMPANIES
COMPANIES
NET AMOUNT
TO NET
(in thousands)
$
192,247,499
$
67,628,124
$
3,016,082
$
127,635,457
2.4
%
1,792,276
796,026
100,532
1,096,782
9.2
%
4,065,768
1,046,245
268,211
3,287,734
8.2
%
1,955,494
805,337
146,923
1,297,080
11.3
%
$
7,813,538
$
2,647,608
$
515,666
$
5,681,596
9.1
%
1,748,556
1,036,256
123,395
835,695
14.8
%
2,343,568
462,206
211,440
2,092,802
10.1
%
705,911
358,393
153,130
500,648
30.6
%
$
4,798,035
$
1,856,855
$
487,965
$
3,429,145
14.2
%
Table of Contents
For the years ended December 31, 2002, 2001 and 2000
ASSUMED FROM
PERCENTAGE OF
CEDED TO OTHER
OTHER
AMOUNT
2001:
GROSS AMOUNT
COMPANIES
COMPANIES
NET AMOUNT
ASSUMED TO NET
(in thousands)
$
196,838,543
$
77,457,972
$
8,834,532
$
128,215,103
6.9
%
2,013,923
967,318
68,151
1,114,756
6.1
%
4,202,525
1,196,376
94,514
3,100,663
3.0
%
1,645,924
692,109
72,951
1,026,766
7.1
%
$
7,862,372
$
2,855,803
$
235,616
$
5,242,185
4.5
%
1,517,288
718,510
101,565
900,343
11.3
%
2,372,343
507,843
71,683
1,936,183
3.7
%
614,759
331,324
118,964
402,399
29.6
%
$
4,504,390
$
1,557,677
$
292,212
$
3,238,925
9.0
%
Table of Contents
for the years ended December 31, 2002, 2001, 2000
SCHEDULE IV REINSURANCE, continued
ASSUMED FROM
PERCENTAGE OF
CEDED TO OTHER
OTHER
AMOUNT
2000:
GROSS AMOUNT
COMPANIES
COMPANIES
NET AMOUNT
ASSUMED TO NET
(in thousands)
$
214,324,599
$
56,637,599
$
9,344,731
$
167,031,731
5.6
%
1,494,003
577,257
148,601
1,065,347
13.9
%
4,518,997
1,318,274
86,321
3,287,044
2.6
%
1,417,177
680,799
55,606
791,984
7.0
%
$
7,430,177
$
2,576,330
$
290,528
$
5,144,375
5.6
%
741,403
79,541
134,240
796,102
16.9
%
2,558,916
483,992
56,719
2,131,643
2.7
%
480,710
289,817
89,416
280,309
31.9
%
$
3,781,029
$
853,350
$
280,375
$
3,208,054
8.7
%
Table of Contents
FORTIS, INC. AND SUBSIDIARIES
SCHEDULE V VALUATION AND QUALIFYING ACCOUNTS
As of December 31, 2002, 2001, 2000
Additions
Balance at
Charged to
Charged to
Balance at
Beginning of
Costs and
Other
End of
Year
Expenses
Accounts
Deductions
Year
(in thousands)
$
25,091
$
$
$
5,985
19,106
30,929
6,488
1,930
35,487
1,232
276
55
1,085
478
$
57,252
$
6,764
$
55
$
9,000
$
55,071
$
25,091
$
$
$
$
25,091
21,152
14,153
4,376
30,929
646
1,041
70
525
1,232
$
46,889
$
15,194
$
70
$
4,901
$
57,252
$
28,225
$
$
$
3,134
$
25,091
16,650
6,796
2,294
21,152
4,189
402
3,945
646
$
49,064
$
7,198
$
$
9,373
$
46,889
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Merger Agreement"), dated as of January 12, 2004, between Fortis, Inc., a Nevada corporation ("Parent"), and Assurant, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Subsidiary").
BACKGROUND
WHEREAS, Parent is a Nevada corporation named Fortis, Inc. having its address at One Chase Manhattan Plaza, 41st Floor, New York, NY 10005;
WHEREAS, Subsidiary is a Delaware corporation named Assurant, Inc. having its address at One Chase Manhattan Plaza, 41st Floor, New York, NY 10005;
WHEREAS, Subsidiary will be the Surviving Corporation (as defined below). The Surviving Corporation will be a Delaware corporation with the name Assurant, Inc., having its address at One Chase Manhattan Plaza, 41st Floor, New York, NY 10005;
WHEREAS, Parent and Subsidiary have entered into this Merger Agreement for the purpose of moving the Parent's jurisdiction from Nevada to Delaware, which requires the merger of Parent with and into Subsidiary (the "Merger");
WHEREAS, each of the respective Boards of Directors of Parent and Subsidiary have approved the Merger upon the terms and subject to the conditions set forth in this Merger Agreement; and
WHEREAS, Parent and Subsidiary desire to set forth the terms of, and also to prescribe various conditions to, the consummation of the Merger;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I.
THE MERGER
1.1 The Merger. At the Effective Time (as defined in
Section 1.2 hereof), in accordance with this Merger Agreement, the General
Corporation Law of the State of Delaware, as amended (the "DGCL"), and Chapter
92A of the Nevada Revised Statutes, as amended (the "NRS"), Parent shall be
merged with and into Subsidiary in the Merger, the separate existence of Parent
shall cease and Subsidiary shall continue as the surviving corporation (the
"Surviving Corporation"). From and after the Effective Time, the Surviving
Corporation shall possess all
the rights, privileges, powers and franchises, of a public as well as a private nature, and shall be subject to all debts, liabilities and duties, of Parent and Subsidiary all with the effect set forth in the DGCL and the NRS.
1.2 Closing.
(a) Unless the Merger Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to the provisions of Article III hereof, the closing (the "Closing") of the Merger shall take place at the offices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York 10017 or at such other place and on a date and at a time mutually agreeable to the parties hereto. The date and time of such Closing are herein referred to as the "Closing Date."
(b) Concurrently with the Closing, the parties hereto will cause the Merger to be consummated by (i) executing and delivering to the Secretary of State of the State of Delaware a certificate of merger in compliance with the DGCL (the "Delaware Certificate of Merger") and (ii) executing and delivering to the Secretary of State of the State of Nevada articles of merger in compliance with Nevada law (the "Nevada Articles of Merger"), and will make all other filings or recordings as may be required under the DGCL and the NRS in connection with the Merger. The Merger shall become effective (the "Effective Time") upon the filing of the Delaware Certificate of Merger and the Nevada Articles of Merger or upon such later time as specified in both the Delaware Certificate of Merger and the Nevada Articles of Merger.
1.3 Certificates of Incorporation; Bylaws; Directors and Officers; Name. The Certificate of Incorporation of Subsidiary will be amended and restated prior to the Effective Time in substantially the form attached hereto as Exhibit A (the "Restated Certificate of Incorporation") and as such shall be the Certificate of Incorporation of the Surviving Corporation, until thereafter amended as provided therein and under the DGCL. The By-Laws of Subsidiary will be amended and restated prior to the Effective Time in substantially the form attached hereto as Exhibit B and as such shall be the Bylaws of the Surviving Corporation, until thereafter amended as provided therein and under the DGCL. The directors of Subsidiary immediately prior to the Effective Time shall be the directors of the Surviving Corporation, and the officers of Parent immediately prior to the Effective Time shall be initial officers of the Surviving Corporation, in each case until their successors are duly elected and qualified. The name of the Surviving Corporation shall be "Assurant, Inc."
ARTICLE II.
STATUS AND CONVERSION OF SHARE AND PAYMENT THEREFOR
2.1 Conversion of Shares. At the Effective Time:
(a) Each share of Class A Common Stock, par value $0.10 per share, of Parent issued and outstanding immediately prior to the Effective Time ("Parent Class A
Common Stock") shall by virtue of the Merger and without any action on the part of the holder thereof be converted into 10.75882039 validly issued, fully paid shares of Common Stock, par value $0.01 per share, of the Surviving Corporation.
(b) Each share of Class B Common Stock, par value $0.10 per share, of Parent issued and outstanding immediately prior to the Effective Time shall by virtue of the Merger and without any action on the part of the holder thereof be converted into one validly issued, fully paid share of Class B Common Stock, par value $0.01 per share, of the Surviving Corporation with such terms and conditions as shall be set forth in the Restated Certificate of Incorporation.
(c) Each share of Class C Common Stock, par value $0.10 per share, of Parent issued and outstanding immediately prior to the Effective Time shall by virtue of the Merger and without any action on the part of the holder thereof be converted into one validly issued, fully paid share of Class C Common Stock, par value $0.01 per share, of the Surviving Corporation with such terms and conditions as shall be set forth in the Restated Certificate of Incorporation.
(d) Each share of Series B Preferred Stock, par value $1.00 per share, of Parent issued and outstanding immediately prior to the Effective Time shall by virtue of the Merger and without any action on the part of the holder thereof be converted into one validly issued, fully paid share of Series B Preferred Stock, par value $1.00 per share, of the Surviving Corporation with such terms and conditions as shall be set forth in the Restated Certificate of Incorporation.
(e) Each share of Series C Preferred Stock, par value $1.00 per share, of Parent issued and outstanding immediately prior to the Effective Time shall by virtue of the Merger and without any action on the part of the holder thereof be converted into one validly issued, fully paid share of Series C Preferred Stock, par value $1.00 per share, of the Surviving Corporation with such terms and conditions as shall be set forth in the Restated Certificate of Incorporation.
(f) All of the shares of common stock of Subsidiary issued and outstanding immediately prior to the Effective Time shall by virtue of the Merger and without any action on the part of the holder thereof be canceled.
2.2 Additional Rights; Taking of Necessary Action; Further Action. Parent and Subsidiary shall each use its best efforts to take all such action as may be necessary or appropriate in order to effectuate the Merger under the DGCL and the NRS as promptly as possible. If at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Merger Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of either of Parent or Subsidiary, the officers of such corporation are fully authorized in the name of their corporation or otherwise to take, and shall take, all such lawful and necessary action.
TERMINATION, AMENDMENT AND WAIVER
3.1 Termination. Subject to applicable law, this Merger Agreement may be terminated at any time prior to the Effective Time, notwithstanding approval of this Merger Agreement by the stockholders of any of the parties hereto, by the boards of directors of each of the parties hereto.
3.2 Amendment. Subject to applicable law, this Merger Agreement may be amended at any time prior to the Effective Time by the boards of directors of the parties hereto; provided that after the adoption of this Merger Agreement by the stockholders of any constituent corporation no amendment shall be made which by law requires the further approval of such stockholders without such further approval; and provided further that no amendment shall be made except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto.
3.3 Extension; Waiver. At any time prior to the Closing Date, any party hereto which is entitled to the benefits hereof may (a) extend the time for the performance of any of the obligations or other acts of any of the other parties hereto or (b) waive compliance with any of the agreements of any of the other parties hereto. Any agreement on the part of a party hereto to any extension or waiver shall be valid if set forth in an instrument in writing signed and delivered on behalf of such party.
ARTICLE IV.
OTHER PROVISIONS
4.1 Successors and Assigns. This Merger Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns.
4.2 No Benefit to Others. The covenants and agreements contained in this Merger Agreement are for the sole benefit of the parties hereto and their respective successors and permitted assigns and they shall not be construed as conferring and are not intended to confer any rights on any other persons.
4.3 Severability. The provisions of this Merger Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Merger Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision, and (b) the remainder of this Merger Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof in any other jurisdiction.
4.4 Governing Law. This Merger Agreement will be governed by and construed in accordance with the law of the State of Delaware.
4.5 Counterparts. This Merger Agreement may be executed in two or more counterparts, all of which will be considered one and the same agreement and will become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.
4.6 Interpretation. Article titles and headings to sections are inserted for convenience of reference only and are not intended to be a part or to affect the meaning or interpretation hereof. As used herein, "include" is deemed to be followed by "without limitation" whether or not it is in fact followed by such words or words of like import; "writing", "written" and comparable terms refer to printing, typing, lithography and other means of reproducing words in a visible form; references to a person are also to its successors and permitted assigns; "hereof", "herein", "hereunder" and comparable terms refer to the entirety hereof and not to any particular article, section or other subdivision hereof; references to any gender include references to other genders and references to the singular include references to the plural and vice versa; references to this Merger Agreement or other documents are as amended or supplemented from time to time; references to "Article", "Section" or another subdivision are to an article, section or subdivision hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Merger Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above.
FORTIS, INC.,
a Nevada corporation
By: /s/ J. Kerry Clayton ________________________________ Name: J. Kerry Clayton Title: President and CEO |
ASSURANT, INC.,
a Delaware corporation
By: /s/ J. Kerry Clayton ________________________________ Name: J. Kerry Clayton Title: President and CEO |
Exhibit 3.1
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
ASSURANT, INC.
The present name of the corporation is Assurant, Inc. The corporation was incorporated under the name "Assurant, Inc." by the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on October 10, 2003. This Restated Certificate of Incorporation of the corporation, which both restates and further amends the provisions of the corporation's Certificate of Incorporation, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware. The Certificate of Incorporation of the corporation is hereby amended and restated to read in its entirety as follows:
FIRST: The name of the corporation is Assurant, Inc.
SECOND: The registered office and registered agent of the corporation is The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
THIRD: The purposes of the corporation are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
FOURTH: (1) The total number of shares of all classes of stock which the corporation shall have authority to issue is 1,000,550,002, consisting of (a) 200,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred Stock"), (b) 800,000,000 shares of Common Stock, par value $0.01 per share ("Common Stock"), (c) 150,001 shares of Class B Common Stock, par value $0.01 per share ("Class B Common Stock") and (d) 400,001 shares of Class C Common Stock, par value $0.01 per share ("Class C Common Stock").
(2) The Board of Directors is hereby expressly authorized, by resolution or resolutions, to provide, out of the unissued shares of Preferred Stock, the designation of each series of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and fix the voting power, full or limited or no voting power, the powers, preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.
(3) (a) Each holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided, however, that, to the fullest extent permitted by law, holders of Common Stock, as such, shall have no voting power with respect to, and shall not be entitled to vote on, any amendment to this Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock, the Class B Common Stock or the Class C Common Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series or classes, to vote thereon pursuant to this Restated Certificate of Incorporation (including any certificate of designations
relating to any series of Preferred Stock) or pursuant to the General Corporation Law of the State of Delaware.
(b) Except as otherwise required by law, holders of a series of Preferred Stock, the Class B Common Stock or the Class C Common Stock, as such, shall be entitled only to such voting rights, if any, as shall expressly be granted thereto by this Restated Certificate of Incorporation (including any certificate of designations relating to such series or class of stock).
(c) Subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock, the Class B Common Stock or the Class C Common Stock or any class or series of stock having a preference over or the right to participate with the Common Stock with respect to the payment of dividends, dividends may be declared and paid on the Common Stock at such times and in such amounts as the Board of Directors in its discretion shall determine.
(d) Upon the dissolution, liquidation or winding up of the corporation, subject to the rights, if any, of the holders of any outstanding series of Preferred Stock, the Class B Common Stock or the Class C Common Stock or any class or series of stock having a preference over or the right to participate with the Common Stock with respect to the distribution of assets of the corporation upon such dissolution, liquidation or winding up of the corporation, the holders of the Common Stock, as such, shall be entitled to receive the assets of the corporation available for distribution to its stockholders ratably in proportion to the number of shares held by them.
(4) The Class B Common Stock and the Class C Common Stock shall have the powers, preferences, rights, qualifications, limitations and restrictions set forth on Schedule 1 hereto and Schedule 2 hereto, respectively, which are hereby incorporated herein by reference. Upon conversion of all shares of Class B Common Stock and all shares of Class C Common Stock into Common Stock, all such shares of Class B Common Stock and Class C Common Stock shall be retired and become authorized but unissued shares of Class B Common Stock and Class C Common Stock, as applicable, but such shares may not be reissued.
FIFTH: Except as otherwise provided in the By-Laws, the Board of Directors shall be authorized to make, amend, alter, change, add to or repeal the By-Laws of the corporation in any manner not inconsistent with the laws of the State of Delaware, subject to the power of the stockholders to amend, alter, change, add to or repeal the By-Laws made by the Board of Directors.
SIXTH: Except as otherwise provided by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended, no director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by law. Any repeal or modification of this Article SIXTH by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification.
SEVENTH: (1) The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors with the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the Board of Directors, which, subject to any rights of holders of any series of Preferred Stock, the Class B Common Stock or the Class C Common Stock to elect directors, for so long as the Fortis Group owns at least 50% of the outstanding Common Stock of the Corporation, shall consist of not more than 14 directors and for so long as the Fortis Group owns at least 10% of the outstanding Common Stock of the Corporation but less than 50%, shall consist of not more than 12 directors.
The directors shall be divided into three classes designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of directors constituting the entire Board of Directors. Class I directors shall be originally elected for a term expiring at the first succeeding annual meeting of stockholders following the effectiveness of this Restated Certificate of Incorporation, Class II directors shall be originally elected for a term expiring at the second succeeding annual meeting of stockholders following the effectiveness of this Restated Certificate of Incorporation, and Class III directors shall be originally elected for a term expiring at the third succeeding annual meeting of stockholders following the effectiveness of this Restated Certificate of Incorporation. Commencing at the first annual meeting of stockholders following the effectiveness of this Restated Certificate of Incorporation, successors to the class of directors whose term expires at that annual meeting shall be elected for a term expiring at the third succeeding annual meeting. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a newly created directorship resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case shall a decrease in the number of directors remove or shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Subject to the second paragraph of Article II, Section 2 of the By-Laws as in effect on the date of effectiveness of this Restated Certificate of Incorporation until such provision terminates in accordance with its terms, any newly created directorship on the Board of Directors that results from an increase in the number of directors and any vacancy occurring in the Board of Directors shall be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor.
(2) Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock issued by the corporation, the Class B Common Stock or the Class C Common Stock shall have the right, voting separately as a series or separately as a class with one or more such other series, to elect directors at an annual or special meeting of stockholders, the election, term of office, removal, filling of vacancies and other features of such directorships shall be governed by the terms of this Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article Seventh unless expressly provided by such terms.
(3) Subject to Article II, Section 10 of the By-Laws as in effect on the date of effectiveness of this Restated Certificate of Incorporation until Article II, Section 10 terminates in accordance with its terms, any director may be removed with cause, by holders of at least two-thirds of the outstanding voting power then entitled to vote at an election of directors. No director may be removed without cause.
EIGHTH: Any action required or permitted to be taken by the holders of the Common Stock of the corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Notwithstanding this Article EIGHTH, the holders of any series of Preferred Stock of the corporation shall be entitled to take action by written consent to such extent, if any, as may be provided in the terms of such series. Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock, the Class B Common Stock or the Class C Common Stock, special meetings of stockholders of the corporation may be called only by the Chief Executive Officer of the corporation or by the Board of Directors pursuant to a resolution approved by the Board of Directors.
NINTH: Notwithstanding anything contained in this Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least two-thirds of all the outstanding voting power of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required (i) to alter, amend or repeal Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH or this Article NINTH of this Restated Certificate of Incorporation or to adopt any provision inconsistent therewith, (ii) to approve any merger or consolidation with or into any other Person (as hereinafter defined); (iii) to approve the sale, lease, exchange, transfer (by liquidation or otherwise) or other disposition of all or substantially all of the corporation's properties and assets of the corporation's and its Subsidiaries (as hereinafter defined), taken as a whole to any Person (as hereinafter defined) or Persons, whether in a single transaction or a series of related transactions or (iv) for the stockholders to alter, amend or repeal Section 2 and Section 11 of Article I of the By-Laws, Sections 1, 6 and 7 of Article II of the By-Laws, Article X of the By-Laws or the proviso to Article IX of the By-Laws or to adopt any provision inconsistent with any of such Sections or with such proviso of the By-Laws.
TENTH: For purposes of Articles SEVENTH and NINTH the following terms shall have the following meanings:
(a) "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person other than an officer or director of such Person. For the purpose of this definition, the term "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
(b) "Fortis Group" means Fortis SA/NV a public company established as a societe anonyme/naamloze vennootschap under the laws of Belgium and Fortis N.V., a public company established as a naamloze vennootschap under the laws of the Netherlands, and its Affiliates.
(c) "Person" means an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. The term "Persons" shall exclude Affiliates of the corporation. The term "Person" and "Persons" shall include any person or group of persons within the meaning of the Securities Exchange Act of 1934, as amended.
(d) "Subsidiary" means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person.
IN WITNESS WHEREOF, Assurant, Inc. has caused this certificate to be signed by Katherine Greenzang, its Senior Vice President, General Counsel and Secretary, this ___ day of _______, 2004.
ASSURANT, INC.
By: ________________________
Name:
Title:
SCHEDULE 1
TERMS OF
CLASS B COMMON STOCK
OF
ASSURANT, INC.
ARTICLE 1
DEFINITIONS
SECTION 1.01 Definitions. In this Schedule 1 to the Restated Certificate of Incorporation, unless the context otherwise requires:
"AFFILIATE" means, with respect to a specified Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such specified Person.
"BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
"BOOK-ENTRY INTEREST" means a beneficial ownership in the Class B Shares, ownership and transfers of which are maintained through book entries of the Registrar as set forth in Section 9.04(b) of this Schedule 1.
"BUSINESS DAY" means any day on which commercial and foreign exchange markets settle payments in each of London, England, New York, New York and Chicago, Illinois.
"CERTIFICATE OF INCORPORATION" means the Restated Certificate of Incorporation of the Corporation.
"CLASS B SHARE LIQUIDATION AMOUNT" means, with respect to each Class B Share, an amount equal to the greater of (i) its liquidation preference of US$1,000, plus an amount (whether or not declared) equal to US$1,000 multiplied by the Class B Share Indicative Rate multiplied by a fraction, the numerator of which is the number of days in the current Dividend Period that have passed prior to the date on which the liquidation occurs and the denominator of which is the total number of days in the current Dividend Period and (ii) an amount equal to the amount that would be payable with respect to such Class B Share if, immediately prior to the dissolution, liquidation or winding up of the Corporation, such Class B Share were converted into the Corresponding Number of Junior Shares.
"CLASS B SHARE LIQUIDATION PREFERENCE" means $1,000 per share.
"CLASS B SHARES" has the meaning set forth in Section 2.01.
"CLASS C SHARES" means the Class C Common Stock, par value $0.01 per share, of the Corporation.
"CLEARING AGENCY" means the clearing agency with respect to the Class B Shares.
"CODE" means the United States Internal Revenue Code of 1986, as amended.
"COMMON SHARES" means the shares of Common Stock, par value $0.01 per share, of the Corporation.
"CORPORATION" means Assurant, Inc., a Delaware corporation.
"DEPOSITARY" means the Depositary Trust Company.
"DIVIDEND" means a cash distribution to holders of the Class B Shares from the Corporation with respect to any applicable Dividend Period and payable on an applicable Dividend Date.
"DIVIDEND DATE" means the 1st day of March and September in each year (or the next Business Day if such day is not a Business Day) commencing March 1, 2004, with respect to Dividends on the Class B Shares.
"DIVIDEND PERIOD" means a period from the Merger Effective Date (in case of the first Dividend Period) or, in all other cases, a period from a Dividend Date with respect to the Class B Shares to but excluding the next succeeding Dividend Date for the Class B Shares.
"FORTIS INSURANCE" means Fortis Insurance N.V., a company with limited liability incorporated as naamloze vennootschap under Dutch law.
"IAI" means a Person that is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act or the analog provisions of any successor rule.
"INITIAL PUBLIC OFFERING" means the initial public offering of the Corporation pursuant to which Fortis Insurance is selling Common Shares registered pursuant to a Registration Statement on Form S-1 under the Securities Act of 1933, as amended, on a broadly distributed basis, not limited to sophisticated investors, pursuant to a firm-commitment or best-efforts underwriting arrangement.
"IPO PRICE" means the price per share at which the Common Shares will be initially offered to the public in the Initial Public Offering as set forth on the cover page to the prospectus with respect thereto.
"IRS" means the United States Internal Revenue Service.
"LIBOR DETERMINATION DATE" means the LIBOR Determination Date with respect to the Class B Shares, initially March 1, 2005, and thereafter will be two Business Days prior to each Dividend Date occurring thereafter.
"MERGER EFFECTIVE DATE" means the effective date of the merger of Fortis, Inc., a Nevada corporation, with and into the Corporation, as defined in the Agreement and Plan of Merger, to be entered into by Fortis, Inc. and the Corporation.
"MINIMUM NET WORTH AMOUNT" initially means $1.6 billion. The Minimum Net Worth Amount will be increased by the proceeds paid to the Corporation in consideration for the issuance and sale of additional Class B Shares or Class C Shares or any of its preferred stock ranking pari passu with or senior to the Class B Shares or Class C Shares with respect to the payment of dividends or amounts payable upon liquidation. The Minimum Net Worth Amount will be reduced by the amounts paid to purchase or redeem any Class B Shares or Class C Shares or any of its preferred stock ranking pari passu with or senior to the Class B Shares or the Class C Shares, but only by an amount equal to the liquidation preference of such shares. The net worth of the Corporation will be determined in accordance with US GAAP.
"1940 ACT" means the U.S. Investment Company Act of 1940, as amended.
"OUTSTANDING", when used with reference to shares of stock, means issued shares, excluding shares held by the Corporation or a subsidiary.
"PARTNERSHIP I" means Fortis (US) Funding Partners I LP, a Delaware limited partnership.
"PARTNERSHIP TAX EVENT" means any one of the following: (i) Trust I or Partnership I becoming subject to more than a de minimis amount of taxes or similar assessments, (ii) RegCaPS I Payments are not effectively deductible in computing the taxable income of Fortis Insurance for Dutch corporate income tax purposes; (iii) Dividends received by Partnership I are included in the taxable income of Fortis Insurance for Dutch income tax purposes; or (iv) RegCaPS I Payments are subject to withholding tax in The Netherlands.
"PERSON" means any individual, corporation, association, partnership (general or limited), joint venture, trust, estate, limited liability company, or other legal entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
"PREFERRED STOCK" means the 19,160 shares of Series B Preferred Stock of the Corporation to be issued on the Merger Effective Date and the 5,000 shares of Series C Preferred Stock of the Corporation to be issued on the Merger Effective Date.
"QIB" means a qualified institutional buyer within the meaning of Rule 144A under the Securities Act.
"REGCAPS I" means the regulatory capital partnership securities of Partnership 1.
"REGCAPS I PAYMENT DATE" means the 1st day of March and September in each year (or the next Business Day if such Day is not a Business Day) commencing September 1, 2000 with respect to the RegCaPS I Payments (as defined below).
"REGCAPS I PAYMENT PERIOD" means a period from and including the date of the original issuance of the RegCaPS I in the case of the first RegCaPS I Payment Period or, in all other cases, a RegCaPS 1 Payment Date with respect to the RegCaPS I to but excluding the next succeeding RegCaPS I Payment Date for the RegCaPS I.
"REGCAPS I PAYMENTS" means cash distributions to the holders of the RegCaPS I from Partnership I with respect to any applicable RegCaPS I Payment Period and payable on an applicable RegCaPS I Payment Date.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as amended.
"SERIES B PREFERRED STOCK" means the Series B Preferred Stock of the Corporation, liquidation preference $1,000 per share.
"SERIES C PREFERRED STOCK" means the Series C Preferred Stock of the Corporation, liquidation preference $1,000 per share.
"SIX-MONTH LIBOR" means with respect to any LIBOR Determination Date, a rate determined on the basis of the offered rates for six-month United States dollar deposits of not less than a principal amount equal to that which is representative for a single transaction in such market at such time, commencing on the second Business Day immediately following such LIBOR Determination Date, which appears on US LIBOR Telerate Page 3750 (or a successor page) as of approximately 11:00 a.m., London time, on such LIBOR Determination Date.
If on any LIBOR Determination Date no rate appears on US LIBOR
Telerate Page 3750 (or a successor page) as of approximately 11:00 a.m., London
time, the Paying Agent shall on such LIBOR Determination Date request the four
major reference banks in the London interbank market selected by the Paying
Agent to provide the Paying Agent with a quotation of the rate at which
six-month deposits in United States dollars, commencing on the second Business
Day immediately following such LIBOR Determination Date, are offered by it to
prime banks in the London interbank market as of approximately 11:00 a.m.,
London time, on such LIBOR Determination Date and in a principal amount equal to
that which is representative for a single transaction in such market at such
time. If at least two such quotations are provided, Six-Month LIBOR for such
LIBOR Determination Date will be the arithmetic mean of such quotations as
calculated by the Paying Agent. If fewer than two quotations are provided,
Six-Month LIBOR for such LIBOR Determination Date will be the arithmetic mean of
the rates quoted as of approximately 11:00 a.m., London time, on such LIBOR
Determination Date by three major banks in the London interbank market selected
by the Paying Agent for loans in United States dollars to leading European
banks, having a six-month maturity commencing on the second Business Day
immediately following such LIBOR Determination Date and in a principal amount
equal to that which is representative for a single transaction in such market at
such time; provided, however, that, if the banks selected as aforesaid by the
Paying Agent are not quoting as mentioned in this sentence, Six-Month LIBOR for
such LIBOR Determination Date will be Six-Month LIBOR determined with respect to
(i) the immediately preceding Dividend
Period for purposes of the Class B Shares and (ii) the immediately preceding RegCaPS I Payment Period for purposes of the RegCaPS I.
"SPECIAL INDEPENDENT DIRECTORS" means the independent directors of the Corporation elected by the holders of the Class B Shares upon the failure of the Corporation to pay Dividends for five consecutive Dividend Periods.
"TRANSFER AGENT" means the transfer agent with respect to the Class B Shares which shall initially be the Corporation.
"TRUST I" means Fortis (US) RegCaPS Funding Trust I, a Delaware statutory business trust.
"TRUST CAPITAL SECURITIES I" means 150,000 trust capital securities, liquidation preference US$1,000 each, representing undivided beneficial ownership interests in Trust I.
"TRUST SECURITIES I" means the Trust Capital Securities I, together with the Trust Common Securities I, liquidation preference US$100 each, representing undivided beneficial ownership interests in Trust I.
"US GAAP" means the generally accepted accounting principles in the United States.
ARTICLE 2
NUMBER AND DESIGNATION
SECTION 2.01 Number and Designation. The Class B Common Stock of the Corporation shall consist of 150,001 shares of Class B Common Stock, par value $0.01 per share, of the Corporation and shall be designated as CLASS B COMMON STOCK (the "CLASS B SHARES"). The Class B Shares shall have a liquidation preference of one thousand dollars ($1,000) per share.
ARTICLE 3
RANK
SECTION 3.01 Rank. (a) The Class B Shares shall, only with respect to payments of dividends at the Class B Share Indicative Rate (as defined below) and with respect to the payment of the Class B Share Liquidation Amount upon the liquidation, dissolution and winding up of the Corporation, rank senior to all of the Common Shares. In all other respects, the Class B Shares shall rank pari passu with the Common Shares and participate equally with the Common Shares with respect to dividends and other distributions paid by the Corporation and with respect to any amounts payable upon its liquidation, dissolution or winding up. The Class B Shares will rank junior in all respects to any indebtedness of the Corporation, and to the Preferred Stock. The Class B Shares shall rank pari passu with the Class C Shares for all purposes. All securities of the Corporation to which the Class B Shares ranks prior (whether with respect to dividends or upon liquidation, dissolution, winding up or otherwise), including
the Common Shares, are collectively referred to herein as the "JUNIOR SHARES." The definition of Junior Shares shall also include any rights or options exercisable for or convertible into any of the Junior Shares.
(b) Without prior consent of the holders of not less than a majority of the outstanding Class B Shares, the Corporation shall not issue any class or series of equity securities whose terms provide that such securities rank senior or pari passu with the Class B Shares with respect to the rights to receive dividends and other distributions or with respect to any amounts payable upon liquidation, dissolution or winding up. If the Corporation has paid in full the lesser of (i) each of its last four Dividends in full at the Class B Share Indicative Rate on their respective Dividend Payment Dates or (ii) prior to the fourth scheduled Dividend Payment Date, all Dividends that could have been paid on the Class B Shares, the Corporation may issue an unlimited amount of additional Class B Shares and other equity securities ranking pari passu with the Class B Shares without the consent of the holders of the Class B Shares.
ARTICLE 4
DIVIDENDS
SECTION 4.01 Rate; Dividend Date. (a) Each Class B Share shall be entitled to receive cash Dividends on a non-cumulative basis, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends on each Dividend Date commencing March 1, 2004. The Corporation expects that the Dividend will be declared initially at a rate at least equal to a fixed rate of 7.48% of the stated liquidation preference of $1,000 per Class B Share and after March 1, 2005, at a variable rate of Six-Month LIBOR plus 1.10%, reset semiannually (the "CLASS B SHARE INDICATIVE RATE"). The amount of Dividends will be computed on the basis of a 365- or 366-day year, as the case may be, and the actual number of days in such Dividend Period divided by 365 or 366, as the case may be. When Dividends are paid on the Class B Shares at less than the Class B Share Indicative Rate, all Dividends declared on the Class B Shares will be paid pro rata.
(b) The Paying Agent will calculate Six-Month LIBOR as of each LIBOR Determination Date and shall make such rate calculation available to holders of Class B Shares. The Paying Agent also shall determine the Dividends payable on each Dividend Date and give notice thereof (including the applicable rate, amount, the applicable period and payment) to the holders of Class B Shares. The notices set forth in this paragraph shall be sent by first class mail to the address of each holder of Class B Shares as it appears on the register kept by the Registrar and shall be available at the offices of the Paying Agent.
SECTION 4.02 Dividend Restrictions. (a) No cash dividend or other distribution may be declared or paid or set apart for payment on any Junior Shares and neither the Corporation nor any of its Affiliates may purchase or redeem for cash any outstanding Junior Shares, unless:
(i) full Dividends have been declared and paid or set apart for payment on the Class B Shares in an amount at least equal to the greater of (A) the Dividends payable during such Dividend Period at the Class B Share Indicative Rate or (B) the dividends
paid by the Corporation on the Corresponding Number of Junior Shares (as defined below) during such Dividend Period (treating any cash payment in connection with a purchase or redemption of Junior Shares by the Corporation as a cash dividend);
(ii) Partnership I has paid the full amount of RegCaPS I Payments for the current RegCaPS I Payment Period; and
(iii) such repurchase or redemption does not cause the net worth of the Corporation to be less than the Minimum Net Worth Amount.
(b) (i) If a Dividend is paid on the Class B Shares during any Dividend Period at a rate less than the Class B Share Indicative Rate, the Corporation may not make any dividend payments on the Junior Shares and may only make dividend payments on its other securities that rank pari passu with the Class B Shares, if any, in the same proportion as the partial Dividend paid on the Class B Shares for the current Dividend Period bears to the full Dividend payment determined for such Dividend Period at the Class B Share Indicative Rate.
(ii) For so long as the RegCaPS I are outstanding, if a partial RegCaPS I Payment is made for any RegCaPS I Payment Period, the Corporation may not make any dividend payments on its Junior Shares and may only make dividend payments on its other securities that rank pari passu with the Class B Shares in the same proportion as the lesser of (i) the proportion the partial RegCaPS I Payment made for the current RegCaPS I Payment Period bears to the RegCaPS I Payment determined for such RegCaPS I Payment Period and (ii) the proportion the partial Dividend paid on the Class B Shares for the corresponding Dividend Period bears to the Dividend payment determined for such Dividend Period at the Class B Share Indicative Rate.
Additionally, for so long as the Trust Capital Securities I, RegCaPS I or Class B Shares are outstanding, all shares of common or preferred stock issued by majority-owned subsidiaries of the Corporation which shares are not beneficially owned by the Corporation or its wholly-owned subsidiaries will be subject to the restrictions set forth above on the payment of dividends and other payments.
(c) The various payment restrictions and obligations described in
Section 4.02 above and applicable in respect of any Dividend Period or RegCaPS I
Payment Period in which a Dividend on the Class B Shares is not paid in any
amount at least equal to the Class B Share Indicative Rate or the full amount of
RegCaPS I Payments is not paid shall apply, mutatis mutandis, to the extent that
any Gross-Up Payment (as defined below) to Qualified Investors (as defined
below) is not declared and paid or set apart for payment as and when due in
respect of a fiscal year; provided that such payment restrictions and
obligations will remain in effect, not only during the current Dividend Period
or RegCaPS I Payment Period, but until such Gross-Up Payment is declared and
paid or set apart for payment.
(d) For purposes of determining whether the Dividends paid or set apart for payment on the Class B Shares for a Dividend Period are sufficient to permit a cash dividend or other distribution on the Junior Shares or a purchase or redemption of Junior Shares for cash, each Class B Share will correspond to a specific number of Junior Shares (the "CORRESPONDING
NUMBER OF JUNIOR SHARES"). The initial Corresponding Number of Junior Shares will be 2.2996 Common Shares, which the Board of Directors has determined reflects the fair value of a single Class B Share relative to the fair value of a single Junior Share, and will be subject to adjustment if the Corporation (A) pays all or a portion of a dividend or other distribution with respect to any class of Junior Shares by issuing additional Junior Shares, (B) subdivides or splits the outstanding shares of any class of its Junior Shares into a larger number of shares, (C) combines the outstanding shares of any class of its Junior Shares into a smaller number of shares or (D) issues by reclassification of the shares of any class of its Junior Shares any shares of any other class of Junior Shares. In any such event, the Corresponding Number of Junior Shares will be multiplied by a fraction, the numerator of which is the number of Junior Shares outstanding immediately after such event and the denominator of which is the number of Junior Shares outstanding immediately before such event. If, as a result of such event, any class of Junior Shares other than Common Shares is outstanding, the number of such other Junior Shares equivalent to one Common Share shall be determined by the Board of Directors in good faith for purposes of making the foregoing adjustment to the Corresponding Number of Junior Shares.
(e) The Corporation intends that the holders of the RegCaPS I and the Trust Capital Securities I shall be third party beneficiaries of, and entitled to enforce, the provisions of this Section 4.02, as if such provisions constituted a contract between the Corporation and the holders of the Class B Shares, and the holders of the RegCaPS I and the Trust Capital Securities I were third-party beneficiaries to such contract.
SECTION 4.03 Issuance, Purchase and Redemption of Junior Shares. Other than in the circumstances described in Section 4.02 above, the Corporation shall not issue any Junior Shares or purchase or redeem any outstanding Junior Shares unless, prior to such issuance, purchase or redemption, the Board of Directors determines in good faith that the terms of such issuance, purchase or redemption reflect the fair value of the Junior Shares to be issued, purchased or redeemed. In addition, the Corporation will not purchase or redeem any Junior Shares if such purchase or redemption would cause the net worth of the Corporation (determined in accordance with US GAAP), as of the last day of the most recently ended fiscal quarter and after giving affect to such purchase or redemption, to be less than the Minimum Net Worth Amount.
SECTION 4.04 Payment of Dividends. Dividends and other payments on the Class B Shares will be payable to the holders thereof as they appear on the books and records of the Corporation on the relevant record dates, which will be one Business Day prior to the relevant Dividend Date or other payment date. Such Dividends will be paid through the Paying Agent who will hold amounts received from the Corporation in respect of the Class B Shares for the benefit of the holders of the Class B Shares. In the event that any Class B Shares do not remain in book-entry only form, the relevant record dates shall be the 15th day of the month of the relevant Dividend Date or other payment date. In the event that any Dividend Date is not a Business Day, payment of the Dividends payable on such date will be made on the next succeeding day which is a Business Day (without any interest or other payment in respect of the dividends subject to such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. If a Dividend is not paid in full on the applicable Dividend Date, notice of the failure to pay such Dividend will be sent to each
holder of Class B Shares by first-class mail to such holder's address as shown in the register kept by the Registrar.
SECTION 4.05 Intentionally Omitted.
SECTION 4.06 Earnings and Profits Gross-up Payments. (a) To the extent that dividends paid with respect to the Class B Shares or Common Shares exceed the Corporation's earnings and profits as calculated for U.S. federal income tax purposes, they will not constitute dividends for U.S. federal income tax purposes and will not qualify for the dividends-received deduction. In such event, additional distributions will be made by the Corporation to place each holder of the Class B Shares in the same position it would have been in if all dividends from the Corporation were paid from such earnings and profits, assuming for these purposes that such holder was eligible for the dividends-received deduction.
(b) If any Dividend on the Class B Shares with respect to any fiscal year (including any Gross-Up Payment (as defined below)) constitutes, in whole or in part, a return of capital (or is treated as gain from the sale or exchange of the Class B Shares) (a "QUALIFYING DIVIDEND"), the Corporation will pay (if declared), within 180 days after the end of such fiscal year, out of funds legally available therefor, an amount equal to the aggregate Gross-Up Payments to Qualified Investors (as defined below) with respect to all Qualifying Dividends on the Class B Shares during such fiscal year. A "QUALIFIED INVESTOR" with respect to a Qualifying Dividend during a fiscal year means a person who was entitled to receive such Qualifying Dividend.
(c) A "GROSS-UP PAYMENT" to a Qualified Investor with respect to all Qualifying Dividends during a fiscal year means an additional Dividend on the Class B Shares to a Qualifying Investor in an amount which, when taken together with the aggregate Qualifying Dividends paid to such Qualified Investor during such fiscal year, would cause such Qualified Investor's net yield in dollars (after U.S. federal income tax consequences and treating, for purposes of calculating net yield in dollars, the sum of that portion of the Qualifying Dividends and the Gross-Up Payment otherwise treated as a return of capital as capital gain recognized upon the taxable sale or exchange of Class B Shares) from the aggregate of both the Qualifying Dividends and the Gross-Up Payment to be equal to the net yield in dollars (after U.S. federal income tax consequences) which would have been received by such Qualified Investor if the entire amount of the aggregate Qualifying Dividends had instead been treated as a dividend for U.S. federal income tax purposes. Such Gross-Up Payment shall be calculated using the applicable maximum marginal U.S federal corporate income tax rate applicable to ordinary income and capital gains, as the case may be, and, where applicable, the dividends-received deduction, as specified in Section 243(a)(i) of the Code or any successor provision, without consideration being given to the time value of money, the U.S. federal income tax situation of any specific Qualified Investor, or any state or local tax consequences that may arise. The Corporation shall make a determination, based upon the reasonably estimated earnings and profits of that portion, if any, of a Qualifying Dividend for a fiscal year that will be treated as dividend for U.S. federal income tax purposes, and such determination shall be final and binding for purposes of calculating the amount of the Gross-Up Payments with respect to all Qualifying Dividends for such fiscal year.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.01 Liquidation Preference. (a) In the event of any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, after payment or provision for the liabilities of the Corporation and the expenses of such dissolution, liquidation or winding up, the holders of the outstanding Class B Shares will be entitled to receive out of the assets of the Corporation or proceeds thereof available for distribution to holders of Class B Shares, before any payment or distribution of assets is made to holders of the Common Shares or any other Junior Shares, the Class B Share Liquidation Amount. If the assets of the Corporation available for distribution in such event are insufficient to pay in full the aggregate amount payable to holders of the Class B Shares and holders of all other classes or series of equity securities of the Corporation, if any, ranking, as to the distribution of assets upon dissolution, liquidation or winding up of the Corporation, on a parity with the Class B Shares, the assets will be distributed to the holders of Class B Shares and holders of such other equity interests pro rata, based on the full respective preferential amounts to which they are entitled. After payment of the full amount of the distribution of assets upon dissolution, liquidation or winding up of the Corporation to which they are entitled, the holders of Class B Shares will not be entitled to any further participation in any distribution of assets by the Corporation.
(b) Notwithstanding Section 5.01(a) above, holders of Class B Shares will not be entitled to be paid any amount in respect of a dissolution, liquidation or winding up of the Corporation until holders of any classes or series of securities of the Corporation ranking, as to the distribution of assets upon dissolution, liquidation or winding up of the Corporation, prior to the Class B Shares have been paid all amounts to which such classes or series are entitled. At the time of issuance of the Class B Shares, no class or series of securities of the Corporation ranking prior to the Class B Shares with respect to the distribution of assets upon dissolution, liquidation or winding up of the Corporation exists other than the Series B Preferred Stock and Series C Preferred Stock.
(c) Notwithstanding anything else in this Schedule 1, neither the
sale, lease or exchange (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property and assets of the
Corporation, nor the merger, consolidation or combination of the Corporation
into or with any other person or the merger, consolidation or combination of any
other person into or with the Corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purposes of this
Section 5.01.
ARTICLE 6
REDEMPTION
SECTION 6.01 Optional Redemption. (a) The Class B Shares will not be subject to mandatory redemption at any time. Prior to March 1, 2030, Class B Shares will not be subject to optional redemption. On or after March 1, 2030, Class B Shares may be redeemed at the option of the Corporation at any time, in whole but not in part, at their fair market value (the "REDEMPTION AMOUNT") as determined by a nationally recognized investment bank retained by
the Corporation, based on the amount that would have been payable with respect to such Class B Share if the Corporation were liquidated as of the applicable redemption date and, immediately prior to such liquidation, such Class B Share were converted into the Corresponding Number of Junior Shares.
SECTION 6.02 Procedure for Redemption. (a) Notice of any redemption
of the Class B Shares (a "REDEMPTION NOTICE") will be given by the Corporation
by mail to each holder of Class B Shares not fewer than 30 nor more than 60 days
before the date fixed for redemption. For purposes of the calculation of the
date of redemption and the dates on which notices are given pursuant to this
Section 6.02(a), a Redemption Notice shall be deemed to be given on the day such
notice is first mailed, by first-class mail, postage prepaid, to holders of the
Class B Shares. Each Redemption Notice shall be addressed to the holders of
Class B Shares at the address of each such holder appearing in the books and
records of the Corporation. No defect in the Redemption Notice or in the mailing
thereof with respect to any holder of Class B Shares shall affect the validity
of the redemption proceedings with respect to any other holder of Class B
Shares.
(b) If the Corporation gives a Redemption Notice (which notice will be irrevocable), then by 12:00 noon, New York City time, on the redemption date, the Corporation (A) if the Class B Shares are in book-entry form with the Depositary Trust Company ("DTC"), will deposit irrevocably with DTC funds sufficient to pay the applicable Redemption Amount and will give DTC irrevocable instructions and authority to pay the Redemption Amount in respect of the Class B Shares held through DTC in global form or (B) if the Class B Shares are held in certificated form (each such certificate a "CLASS B SHARE CERTIFICATE"), will deposit with the Paying Agent, funds sufficient to pay the applicable Redemption Amount of any such Class B Shares and will give to the Paying Agent irrevocable instructions and authority to pay such amounts to the holders of Class B Shares, upon surrender of their certificates, by delivery of check, mailed to the address of the relevant holder appearing on the books and records of the Corporation on the redemption date. For these purposes, the applicable Redemption Amount shall not include Dividends which are being paid to holders of Class B Shares who were holders of Class B Shares on a relevant record date. Upon satisfaction of the foregoing conditions, then immediately prior to the close of business on the date of such deposit or payment, all rights of holders of Class B Shares so called for redemption will cease, except the right of the holders of Class B Shares to receive the Redemption Amount, but without interest on such Redemption Amount, and from and after the date fixed for redemption, such Class B Shares will not receive dividends or bear interest.
(c) In the event that any date fixed for redemption of Class B Shares is not a Business Day, then payment of the Redemption Amount payable on such date will be made on the next succeeding Business Day (and without any interest in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day in each case, with the same force and effect as if made on such date fixed for redemption. In the event that payment of the Redemption Amount is improperly withheld or refused and not paid by the Corporation, Dividends on the Class B Shares called for redemption will continue to be payable in accordance with the terms hereof from the original redemption date until the Redemption Amount is actually paid.
(d) The Corporation shall not be required to register or cause to be registered the transfer of any Class B Shares which have been called for redemption.
(e) Except as provided in Article 10, the Class B Shares which have been issued and reacquired in any manner, including shares purchased or redeemed, shall (upon compliance with any applicable provisions of the laws of the State of Delaware) have the status of authorized and unissued Class B Shares and may be reissued.
ARTICLE 7
VOTING RIGHTS
SECTION 7.01 Voting Rights. (a) The holders of the Class B Shares will be entitled to one vote per share and will be entitled to vote with the Common Shares as a single class on all matters submitted to a vote of the Common Shares (other than those matters affecting only the Common Shares). Except as provided in Article 10, prior to transferring ownership of any Class B Shares to a transferee other than Partnership I or Trust I, such Class B Shares shall be converted to the same number of shares of a class of stock of the Corporation (the "CONVERSION SHARES") having rights, preferences and privileges substantially identical to the Class B Shares except that the Conversion Shares will be entitled to no voting rights other than as required by law and other than with respect to adverse amendments to the terms of the Conversion Shares and the issuance of equity securities that rank senior to or pari passu with the Conversion Shares with respect to the payment of dividends or amounts upon liquidation.
(b) The holders of the Class B Shares and the Conversion Shares will be entitled to vote separately as a single class on the matters described in this paragraph. The consent of the holders of not less than a majority of the outstanding Class B Shares and Conversion Shares, voting as a single class, is required (i) to amend, alter, supplement or repeal the terms of the Class B Shares and the Conversion Shares (it being a condition to any such amendment, alteration, supplement or repeal that it have a substantially identical effect on the rights, preferences and privileges of both the Class B Shares and the Conversion Shares), or (ii) if the Corporation has not paid in full the lesser of (A) each of the last four Dividends on their respective Dividend Payment Dates or (B) prior to the fourth scheduled Dividend Payment Date, all Dividends that could have been paid on the Class B Shares and the Conversion Shares, for the Corporation to issue, or to increase the authorized amount of, the Class B Shares or the Conversion Shares or any other equity securities that rank pari passu with or senior to the Class B Shares and the Conversion Shares. Further, if the Corporation has paid in full the lesser of (A) each of the last four Dividends at the Class B Share Indicative Rate on their respective Dividend Payment Dates or (B) prior to the fourth scheduled Dividend Payment Date, all Dividends that could have been paid on the Class B Shares and the Conversion Shares, the Corporation may issue an unlimited amount of additional Class B Shares and Conversion Shares and other equity securities that rank pari passu with the Class B Shares and the Conversion Shares without the consent of the holders of the Class B Shares or the Conversion Shares.
(c) Whenever Dividends on the Class B Shares and the Conversion Shares are in arrears for five or more consecutive Dividend Periods, the holders of Class B Shares and the Conversion Shares, voting as a single class will be entitled, subject to any necessary regulatory
actions, to elect two Special Independent Directors to the Board of Directors, subject to any necessary regulatory actions, at a special meeting called by the holders of record of at least 25% of the Class B Shares and the Conversion Shares in the aggregate. The Special Independent Directors shall vacate office if Dividends are resumed and are paid regularly for at least two consecutive Dividend Periods.
(d) Notwithstanding the foregoing, the Corporation shall have the
right, without the prior consent of the holders of Class B Shares, to amend,
alter, supplement or repeal any terms of the Class B Shares (i) to cure any
ambiguity, or to cure, correct or supplement any defective provision thereof or
(ii) to make any other provision with respect to matters or questions arising
with respect to the Class B Shares that is not inconsistent with the provisions
thereof so long as such action does not materially and adversely affect any of
the rights, preferences and privileges of the holders of Class B Shares,
provided, however, that any increase in the amount of authorized or issued Class
B Shares will be deemed not to materially and adversely affect any of the
rights, preferences and privileges of the holders of Class B Shares.
(e) The consent or votes required in Section 7.01(b) and (c) above shall be in addition to any approval of stockholders of the Corporation which may be required by law or pursuant to any provision of the Corporation's Certificate of Incorporation or By-Laws, which approval shall be obtained by vote of the stockholders of the Corporation in the manner provided in Section 7.01(a) above.
SECTION 7.02 No Affiliate Voting. (a) Notwithstanding that holders of Class B Shares are entitled to vote or consent under any of the circumstances described above, any of the Class B Shares at such time that are beneficially owned by the Corporation or by any entity directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Corporation shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding, provided, however, that persons (other than Affiliates of the Corporation) to whom the Corporation or any of its subsidiaries have pledged Class B Shares may vote or consent with respect to such pledged Class B Shares pursuant to the terms of such pledge; provided, further, that any Class B Shares held in the trust may be voted in accordance with this Certificate; provided that any Class B Shares held by Partnership I or Trust I may be voted in accordance with the terms of the Class B Shares by Trust I or Partnership I, respectively.
ARTICLE 8
MERGER, CONSOLIDATION OR AMALGAMATION OF THE CORPORATION
SECTION 8.01 Merger, Consolidation or Amalgamation of the Corporation. The Corporation may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to, any corporation or other entity, except as described below. The Corporation may, with the consent of at least one of the Special Independent Directors, if any, on the Board of Directors at the time the issue is considered and without the consent of the holders of the Class B Shares, consolidate, amalgamate, merge with or into, or be replaced by a corporation organized as such under the laws of any State of the United States; provided, that:
(a) if the Corporation is not the survivor, such successor entity either (x) expressly assumes all of the obligations of the Corporation under the Class B Shares or (y) substitutes securities for the Class B Shares (the "SUCCESSOR SECURITIES"), so long as the Successor Securities rank the same as the Class B Shares rank with respect to Dividends and other payments thereon;
(b) such merger, consolidation, amalgamation or replacement does not adversely affect any of the rights, preferences and privileges of the holders of the Class B shares (including any Successor Securities) in any material respect;
(c) prior to such merger, consolidation, amalgamation or replacement, the Corporation has received an opinion of a nationally recognized law firm experienced in such matters to the effect that (i) such merger, consolidation, amalgamation or replacement will not adversely affect any of the rights, preferences and privileges of the holders of the Class B Shares (including any Successor Securities) in any material respect and (ii) following such merger, consolidation, amalgamation or replacement, the Corporation (or such successor entity) will not be required to register under the 1940 Act; and
(d) distributions with respect to the Successor Securities would be eligible for the dividends-received deduction.
ARTICLE 9
TRANSFER OF CLASS B SHARES
SECTION 9.01 General. The Corporation shall provide for the registration of Class B Share Certificates and for transfers of Class B Share Certificates. Upon surrender for registration of transfer of any Class B Share Certificate, the Corporation shall cause one or more new Class B Share Certificates to be issued in the name of the designated transferee or transferees. Every Class B Share Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Corporation duly executed by the holder of such Class B Shares or his or her attorney duly authorized in writing. Each Class B Share Certificate surrendered for registration of transfer shall be cancelled by the Corporation. A transferee of a Class B Share Certificate shall be entitled to the rights and subject to the obligations of a holder of Class B Shares hereunder upon the receipt by the transferee of a Class B Share Certificate, which receipt shall be deemed to constitute a request by such transferee that the books and records of the Corporation reflect such transferee as a holder of Class B Shares.
SECTION 9.02 Definitive Certificates. Unless and until the Corporation issues a global Class B Share Certificate pursuant to Section 9.03(a), the Corporation shall only issue definitive Class B Share Certificates to the holders of Class B Shares. The Corporation may treat the Person in whose name any Class B Share Certificate shall be registered on the books and records of the Corporation as the sole holder of such Class B Share Certificate and of the Class B Shares represented by such Class B Share Certificate for purposes of receiving Dividends and for all other purposes whatsoever (including without limitation, tax returns and information reports) and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in
such Class B Share Certificate or in the Class B Shares represented by such Class B Share Certificate on the part of any other Person, whether or not the Corporation shall have actual or other notice thereof.
SECTION 9.03 Book Entry Provisions.
(a) General. The provisions of this Section 9.03(a) shall apply only
in the event that the Class B Shares are distributed to the holders of RegCaPS I
or Trust Securities I in connection with the involuntary or voluntary
dissolution, winding up or liquidation of Partnership 1 or of Trust I. Upon the
occurrence of such event, a global Class B Share Certificate representing the
Book-Entry Interests shall be delivered to DTC, the initial Clearing Agency, by,
or on behalf of, the Corporation and any previously issued and still outstanding
definitive Class B Share Certificates shall be of no further force and effect.
The global Class B Share Certificate shall initially be registered on the books
and records of the Corporation in the name of Cede & Co., the nominee of DTC,
and no holder of Class B Shares will receive a new definitive Class B Share
Certificate representing such holder's interests in such Class B Share
Certificate, except as provided in Section 9.03(c). In connection with the
involuntary or voluntary dissolution, winding up or liquidation of Partnership I
and of Trust I, Cede & Co., the nominee of DTC, shall automatically be deemed to
be the holder of all of the Class B Shares. Unless and until new definitive,
fully registered Class B Share Certificates (the "DEFINITIVE CLASS B SHARE
CERTIFICATES") have been issued to the holders of Class B Shares pursuant to
Section 9.03(c):
(i) The provisions of this Section shall be in full force and effect;
(ii) The Corporation shall be entitled to deal with the Clearing Agency for all purposes of this Certificate (including the payment of Dividends, Redemption Amounts and liquidation proceeds on the Class B Share Certificates and receiving approvals, votes or consents hereunder) as the sole holder of the Class B Share Certificates and shall have no obligation to the holders of Class B Shares;
(iii) None of the Corporation, the Board of Directors, or any Special Independent Director or any agents of any of the foregoing shall have any liability or responsibility for any aspect of the records relating to or Dividends made on account of beneficial ownership interests in a global Class B Share Certificate for such beneficial ownership interests or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests; and
(iv) Except as provided in Section 9.03(c) below, the holders of Class B Shares will not be entitled to receive physical delivery of the Class B Shares in definitive form and will not be considered holders thereof for any purpose under this Certificate of Designations, and no global Class B Share Certificate representing Class B Shares shall be exchangeable, except for another global Class B Share Certificate of like denomination and tenor to be registered in the name of DTC or Cede & Co., or to a successor Depositary or its nominee. Accordingly, each holder of Class B Shares must rely on the procedures of DTC or if such person is not a Participant, on the procedures of
the Participant through which such person owns its interest to exercise any rights of a holder under this Certificate of Designations.
(b) Notices to Clearing Agency. Whenever a notice or other communication to the holders of Class B Shares is required under the Partnership Agreement, unless and until definitive Class B Share Certificates shall have been issued to the holders of Class B Shares pursuant to Section 9.03(c), the Corporation shall give all such notices and communications specified herein to be given to the holders of Class B Shares to the Clearing Agency, and shall have no obligations to the holders of Class B Shares.
(c) Definitive Class B Share Certificates. Definitive Class B Share Certificates shall be prepared by the Corporation and exchangeable for the global Class B Share Certificate or Certificates if and only if (i) the Depositary notifies the Corporation that it is unwilling or unable to continue its services as a securities Depositary and no successor Depositary shall have been appointed, (ii) the Depositary, at any time, ceases to be a Clearing Agency registered under the Exchange Act at such time as the Depositary is required to be so registered to act as such Depositary and no successor Depositary shall have been appointed, or (iii) the Corporation, in its sole discretion, determines that such global Class B Share Certificate shall be so exchangeable. Upon surrender of the global Class B Share Certificate or Certificates representing the Book-Entry Interests by the Clearing Agency, accompanied by registration instructions, the Corporation shall cause definitive Class B Share Certificates to be delivered to holders of Class B Shares in accordance with the instructions of the Clearing Agency. The Corporation shall not be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. The definitive Class B Share Certificates shall be printed, lithographed or engraved or may be produced in any other manner as may be required by any national securities exchange on which Class B Shares may be listed and is reasonably acceptable to the Corporation, as evidenced by its execution thereof
SECTION 9.04 Registrar, Transfer Agent and Paying Agent.
(a) The Corporation will act as Registrar, Transfer Agent and Paying Agent for the Class B Shares for so long as the Class B Shares are held by Partnership I or, if Partnership I is liquidated in connection with a Partnership Tax Event, for so long as the Class B Shares remain in book-entry only form.
(b) Except in such case where the Corporation shall act as Registrar or Paying Agent pursuant to Section 9.04(a) hereof, the Corporation shall maintain in the Borough of Manhattan, City of New York, State of New York (i) an office or agency where Class B Shares may be presented for registration of transfer or for exchange ("REGISTRAR") and (ii) an office or agency where Class B Shares may be presented for payment ("PAYING AGENT"). The Registrar shall keep a register of the Class B Shares and of their transfer and exchange. The Corporation may appoint the Registrar and the Paying Agent and may appoint one or more co-registrars and one or more additional paying agents in such other locations as it shall determine. The term "PAYING AGENT" includes any additional paying agent. The Corporation may change any Paying Agent, Registrar or co-registrar without prior notice to any holder. If the Corporation fails to appoint or maintain another entity as Registrar or Paying Agent, the Corporation shall act as such.
(c) Registration of transfers of Class B Shares shall be effected without charge by or on behalf of the Corporation, but upon payment (with the giving of such indemnity as the Corporation may require) in respect of any tax or other governmental charges that may be imposed.
SECTION 9.05 Transfer Restrictions. The Class B Shares may only be transferred (i) to QIBs and (ii) to IAIs who, if they are not QIBs, prior to such transfer, furnish to the Corporation or the Transfer Agent a signed letter containing certain representations and agreements relating to restrictions on transfer by such IAI. The foregoing restriction may be waived if the Corporation, in its sole discretion, determines such restrictions are no longer necessary to preserve the Corporation's exemptions from registration requirements under the Securities Act, the Securities Exchange Act and the 1940 Act. Any purported purchase or transfer of the Class B Shares in violation of such restrictions will be null and void. Furthermore the Corporation may also require the sale of Class B Shares held by holders who fail to comply with the foregoing.
ARTICLE 10
CONVERSION OF CLASS B SHARES
SECTION 10.01 Conversion of Class B Shares. Upon closing of the Initial Public Offering, each issued and outstanding Class B Share shall convert automatically (without any action required on the part of the holder) into a number of Common Shares equal to the Class B Share Liquidation Preference divided by the IPO Price. The Class B Shares which have been converted shall be retired and become authorized but unissued shares of Class B Common Stock, but such shares may not be reissued.
ARTICLE 11
GENERAL PROVISIONS
SECTION 11.01 General Provisions. The headings of the paragraphs, subparagraphs. clauses and subclauses of this Certificate of Designations are for convenience of reference only and shall not define, limit or affect any of the provisions hereof.
SCHEDULE 2
TERMS OF
CLASS C COMMON STOCK
OF
ASSURANT, INC.
ARTICLE 1
DEFINITIONS
SECTION 1.01 Definitions. In this Schedule 2 to Restated Certificate of Incorporation, unless the context otherwise requires:
"AFFILIATE" means, with respect to a specified Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such specified Person.
"BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
"BOOK-ENTRY INTEREST" means a beneficial ownership in the Class C Shares, ownership and transfers of which are maintained through book entries of the Registrar as set forth in Section 9.04(b) of this Schedule 2.
"BUSINESS DAY" means any day on which commercial and foreign exchange markets settle payments in each of London, England, New York, New York and Chicago, Illinois.
"CERTIFICATE OF INCORPORATION" means the Restated Certificate of Incorporation of the Corporation.
"CLASS B SHARES" means shares of Class B Common Stock, par value $0.01 per share, of the Corporation.
"CLASS C SHARES" has the meaning set forth in Section 2.01.
"CLASS C SHARE LIQUIDATION AMOUNT" means, with respect to each Class C Share, an amount equal to the greater of (i) its liquidation preference of US$1,000, plus an amount (whether or not declared) equal to US$1,000 multiplied by the Class C Share Indicative Rate multiplied by a fraction, the numerator of which is the number of days in the current Dividend Period that have passed prior to the date on which the liquidation occurs and the denominator of which is the total number of days in the current Dividend Period and (ii) an amount equal to the amount that would be payable with respect to such Class C Share if, immediately prior to the dissolution, liquidation or winding up of the Corporation, such Class C Share were converted into the Corresponding Number of Junior Shares.
"CLASS C SHARE LIQUIDATION PREFERENCE" means $1,000 per share.
"CLEARING AGENCY" means the clearing agency with respect to the Class C Shares.
"CODE" means the United States Internal Revenue Code of 1986, as amended.
"COMMON SHARES" means the shares of Common Stock, par value $0.01 per share, of the Corporation.
"CORPORATION" means Assurant, Inc., a Delaware corporation.
"DEPOSITARY" means the Depositary Trust Company.
"DIVIDEND" means a cash distribution to holders of the Class C Shares from the Corporation with respect to any applicable Dividend Period and payable on an applicable Dividend Date.
"DIVIDEND DATE" means the 1st day of March and September in each year (or the next Business Day if such day is not a Business Day) commencing March 1, 2004, with respect to Dividends on the Class C Shares.
"DIVIDEND PERIOD" means a period from the Merger Effective Date (in case of the first Dividend Period) or, in all other cases, a period from a Dividend Date with respect to the Class C Shares to but excluding the next succeeding Dividend Date for the Class C Shares.
"FORTIS INSURANCE" means Fortis Insurance N.V., a company with limited liability incorporated as naamloze vennootschap under Dutch law.
"IAI" means a Person that is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act or the analog provisions of any successor rule.
"INITIAL PUBLIC OFFERING" means the initial public offering of the Corporation pursuant to which Fortis Insurance is selling Common Shares registered pursuant to a Registration Statement on Form S-1 under the Securities Act of 1933, as amended, on a broadly distributed basis, not limited to sophisticated investors, pursuant to a firm-commitment or best-efforts underwriting arrangement.
"IPO PRICE" means the price per share at which the Common Shares will be initially offered to the public in the Initial Public Offering as set forth on the cover page to the prospectus with respect thereto.
"IRS" means the United States Internal Revenue Service.
"LIBOR DETERMINATION DATE" means the LIBOR Determination Date with respect to the Class C Shares, initially March 1, 2010, and thereafter will be two Business Days prior to each Dividend Date occurring thereafter.
"MERGER EFFECTIVE DATE" means the effective date of the merger of Fortis, Inc., a Nevada corporation, with and into the Corporation, as defined in the Agreement and Plan of Merger, to be entered into by Fortis, Inc. and the Corporation.
"MINIMUM NET WORTH AMOUNT" initially means $1.6 billion. The Minimum Net Worth Amount will be increased by the proceeds paid to the Corporation in consideration for the issuance and sale of additional Class C Shares or Class B Shares or any of its preferred stock ranking pari passu with or senior to the Class C Shares or Class B Shares with respect to the payment of dividends or amounts payable upon liquidation. The Minimum Net Worth Amount will be reduced by the amounts paid to purchase or redeem any Class C Shares or Class B Shares or any of its preferred stock ranking pari passu with or senior to the Class C Shares or the Class B Shares, but only by an amount equal to the liquidation preference of such shares. The net worth of the Corporation will be determined in accordance with US GAAP.
"1940 ACT" means the U.S. Investment Company Act of 1940, as amended.
"OUTSTANDING", when used with reference to shares of stock, means issued shares, excluding shares held by the Corporation or a subsidiary.
"PARTNERSHIP II" means Fortis (US) Funding Partners II LP, a Delaware limited partnership.
"PARTNERSHIP TAX EVENT" means any one of the following: (i) Trust II or Partnership II becoming subject to more than a de minimis amount of taxes or similar assessments; (ii) RegCaPS II Payments are not effectively deductible in computing the taxable income of Fortis Insurance for Dutch corporate income tax purposes; (iii) Dividends received by Partnership II are included in the taxable income of Fortis Insurance for Dutch income tax purposes; or (iv) RegCaPS II Payments are subject to withholding tax in The Netherlands.
"PERSON" means any individual, corporation, association, partnership (general or limited), joint venture, trust, estate, limited liability company, or other legal entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
"PREFERRED STOCK" means the 19,160 shares of Series B Preferred Stock of the Corporation to be issued on the Merger Effective Date and the 5,000 shares of Series C Preferred Stock of the Corporation to be issued on the Merger Effective Date.
"QIB" means a qualified institutional buyer within the meaning of Rule 144A under the Securities Act.
"REGCAPS II" means the regulatory capital partnership securities of Partnership II.
"REGCAPS II PAYMENT DATE" means the 1st day of March and September in each year (or the next Business Day if such Day is not a Business Day) commencing September 1, 2000 with respect to the RegCaPS II Payments (as defined below).
"REGCAPS II PAYMENT PERIOD" means a period from and including the date of the original issuance of the RegCaPS II in the case of the first RegCaPS II Payment Period or, in all other cases, a RegCaPS II Payment Date with respect to the RegCaPS II to but excluding the next succeeding RegCaPS II Payment Date for the RegCaPS II.
"REGCAPS II PAYMENTS" means cash distributions to the holders of the RegCaPS II from Partnership II with respect to any applicable RegCaPS II Payment Period and payable on an applicable RegCaPS II Payment Date.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as amended.
"SERIES B PREFERRED STOCK" means the Series B Preferred Stock of the Corporation, liquidation preference $1,000 per share.
"SERIES C PREFERRED STOCK" means the Series C Preferred Stock of the Corporation, liquidation preference $1,000 per share.
"SIX-MONTH LIBOR" means with respect to any LIBOR Determination Date, a rate determined on the basis of the offered rates for six-month United States dollar deposits of not less than a principal amount equal to that which is representative for a single transaction in such market at such time, commencing on the second Business Day immediately following such LIBOR Determination Date, which appears on US LIBOR Telerate Page 3750 (or a successor page) as of approximately 11:00 a.m., London time, on such LIBOR Determination Date.
If on any LIBOR Determination Date no rate appears on US LIBOR
Telerate Page 3750 (or a successor page) as of approximately 11:00 a.m., London
time, the Paying Agent shall on such LIBOR Determination Date request the four
major reference banks in the London interbank market selected by the Paying
Agent to provide the Paying Agent with a quotation of the rate at which
six-month deposits in United States dollars, commencing on the second Business
Day immediately following such LIBOR Determination Date, are offered by it to
prime banks in the London interbank market as of approximately 11:00 a.m.,
London time, on such LIBOR Determination Date and in a principal amount equal to
that which is representative for a single transaction in such market at such
time. If at least two such quotations are provided, Six-Month LIBOR for such
LIBOR Determination Date will be the arithmetic mean of such quotations as
calculated by the Paying Agent. If fewer than two quotations are provided,
Six-Month LIBOR for such LIBOR Determination Date will be the arithmetic mean of
the rates quoted as of approximately 11:00 a. m., London time, on such LIBOR
Determination Date by three major banks in the London interbank market selected
by the Paying Agent for loans in United States dollars to leading European
banks, having a six-month maturity commencing on the second Business Day
immediately following such LIBOR Determination Date and in a principal amount
equal to that which is representative for a single transaction in such market at
such time; provided, however, that, if the banks selected as aforesaid by the
Paying Agent are not quoting as mentioned in this sentence, Six-Month LIBOR for
such LIBOR Determination Date will be Six-Month LIBOR determined with respect to
(i) the immediately preceding Dividend
Period for purposes of the Class C Shares and (ii) the immediately preceding RegCaPS II Payment Period for purposes of the RegCaPS II.
"SPECIAL INDEPENDENT DIRECTORS" means the independent directors of the Corporation elected by the holders of the Class C Shares upon the failure of the Corporation to pay Dividends for five consecutive Dividend Periods.
"TRANSFER AGENT" means the transfer agent with respect to the Class C Shares which shall initially be the Corporation.
"TRUST II" means Fortis (US) RegCaPS Funding Trust II, a Delaware statutory business trust.
"TRUST CAPITAL SECURITIES II" means the 400,000 trust capital securities, liquidation preference US$1,000 each, representing undivided beneficial ownership interests in Trust II.
"TRUST SECURITIES II" means the Trust Capital Securities II, together with the Trust Common Securities II, liquidation preference US$100 each, representing undivided beneficial ownership interests in Trust II.
"US GAAP" means the generally accepted accounting principles in the United States.
ARTICLE 2
NUMBER AND DESIGNATION
SECTION 2.01 Number and Designation. The Class C Common Stock of the Corporation shall consist of 400,001 shares of Class C Common Stock, par value $0.01 per share, of the Corporation and shall be designated as CLASS C COMMON STOCK (the "CLASS C SHARES"). The Class C Shares shall have a liquidation preference of one thousand dollars ($1,000) per share.
ARTICLE 3
RANK
SECTION 3.01 Rank. (a) The Class C Shares shall, only with respect to payments of dividends at the Class C Share Indicative Rate (as defined below) and with respect to the payment of the Class C Share Liquidation Amount upon the liquidation, dissolution and winding up of the Corporation, rank senior to all of the Common Shares. In all other respects, the Class C Shares shall rank pari passu with the Common Shares and participate equally with the Common Shares with respect to dividends and other distributions paid by the Corporation and with respect to any amounts payable upon its liquidation, dissolution or winding up. The Class C Shares will rank junior in all respects to any indebtedness of the Corporation, and to the Preferred Stock. The Class C Shares shall rank pari passu with the Class B Shares for all purposes. All securities of the Corporation to which the Class C Shares ranks prior (whether
with respect to dividends or upon liquidation, dissolution, winding up or otherwise), including the Common Shares, are collectively referred to herein as the "JUNIOR SHARES". The definition of Junior Shares shall also include any rights or options exercisable for or convertible into any of the Junior Shares.
(b) Without prior consent of the holders of not less than a majority of the outstanding Class C Shares, the Corporation shall not issue any class or series of equity securities whose terms provide that such securities rank senior or pari passu with the Class C Shares with respect to the rights to receive dividends and other distributions or with respect to any amounts payable upon liquidation, dissolution or winding up. If the Corporation has paid in full the lesser of (i) each of its last four Dividends in full at the Class C Share Indicative Rate on their respective Dividend Payment Dates or (ii) prior to the fourth scheduled Dividend Payment Date, all Dividends that could have been paid on the Class C Shares, the Corporation may issue an unlimited amount of additional Class C Shares and other equity securities ranking pari passu with the Class C Shares without the consent of the holders of the Class C Shares.
ARTICLE 4
DIVIDENDS
SECTION 4.01 Rate; Dividend Date. (a) Each Class C Share shall be entitled to receive cash Dividends on a non-cumulative basis, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends on each Dividend Date commencing March 1, 2004. The Corporation expects that the Dividend will be declared initially at a rate at least equal to a fixed rate of 7.68% of the stated liquidation preference of $1,000 per Class C Share and after March 1, 2010, at a variable rate of Six-Month LIBOR plus 1.25%, reset semiannually (the "CLASS C SHARE INDICATIVE RATE"). The amount of Dividends will be computed on the basis of a 365- or 366-day year, as the case may be, and the actual number of days in such Dividend Period divided by 365 or 366, as the case may be. When Dividends are paid on the Class C Shares at less than the Class C Share Indicative Rate, all Dividends declared on the Class C Shares will be paid pro rata.
(b) The Paying Agent will calculate Six-Month LIBOR as of each LIBOR Determination Date and shall make such rate calculation available to holders of Class C Shares. The Paying Agent also shall determine the Dividends payable on each Dividend Date and give notice thereof (including the applicable rate, amount, the applicable period and payment) to the holders of Class C Shares. The notices set forth in this paragraph shall be sent by first class mail to the address of each holder of Class C Shares as it appears on the register kept by the Registrar and shall be available at the offices of the Paying Agent.
SECTION 4.02 Dividend Restrictions. (a) No cash dividend or other distribution may be declared or paid or set apart for payment on any Junior Shares and neither the Corporation nor any of its Affiliates may purchase or redeem for cash any outstanding Junior Shares, unless:
(i) full Dividends have been declared and paid or set apart for payment on the Class C Shares in an amount at least equal to the greater of (A) the Dividends payable
during such Dividend Period at the Class C Share Indicative Rate or (B) the dividends paid by the Corporation on the Corresponding Number of Junior Shares (as defined below) during such Dividend Period (treating any cash payment in connection with a purchase or redemption of Junior Shares by the Corporation as a cash dividend);
(ii) Partnership II has paid the full amount of RegCaPS II Payments for the current RegCaPS II Payment Period; and
(iii) such repurchase or redemption does not cause the net worth of the Corporation to be less than the Minimum Net Worth Amount.
(b) (i) If a Dividend is paid on the Class C Shares during any Dividend Period at a rate less than the Class C Share Indicative Rate, the Corporation may not make any dividend payments on the Junior Shares and may only make dividend payments on its other securities that rank pari passu with the Class C Shares, if any, in the same proportion as the partial Dividend paid on the Class C Shares for the current Dividend Period bears to the full Dividend payment determined for such Dividend Period at the Class C Share Indicative Rate.
(ii) For so long as the RegCaPS II are outstanding, if a partial RegCaPS II Payment is made for any RegCaPS II Payment Period, the Corporation may not make any dividend payments on its Junior Shares and may only make dividend payments on its other securities that rank pari passu with the Class C Shares in the same proportion as the lesser of (i) the proportion the partial RegCaPS II Payment made for the current RegCaPS II Payment Period bears to the RegCaPS II Payment determined for such RegCaPS II Payment Period and (ii) the proportion the partial Dividend paid on the Class C Shares for the corresponding Dividend Period bears to the Dividend payment determined for such Dividend Period at the Class C Share Indicative Rate.
Additionally, for so long as the Trust Capital Securities II, RegCaPS II or Class C Shares are outstanding, all shares of common or preferred stock issued by majority-owned subsidiaries of the Corporation which shares are not beneficially owned by the Corporation or its wholly-owned subsidiaries will be subject to the restrictions set forth above on the payment of dividends and other payments.
(c) The various payment restrictions and obligations described in
Section 4.02 above and applicable in respect of any Dividend Period or RegCaPS
II Payment Period in which a Dividend on the Class C Shares is not paid in any
amount at least equal to the Class C Share Indicative Rate or the full amount of
RegCaPS II Payments is not paid shall apply, mutatis mutandis, to the extent
that any Gross-Up Payment (as defined below) to Qualified Investors (as defined
below) is not declared and paid or set apart for payment as and when due in
respect of a fiscal year, provided that such payment restrictions and
obligations will remain in effect, not only during the current Dividend Period
or RegCaPS II Payment Period, but until such Gross-Up Payment is declared and
paid or set apart for payment.
(d) For purposes of determining whether the Dividends paid or set apart for payment on the Class C Shares for a Dividend Period are sufficient to permit a cash dividend or other distribution on the Junior Shares or a purchase or redemption of Junior Shares for cash,
each Class C Share will correspond to a specific number of Junior Shares (the "CORRESPONDING NUMBER OF JUNIOR SHARES"). The initial Corresponding Number of Junior Shares will be 2.2996 Common Shares, which the Board of Directors has determined reflects the fair value of a single Class C Share relative to the fair value of a single Junior Share, and will be subject to adjustment if the Corporation (A) pays all or a portion of a dividend or other distribution with respect to any class of Junior Shares by issuing additional Junior Shares, (B) subdivides or splits the outstanding shares of any class of its Junior Shares into a larger number of shares, (C) combines the outstanding shares of any class of its Junior Shares into a smaller number of shares or (D) issues by reclassification of the shares of any class of its Junior Shares any shares of any other class of Junior Shares. In any such event, the Corresponding Number of Junior Shares will be multiplied by a fraction, the numerator of which is the number of Junior Shares outstanding immediately after such event and the denominator of which is the number of Junior Shares outstanding immediately before such event. If, as a result of such event, any class of Junior Shares other than Common Shares is outstanding, the number of such other Junior Shares equivalent to one Common Share shall be determined by the Board of Directors in good faith for purposes of making the foregoing adjustment to the Corresponding Number of Junior Shares.
(e) The Corporation intends that the holders of the RegCaPS II and the Trust Capital Securities II shall be third party beneficiaries of, and entitled to enforce, the provisions of this Section 4.02, as if such provisions constituted a contract between the Corporation and the holders of the Class C Shares, and the holders of the RegCaPS II and the Trust Capital Securities II were third-party beneficiaries to such contract.
SECTION 4.03 Issuance, Purchase and Redemption of Junior Shares. Other than in the circumstances described in Section 4.02 above, the Corporation shall not issue any Junior Shares or purchase or redeem any outstanding Junior Shares unless, prior to such issuance, purchase or redemption, the Board of Directors determines in good faith that the terms of such issuance, purchase or redemption reflect the fair value of the Junior Shares to be issued, purchased or redeemed. In addition, the Corporation will not purchase or redeem any Junior Shares if such purchase or redemption would cause the net worth of the Corporation (determined in accordance with US GAAP), as of the last day of the most recently ended fiscal quarter and after giving affect to such purchase or redemption, to be less than the Minimum Net Worth Amount.
SECTION 4.04 Payment of Dividends. Dividends and other payments on the Class C Shares will be payable to the holders thereof as they appear on the books and records of the Corporation on the relevant record dates, which will be one Business Day prior to the relevant Dividend Date or other payment date. Such Dividends will be paid through the Paying Agent who will hold amounts received from the Corporation in respect of the Class C Shares for the benefit of the holders of the Class C Shares. In the event that any Class C Shares do not remain in book-entry only form, the relevant record dates shall be the 15th day of the month of the relevant Dividend Date or other payment date. In the event that any Dividend Date is not a Business Day, payment of the Dividends payable on such date will be made on the next succeeding day which is a Business Day (without any interest or other payment in respect of the dividends subject to such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. If a Dividend is not paid in full on
the applicable Dividend Date, notice of the failure to pay such Dividend will be sent to each holder of Class C Shares by first-class mail to such holder's address as shown in the register kept by the Registrar.
SECTION 4.05 Intentionally Omitted.
SECTION 4.06 Earnings and Profits Gross-up Payments. (a) To the extent that dividends paid with respect to the Class C Shares or Common Shares exceed the Corporation's earnings and profits as calculated for U.S. federal income tax purposes, they will not constitute dividends for U.S. federal income tax purposes and will not qualify for the dividends-received deduction. In such event, additional distributions will be made by the Corporation to place each holder of the Class C Shares in the same position it would have been in if all dividends from the Corporation were paid from such earnings and profits, assuming for these purposes that such holder was eligible for the dividends-received deduction.
(b) If any Dividend on the Class C Shares with respect to any fiscal year (including any Gross-Up Payment (as defined below)) constitutes, in whole or in part, a return of capital (or is treated as gain from the sale or exchange of the Class C Shares) (a "QUALIFYING DIVIDEND"), the Corporation will pay (if declared), within 180 days after the end of such fiscal year, out of funds legally available therefor, an amount equal to the aggregate Gross-Up Payments to Qualified Investors (as defined below) with respect to all Qualifying Dividends on the Class C Shares during such fiscal year. A "QUALIFIED INVESTOR" with respect to a Qualifying Dividend during a fiscal year means a person who was entitled to receive such Qualifying Dividend.
(c) A "GROSS-UP PAYMENT" to a Qualified Investor with respect to all Qualifying Dividends during a fiscal year means an additional Dividend on the Class C Shares to a Qualifying Investor in an amount which, when taken together with the aggregate Qualifying Dividends paid to such Qualified Investor during such fiscal year, would cause such Qualified Investor's net yield in dollars (after U.S. federal income tax consequences and treating, for purposes of calculating net yield in dollars, the sum of that portion of the Qualifying Dividends and the Gross-Up Payment otherwise treated as a return of capital as capital gain recognized upon the taxable sale or exchange of Class C Shares) from the aggregate of both the Qualifying Dividends and the Gross-Up Payment to be equal to the net yield in dollars (after U.S. federal income tax consequences) which would have been received by such Qualified Investor if the entire amount of the aggregate Qualifying Dividends had instead been treated as a dividend for U.S. federal income tax purposes. Such Gross-Up Payment shall be calculated using the applicable maximum marginal U.S. federal corporate income tax rate applicable to ordinary income and capital gains, as the case may be, and, where applicable, the dividends-received deduction, as specified in Section 243(a)(i) of the Code or any successor provision, without consideration being given to the time value of money, the U.S. federal income tax situation of any specific Qualified Investor, or any state or local tax consequences that may arise. The Corporation shall make a determination, based upon the reasonably estimated earnings and profits of that portion, if any, of a Qualifying Dividend for a fiscal year that will be treated as dividend for U.S. federal income tax purposes, and such determination shall be final and binding for purposes of calculating the amount of the Gross-Up Payments with respect to all Qualifying Dividends for such fiscal year.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.01 Liquidation Preference. (a) In the event of any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, after payment or provision for the liabilities of the Corporation and the expenses of such dissolution, liquidation or winding up, the holders of the outstanding Class C Shares will be entitled to receive out of the assets of the Corporation or proceeds thereof available for distribution to holders of Class C Shares, before any payment or distribution of assets is made to holders of the Common Shares or any other Junior Shares, the Class C Share Liquidation Amount. If the assets of the Corporation available for distribution in such event are insufficient to pay in full the aggregate amount payable to holders of the Class C Shares and holders of all other classes or series of equity securities of the Corporation, if any, ranking, as to the distribution of assets upon dissolution, liquidation or winding up of the Corporation, on a parity with the Class C Shares, the assets will be distributed to the holders of Class C Shares and holders of such other equity interests pro rata, based on the full respective preferential amounts to which they are entitled. After payment of the full amount of the distribution of assets upon dissolution, liquidation or winding up of the Corporation to which they are entitled, the holders of Class C Shares will not be entitled to any further participation in any distribution of assets by the Corporation.
(b) Notwithstanding Section 5.01(a) above, holders of Class C Shares will not be entitled to be paid any amount in respect of a dissolution, liquidation or winding up of the Corporation until holders of any classes or series of securities of the Corporation ranking, as to the distribution of assets upon dissolution, liquidation or winding up of the Corporation, prior to the Class C Shares have been paid all amounts to which such classes or series are entitled. At the time of issuance of the Class C Shares, no class or series of securities of the Corporation ranking prior to the Class C Shares with respect to the distribution of assets upon dissolution, liquidation or winding up of the Corporation exists other than the Series B Preferred Stock and Series C Preferred Stock.
(c) Notwithstanding anything else in this Schedule 2, neither the
sale, lease or exchange (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property and assets of the
Corporation, nor the merger, consolidation or combination of the Corporation
into or with any other person or the merger, consolidation or combination of any
other. person into or with the Corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purposes of this
Section 5.01.
ARTICLE 6
REDEMPTION
SECTION 6.01 Optional Redemption. (a) The Class C Shares will not be subject to mandatory redemption at any time. Prior to March 1, 2030, Class C Shares will not be subject to optional redemption. On or after March 1, 2030, Class C Shares may be redeemed at the option of the Corporation at any time, in whole but not in part, at their fair market value (the "REDEMPTION AMOUNT") as determined by a nationally recognized investment bank retained by
the Corporation, based on the amount that would have been payable with respect to such Class C Share if the Corporation were liquidated as of the applicable redemption date and, immediately prior to such liquidation, such Class C Share were converted into the Corresponding Number of Junior Shares.
SECTION 6.02 Procedure for Redemption. (a) Notice of any redemption
of the Class C Shares (a "REDEMPTION NOTICE") will be given by the Corporation
by mail to each holder of Class C Shares not fewer than 30 nor more than 60 days
before the date fixed for redemption. For purposes of the calculation of the
date of redemption and the dates on which notices are given pursuant to this
Section 6.02(a), a Redemption Notice shall be deemed to be given on the day such
notice is first mailed, by first-class mail, postage prepaid, to holders of the
Class C Shares. Each Redemption Notice shall be addressed to the holders of
Class C Shares at the address of each such holder appearing in the books and
records of the Corporation. No defect in the Redemption Notice or in the mailing
thereof with respect to any holder of Class C Shares shall affect the validity
of the redemption proceedings with respect to any other holder of Class C
Shares.
(b) If the Corporation gives a Redemption Notice (which notice will be irrevocable), then by 12:00 noon, New York City time, on the redemption date, the Corporation (A) if the Class C Shares are in book-entry form with the Depositary Trust Company ("DTC"), will deposit irrevocably with DTC funds sufficient to pay the applicable Redemption Amount and will give DTC irrevocable instructions and authority to pay the Redemption Amount in respect of the Class C Shares held through DTC in global form or (B) if the Class C Shares are held in certificated form (each such certificate a "Class C Share Certificate"), will deposit with the Paying Agent, funds sufficient to pay the applicable Redemption Amount of any such Class C Shares and will give to the Paying Agent irrevocable instructions and authority to pay such amounts to the holders of Class C Shares, upon surrender of their certificates, by delivery of check, mailed to the address of the relevant holder appearing on the books and records of the Corporation on the redemption date. For these purposes, the applicable Redemption Amount shall not include Dividends which are being paid to holders of Class C Shares who were holders of Class C Shares on a relevant record date. Upon satisfaction of the foregoing conditions, then immediately prior to the close of business on the date of such deposit or payment, all rights of holders of Class C Shares so called for redemption will cease, except the right of the holders of Class C Shares to receive the Redemption Amount, but without interest on such Redemption Amount, and from and after the date fixed for redemption, such Class C Shares will not receive dividends or bear interest.
(c) In the event that any date fixed for redemption of Class C Shares is not a Business Day, then payment of the Redemption Amount payable on such date will be made on the next succeeding Business Day (and without any interest in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day in each case, with the same force and effect as if made on such date fixed for redemption. In the event that payment of the Redemption Amount is improperly withheld or refused and not paid by the Corporation, Dividends on the Class C Shares called for redemption will continue to be payable in accordance with the terms hereof from the original redemption date until the Redemption Amount is actually paid.
(d) The Corporation shall not be required to register or cause to be registered the transfer of any Class C Shares which have been called for redemption.
(e) Except as provided in Article 10, the Class C Shares which have been issued and reacquired in any manner, including shares purchased or redeemed, shall (upon compliance with any applicable provisions of the laws of the State of Delaware) have the status of authorized and unissued Class C Shares and may be reissued.
ARTICLE 7
VOTING RIGHTS
SECTION 7.01 Voting Rights. (a) The holders of the Class C Shares will be entitled to one vote per share and will be entitled to vote with the Common Shares as a single class on all matters submitted to a vote of the Common Shares (other than those matters affecting only the Common Shares). Except as provided in Article 10, prior to transferring ownership of any Class C Shares to a transferee other than Partnership II or Trust II, such Class C Shares shall be converted to the same number of shares of a class of stock of the Corporation (the "CONVERSION SHARES") having rights, preferences and privileges substantially identical to the Class C Shares except that the Conversion Shares will be entitled to no voting rights other than as required by law and other than with respect to adverse amendments to the terms of the Conversion Shares and the issuance of equity securities that rank senior to or pari passu with the Conversion Shares with respect to the payment of dividends or amounts upon liquidation.
(b) The holders of the Class C Shares and the Conversion Shares will be entitled to vote separately as a single class on the matters described in this paragraph. The consent of the holders of not less than a majority of the outstanding Class C Shares and Conversion Shares, voting as a single class, is required (i) to amend, alter, supplement or repeal the terms of the Class C Shares and the Conversion Shares (it being a condition to any such amendment, alteration, supplement or repeal that it have a substantially identical effect on the rights, preferences and privileges of both the Class C Shares and the Conversion Shares), or (ii) if the Corporation has not paid in full the lesser of (A) each of the last four Dividends on their respective Dividend Payment Dates or (B) prior to the fourth scheduled Dividend Payment Date, all Dividends that could have been paid on the Class C Shares and the Conversion Shares, for the Corporation to issue, or to increase the authorized amount of, the Class C Shares or the Conversion Shares or any other equity securities that rank pari passu with or senior to the Class C Shares and the Conversion Shares. Further, if the Corporation has paid in full the lesser of (A) each of the last four Dividends at the Class C Share Indicative Rate on their respective Dividend Payment Dates or (B) prior to the fourth scheduled Dividend Payment Date, all Dividends that could have been paid on the Class C Shares and the Conversion Shares, the Corporation may issue an unlimited amount of additional Class C Shares and the Conversion Shares and other equity securities that rank pari passu with the Class C Shares and the Conversion Shares without the consent of the holders of the Class C Shares or the Conversion Shares.
(c) Whenever Dividends on the Class C Shares and the Conversion Shares are in arrears for five or more consecutive Dividend Periods, the holders of Class C Shares and the Conversion Shares, voting as a single class, will be entitled, subject to any necessary regulatory
actions, to elect two Special Independent Directors to the Board of Directors, subject to any necessary regulatory actions, at a special meeting called by the holders of record of at least 25% of the Class C Shares and the Conversion Shares in the aggregate. The Special Independent Directors shall vacate office if Dividends are resumed and are paid regularly for at least two consecutive Dividend Periods.
(d) Notwithstanding the foregoing, the Corporation shall have the
right, without the prior consent of the holders of Class C Shares, to amend,
alter, supplement or repeal any terms of the Class C Shares (i) to cure any
ambiguity, or to cure, correct or supplement any defective provision thereof or
(ii) to make any other provision with respect to matters or questions arising
with respect to the Class C Shares that is not inconsistent with the provisions
thereof so long as such action does not materially and adversely affect any of
the rights, preferences and privileges of the holders of Class C Shares;
provided however, that any increase in the amount of authorized or issued Class
C Shares will be deemed not to materially and adversely affect any of the
rights, preferences and privileges of the holders of Class C Shares.
(e) The consent or votes required in Section 7.01(b) and (c) above shall be in addition to any approval of stockholders of the Corporation which may be required by law or pursuant to any provision of the Corporation's Certificate of Incorporation or By-Laws, which approval shall be obtained by vote of the stockholders of the Corporation in the manner provided in Section 7.01(a) above.
SECTION 7.02 No Affiliate Voting. Notwithstanding that holders of Class C Shares are entitled to vote or consent under any of the circumstances described above, any of the Class C Shares at such time that are beneficially owned by the Corporation or by any entity directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Corporation shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding; provided, however, that persons (other than Affiliates of the Corporation) to whom the Corporation or any of its subsidiaries have pledged Class C Shares may vote or consent with respect to such pledged Class C Shares pursuant to the terms of such pledge; provided, further, that any Class C Shares held in the trust may be voted in accordance with this Certificate; provided that any Class C Shares held by Partnership II or Trust II may be voted in accordance with the terms of the Class C Shares by Trust II or Partnership II, respectively.
ARTICLE 8
MERGER, CONSOLIDATION OR AMALGAMATION OF THE CORPORATION
SECTION 8.01 Merger, Consolidation or Amalgamation of the Corporation. The Corporation may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to, any corporation or other entity, except as described below. The Corporation may, with the consent of at least one of the Special Independent Directors, if any, on the Board of Directors at the time the issue is considered and without the consent of the holders of the Class C Shares, consolidate, amalgamate, merge with or into, or be replaced by a corporation organized as such under the laws of any State of the United States; provided, that:
(a) if the Corporation is not the survivor, such successor entity either (x) expressly assumes all of the obligations of the Corporation under the Class C Shares or (y) substitutes securities for the Class C Shares (the "SUCCESSOR SECURITIES"), so long as the Successor Securities rank the same as the Class C Shares rank with respect to Dividends and other payments thereon;
(b) such merger, consolidation, amalgamation or replacement does not adversely affect any of the rights, preferences and privileges of the holders of the Class C shares (including any Successor Securities) in any material respect;
(c) prior to such merger, consolidation, amalgamation or replacement, the Corporation has received an opinion of a nationally recognized law firm experienced in such matters to the effect that: (i) such merger, consolidation, amalgamation or replacement will not adversely affect any of the rights, preferences and privileges of the holders of the Class C Shares (including any Successor Securities) in any material respect and (ii) following such merger, consolidation, amalgamation or replacement, the Corporation (or such successor entity) will not be required to register under the 1940 Act; and
(d) distributions with respect to the Successor Securities would be eligible for the dividends-received deduction.
ARTICLE 9
TRANSFER OF CLASS C SHARES
SECTION 9.01 General. The Corporation shall provide for the registration of Class C Share Certificates and for transfers of Class C Share Certificates. Upon surrender for registration of transfer of any Class C Share Certificate, the Corporation shall cause one or more new Class C Share Certificates to be issued in the name of the designated transferee or transferees. Every Class C Share Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Corporation duly executed by the holder of such Class C Shares or his or her attorney duly authorized in writing. Each Class C Share Certificate surrendered for registration of transfer shall be cancelled by the Corporation. A transferee of a Class C Share Certificate shall be entitled to the rights and subject to the obligations of a holder of Class C Shares hereunder upon the receipt by the transferee of a Class C Share Certificate, which receipt shall be deemed to constitute a request by such transferee that the books and records of the Corporation reflect such transferee as a holder of Class C Shares.
SECTION 9.02 Definitive Certificates. Unless and until the Corporation issues a global Class C Share Certificate pursuant to Section 9.03(a) the Corporation shall only issue definitive Class C Share Certificates to the holders of Class C Shares. The Corporation may treat the Person in whose name any Class C Share Certificate shall be registered on the books and records of the Corporation as the sole holder of such Class C Share Certificate and of the Class C Shares represented by such Class C Share Certificate for purposes of receiving Dividends and for all other purposes whatsoever (including without limitation, tax returns and information reports) and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in
such Class C Share Certificate or in the Class C Shares represented by such Class C Share Certificate on the part of any other Person, whether or not the Corporation shall have actual or other notice thereof
SECTION 9.03 Book Entry Provisions.
(a) General. The provisions of this Section 9.03(a) shall apply only in the event that the Class C Shares are distributed to the holders of RegCaPS II or Trust Securities II in connection with the involuntary or voluntary dissolution, winding up or liquidation of Partnership II or of Trust II. Upon the occurrence of such event, a global Class C Share Certificate representing the Book-Entry Interests shall be delivered to DTC, the initial Clearing Agency, by, or on behalf of the Corporation and any previously issued and still outstanding definitive Class C Share Certificates shall be of no further force and effect. The global Class C Share Certificate shall initially be registered on the books and records of the Corporation in the name of Cede & Co., the nominee of DTC, and no holder of Class C Shares will receive a new definitive Class C Share Certificate representing such holder's interests in such Class C Share Certificate, except as provided in Section 9.03(c). In connection with the involuntary or voluntary dissolution, winding up or liquidation of Partnership II and of Trust II, Cede & Co., the nominee of DTC, shall automatically be deemed to be the holder of all of the Class C Shares. Unless and until new definitive, fully registered Class C Share Certificates (the "DEFINITIVE CLASS C SHARE CERTIFICATES") have been issued to the holders of Class C Shares pursuant to Section 9.03(c):
(i) The provisions of this Section shall be in full force and effect;
(ii) The Corporation shall be entitled to deal with the Clearing Agency for all purposes of this Certificate (including the payment of Dividends, Redemption Amounts and liquidation proceeds on the Class C Share Certificates and receiving approvals, votes or consents hereunder) as the sole holder of the Class C Share Certificates and shall have no obligation to the holders of Class C Shares;
(iii) None of the Corporation, the Board of Directors, or any Special Independent Director or any agents of any of the foregoing shall have any liability or responsibility for any aspect of the records relating to or Dividends made on account of beneficial ownership interests in a global Class C Share Certificate for such beneficial ownership interests or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests; and
(iv) Except as provided in Section 9.03(c) below, the holders of Class C Shares will not be entitled to receive physical delivery of the Class C Shares in definitive form and will not be considered holders thereof for any purpose under this Certificate of Designations, and no global Class C Share Certificate representing Class C Shares shall be exchangeable, except for another global Class C Share Certificate of like denomination and tenor to be registered in the name of DTC or Cede & Co., or to a successor Depositary or its nominee. Accordingly, each holder of Class C Shares must rely on the procedures of DTC or if such person is not a Participant, on the procedures of
the Participant through which such person owns its interest to exercise any rights of a holder under this Certificate of Designations.
(b) Notices to Clearing Agency. Whenever a notice or other communication to the holders of Class C Shares is required under the Partnership Agreement, unless and until definitive Class C Share Certificates shall have been issued to the holders of Class C Shares pursuant to Section 9.03(c) the Corporation shall give all such notices and communications specified herein to be given to the holders of Class C Shares to the Clearing Agency, and shall have no obligations to the holders of Class C Shares.
(c) Definitive Class C Share Certificates. Definitive Class C Share Certificates shall be prepared by the Corporation and exchangeable for the global Class C Share Certificate or Certificates if and only if (i) the Depositary notifies the Corporation that it is unwilling or unable to continue its services as a securities Depositary and no successor Depositary shall have been appointed, (ii) the Depositary, at any time, ceases to be a Clearing Agency registered under the Exchange Act at such time as the Depositary is required to be so registered to act as such Depositary and no successor Depositary shall have been appointed, or (iii) the Corporation, in its sole discretion, determines that such global Class C Share Certificate shall be so exchangeable. Upon surrender of the global Class C Share Certificate or Certificates representing the Book-Entry Interests by the Clearing Agency, accompanied by registration instructions, the Corporation shall cause definitive Class C Share Certificates to be delivered to holders of Class C Shares in accordance with the instructions of the Clearing Agency. The Corporation shall not be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. The definitive Class C Share Certificates shall be printed, lithographed or engraved or may be produced in any other manner as may be required by any national securities exchange on which Class C Shares may be listed and is reasonably acceptable to the Corporation, as evidenced by its execution thereof.
SECTION 9.04 Registrar, Transfer Agent and Paying Agent.
(a) The Corporation will act as Registrar, Transfer Agent and Paying Agent for the Class C Shares for so long as the Class C Shares are held by Partnership II or, if Partnership II is liquidated in connection with a Partnership Tax Event, for so long as the Class C Shares remain in book-entry only form.
(b) Except in such case where the Corporation shall act as Registrar or Paying Agent pursuant to Section 9.04(a) hereof, the Corporation shall maintain in the Borough of Manhattan, City of New York, State of New York (i) an office or agency where Class C Shares may be presented for registration of transfer or for exchange ("REGISTRAR") and (ii) an office or agency where Class C Shares may be presented for payment ("PAYING AGENT"). The Registrar shall keep a register of the Class C Shares and of their transfer and exchange. The Corporation may appoint the Registrar and the Paying Agent and may appoint one or more co-registrars and one or more additional paying agents in such other locations as it shall determine. The term "PAYING AGENT" includes any additional paying agent. The Corporation may change any Paying Agent, Registrar or co-registrar without prior notice to any holder. If the Corporation fails to appoint or maintain another entity as Registrar or Paying Agent, the Corporation shall act as such.
(c) Registration of transfers of Class C Shares shall be effected without charge by or on behalf of the Corporation, but upon payment (with the giving of such indemnity as the Corporation may require) in respect of any tax or other governmental charges that may be imposed.
SECTION 9.05 Transfer Restrictions. The Class C Shares may only be transferred (i) to QIBs and (ii) to IAIs who, if they are not QIBs, prior to such transfer, furnish to the Corporation or the Transfer Agent a signed letter containing certain representations and agreements relating to restrictions on transfer by such IAI. The foregoing restriction may be waived if the Corporation, in its sole discretion, determines such restrictions are no longer necessary to preserve the Corporation's exemptions from registration requirements under the Securities Act, the Securities Exchange Act and the 1940 Act. Any purported purchase or transfer of the Class C Shares in violation of such restrictions will be null and void. Furthermore the Corporation may also require the sale of Class C Shares held by holders who fail to comply with the foregoing.
ARTICLE 10
CONVERSION OF CLASS C SHARES
SECTION 10.01 Conversion of Class C Shares. Upon closing of the Initial Public Offering, each issued and outstanding Class C Share shall convert automatically (without any action required on the part of the holder) into a number of Common Shares equal to the Class C Share Liquidation Preference divided by the IPO Price. The Class C Shares which have been converted shall be retired and become authorized but unissued shares of Class C Common Stock, but such shares may not be reissued.
ARTICLE 11
GENERAL PROVISIONS
SECTION 11.01 General Provisions. The headings of the paragraphs, subparagraphs, clauses and subclauses of this Certificate of Designations are for convenience of reference only and shall not define, limit or affect any of the provisions hereof.
Exhibit 3.2
AMENDED AND
RESTATED
BY-LAWS
OF
ASSURANT, INC.
ARTICLE I.
STOCKHOLDERS
Section 1. The annual meeting of the stockholders of the corporation for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting shall be held on such date, and at such time and place, if any, within or without the State of Delaware as may be designated from time to time by the Board of Directors.
Section 2. Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock, the Class B Common Stock or the Class C Common Stock, special meetings of stockholders of the corporation may be called only by the Chief Executive Officer of the corporation or by the Board of Directors pursuant to a resolution approved by the Board of Directors.
Section 3. Except as otherwise provided by law, notice of the time, place, if any, and, in the case of a special meeting, the purpose or purposes of the meeting of stockholders shall be given not earlier than sixty, nor less than ten, days previous thereto, to each stockholder of record entitled to vote at the meeting at such address as appears on the records of the corporation.
Section 4. The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or by the Restated Certificate of Incorporation; but if at any meeting of stockholders there shall be less than a quorum present, the stockholders present may adjourn the meeting from time to time without further notice other than announcement at the meeting until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if, after the
adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 5. The Chairman of the Board, or in the Chairman's absence or at the Chairman's direction, the Chief Executive Officer, or in the Chief Executive Officer's absence or at the Chief Executive Officer's direction, any officer of the corporation shall call all meetings of the stockholders to order and shall act as Chairman of such meeting. The Secretary of the corporation or, in such officer's absence, an Assistant Secretary shall act as secretary of the meeting. If neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting. Unless otherwise determined by the Board of Directors prior to the meeting, the Chairman of the meeting shall determine the order of business and shall have the authority in his or her discretion to regulate the conduct of any such meeting, including, without limitation, by imposing restrictions on the persons (other than stockholders of the corporation or their duly appointed proxies) who may attend any such meeting, whether any stockholder or stockholders' proxy may be excluded from any meeting of stockholders based upon any determination by the Chairman, in his or her sole discretion, that any such person has unduly disrupted or is likely to disrupt the proceedings thereat, and the circumstances in which any person may make a statement or ask questions at any meeting of stockholders.
Section 6. At all meetings of stockholders, any stockholder entitled to vote thereat shall be entitled to vote in person or by proxy, but no proxy shall be voted after three years from its date, unless such proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for the stockholder as proxy pursuant to the General Corporation Law of the State of Delaware, the following shall constitute a valid means by which a stockholder may grant such authority: (1) a stockholder may execute a writing authorizing another person or persons to act for the stockholder as proxy, and execution of the writing may be accomplished by the stockholder or the stockholder's authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature; or (2) a stockholder may authorize another person or persons to act for the stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram 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 or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other means of electronic transmission was authorized by the stockholder. If it is determined that such telegram, cablegram or other means of electronic transmissions are valid, the inspectors or, if there are no such inspectors, such other persons making that determination shall specify the information upon which they relied.
Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to the preceding paragraph of this Section 6 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
Proxies shall be filed with the Secretary of the meeting prior to or at the commencement of the meeting to which they relate.
Section 7. When a quorum is present at any meeting, the vote of the holders of a majority in voting power of the stock present in person or represented by proxy and entitled to vote on the matter shall decide any question brought before such meeting, unless the question is one upon which by express provision of the Restated Certificate of Incorporation, these By-Laws, the rules or regulations of any stock exchange applicable to the corporation, or applicable law or pursuant to any regulation applicable to the corporation or its securities, a different vote is required, in which case such express provision shall govern and control the decision of such question.
Section 8. In order that the corporation may determine the stockholders (a) entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or (b) entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date (i) in the case of clause (a) above, shall not be more than sixty nor less than ten days before the date of such meeting and (ii) in the case of clause (b) above, shall not be more than sixty days prior to such action. If for any reason the Board of Directors shall not have fixed a record date for any such purpose, the record date for such purpose shall be determined as provided by law. Only those stockholders of record on the date so fixed or determined shall be entitled to any of the foregoing rights, notwithstanding the transfer of any such stock on the books of the corporation after any such record date so fixed or determined.
Section 9. The officer who has charge of the stock ledger of the corporation shall prepare and make at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, at the principal place of business of the corporation. The list shall also be produced at the time and kept at the place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
Section 10. The corporation, in advance of all meetings of the stockholders, shall appoint one or more inspectors, who may be employees of the corporation or stockholders or their proxies, but not directors of the corporation or candidates for office. In the event that the corporation fails to so appoint inspectors or, in the event that one or more inspectors previously designated by the corporation fails to appear or act at the meeting of stockholders, the Chairman of the meeting may appoint one or more inspectors to fill such vacancy or vacancies. Inspectors appointed to act at any meeting of the stockholders, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspector with strict impartiality and according to the best of their ability and the oath so taken shall be subscribed by them by statute. Inspectors shall, subject to the power of the Chairman of the meeting to open and close the polls,
take charge of the polls, and, after the voting, shall make a certificate of the result of the vote taken.
Section 11. (A) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders only (a) pursuant to the corporation's notice of meeting (or any supplement thereto) delivered pursuant to Article I, Section 3 of these By-Laws, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the corporation who is entitled to vote at the meeting, who complied with the notice procedures set forth in subparagraphs (2) and (3) of this paragraph (A) of this By-Law and who was a stockholder of record at the time such notice is delivered to the Secretary of the corporation.
(2) For nominations or other business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, and, in the case of business other than nominations, such other business must be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the corporation not less than ninety days nor more than 120 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than twenty days, or delayed by more than seventy days, from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the ninetieth 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; and provided further, that for purposes of the application of Rule 14a-4(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (or any successor provision), the date for notice specified in this paragraph shall be the earlier of the date calculated as hereinbefore provided or the date specified in paragraph (c)(1) of Rule 14a-4. For purposes of the first annual meeting of the stockholders of the corporation held after 2004, the anniversary date shall be deemed to be May 18, 2005.
Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director all 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 Exchange Act, including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the By-Laws of the corporation, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner; (iii) a representation that the stockholder intends to
appear in person or by proxy at the meeting to propose such business or nomination; and (iv) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (A) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation's outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (B) otherwise to solicit proxies from stockholders in support of such proposal or nomination. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the corporation of his or her intention to present a proposal at an annual meeting in compliance with Rule 14a-8 (or any successor thereof) promulgated under the Exchange Act and such stockholder's proposal has been included in a proxy statement that has been prepared by the corporation to solicit proxies for such annual meeting. The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the corporation.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least eighty days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-Law 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 Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting pursuant to Article I, Section 2 of these By-Laws. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in this By-Law and who is a stockholder of record at the time such notice is delivered to the Secretary of the corporation. Nominations of stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice as required by paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the 120th day prior to such special meeting and not later than the close of business on the later of the ninetieth 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 of Directors to be elected at such meeting.
(C) General. (1) Subject to Article II hereof, only persons who are nominated in accordance with the procedures set forth in this By-Law shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-Law. Except as otherwise provided by law, the Restated Certificate of Incorporation or these By-Laws, the
Chairman 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 By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective nomination shall be disregarded or that such proposed business
shall not be transacted. Notwithstanding the foregoing provisions of this
Section 11, if the stockholder (or a qualified representative of the
stockholder) does not appear at the annual or special meeting of stockholders of
the corporation to present a nomination or business, such nomination shall be
disregarded and such proposed business shall not be transacted, notwithstanding
that proxies in respect of such vote may have been received by the corporation.
For purposes of this Section 11, to be considered a qualified representative of
the stockholder, a person must be authorized by a writing executed by such
stockholder or an electronic transmission delivered by such stockholder to act
for such stockholder as proxy at the meeting of stockholders and such person
must produce such writing or electronic transmission, or a reliable reproduction
of the writing or electronic transmission, at the meeting of stockholders.
(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) For purposes of this By-Law, no adjournment or postponement nor notice of adjournment or postponement of any meeting shall be deemed to constitute a new notice of such meeting for purposes of this Section 11, and in order for any notification required to be delivered by a stockholder pursuant to this Section 11 to be timely, such notification must be delivered within the periods set forth above with respect to the originally scheduled meeting.
(4) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or the rights of the holders of any class or series of capital stock to elect directors pursuant to any provision of the Restated Certificate of Incorporation.
ARTICLE II.
BOARD OF DIRECTORS
Section 1. Except as otherwise provided in the Restated Certificate of Incorporation, the Board of Directors of the corporation shall consist of such number of directors as shall from time to time be fixed exclusively by resolution of the Board of Directors. The Directors shall be divided into three classes in the manner set forth in the Restated Certificate of Incorporation of the corporation, each class to be elected for the term set forth therein. Directors shall (except as hereinafter provided for the filling of vacancies and newly created directorships) be elected by the holders of a plurality of the voting power present in person or represented by proxy and entitled to vote. A majority of the total number of directors then in office (but not less
than one-third of the number of directors constituting the entire Board of Directors) shall constitute a quorum for the transaction of business and, except as otherwise provided by law or by the corporation's Restated Certificate of Incorporation or by these By-Laws, the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors.
Directors need not be stockholders. An individual shall not be eligible to be elected or re-elected as a director if the date of such election is on or after his or her seventieth birthday; provided, however, that this provision shall not require the removal of or shortening of the term of any incumbent director.
Section 2. Unless otherwise required by law and except as provided in the next succeeding sentence or Section 4 of this Article II, newly created directorships in the Board of Directors that result from an increase in the number of directors and any vacancy occurring in the Board of Directors may be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director; and the directors so chosen shall hold office for a term as set forth in the Restated Certificate of Incorporation of the corporation.
Subject to the fiduciary duties of the members of the Board of Directors and unless otherwise required by law, if there shall exist or occur any vacancy on the Board of Directors with respect to a Fortis Designee (as defined below) and after taking into account such vacancy Fortis Group is still entitled to an additional Fortis Designee pursuant to the Shareholders' Agreement (as defined below), the resulting vacancy on the Board of Directors shall be filled at any time by a person who shall be designated by Fortis Insurance (as defined below). The preceding sentence shall terminate immediately and automatically on the first date on which Fortis Group ceases to own at least 5% of the outstanding Common Stock, par value $0.01 per share, of the corporation ("Common Stock") and shall not be reinstated. Prior to such termination, this paragraph shall not be amended without the consent of Fortis Insurance.
Section 3. Meetings of the Board of Directors shall be held at such place within or without the State of Delaware as may from time to time be fixed by resolution of the Board or as may be specified in the notice of any meeting. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board and special meetings may be held at any time upon the call of the Chairman of the Board or the President, or written notice including, telegraph, telex or transmission of a telecopy, e-mail or other means of transmission, duly served on or sent or mailed to each director to such director's address or telecopy number as shown on the books of the corporation not less than 24 hours before the meeting. The notice of any meeting need not specify the purposes thereof. A meeting of the Board may be held without notice immediately after the annual meeting of stockholders at the same place at which such meeting is held. Notice need not be given of regular meetings of the Board held at times fixed by resolution of the Board. Notice of any meeting need not be given to any director who shall attend such meeting in person (except when the director attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened), or who shall waive notice thereof, before or after such meeting, in writing.
Section 4. Notwithstanding the foregoing, whenever the holders
of any one or more series of Preferred Stock, the Class B Common Stock or the
Class C Common Stock issued by the corporation shall have the right, voting
separately by series or class, to elect directors at an annual or special
meeting of stockholders, the election, term of office, removal, and other
features of such directorships shall be governed by the terms of the Certificate
of Designation or Restated Certificate of Incorporation, as the case may be,
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to Article SEVENTH of the Restated Certificate of Incorporation
unless expressly provided by such terms. The number of directors that may be
elected by the holders of any such series of Preferred Stock, the Class B Common
Stock or the Class C Common Stock, if any, shall be in addition to the number
fixed by or pursuant to the By-Laws. Except as otherwise expressly provided in
the terms of such series or class, the number of directors that may be so
elected by the holders of any such series or class of stock shall be elected for
terms expiring at the next annual meeting of stockholders and without regard to
the classification of the members of the Board of Directors as set forth in
Section 1 of this Article II, and vacancies among directors so elected by the
separate vote of the holders of any such series of Preferred Stock, the Class B
Common Stock or the Class C Common Stock shall be filled by the affirmative vote
of a majority of the remaining directors elected by such series or class, or, if
there are no such remaining directors, by the holders of such series or class in
the same manner in which such series or class initially elected a director.
Section 5. If at any meeting for the election of directors, the corporation has outstanding more than one class of stock, and one or more such classes or series thereof are entitled to vote separately as a class, and there shall be a quorum of only one such class or series of stock, that class or series of stock shall be entitled to elect its quota of directors notwithstanding absence of a quorum of the other class or series of stock.
Section 6. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law shall have and may exercise all the powers and authority provided in the resolution of the Board of Directors in the management of the business and affairs of the corporation.
Section 7. Unless otherwise restricted by the Restated Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board of Directors in accordance with applicable law.
Section 8. The members of the Board of Directors or any committee thereof may participate in a meeting of such Board or committee, as the case may be, by means of conference telephone or other communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such a meeting.
Section 9. The Board of Directors may establish policies for the compensation of directors and for the reimbursement of the expenses of directors, in each case, in connection with services provided by directors to the corporation.
Section 10. Any director designated by Fortis Insurance N.V., a company with limited liability incorporated as naamloze vennootschap under Dutch law ("Fortis Insurance"), to serve on the Board of Directors (a "Fortis Designee") as provided for in Article 2 of the Shareholders' Agreement, as the same may be amended, supplemented or modified from time to time (the "Shareholders' Agreement"), between the corporation and Fortis Insurance, will resign or retire from the Board of Directors at the written request of Fortis Insurance. Otherwise, no Fortis Designee may be removed from the Board of Directors unless such removal shall be for Cause and consented to by Fortis Insurance. For purposes of this Section 10, removal for "Cause" shall mean removal of a director because of such director's (A) willful and continued failure substantially to perform his or her duties with the corporation in his or her established position, (B) willful conduct that is injurious, monetarily or otherwise, to the corporation or any of its subsidiaries, (C) conviction for, or guilty plea to, a felony or a crime involving moral turpitude, (D) abuse of illegal drugs or other controlled substances or habitual intoxication or (E) willful breach of the Shareholders' Agreement.
This Section 10 shall terminate immediately and automatically on the first date on which Fortis Group ceases to own at least 5% of the outstanding Common Stock of the corporation and shall not be reinstated.
Until such termination this Section 10 shall not be amended without the consent of Fortis Insurance.
Section 11. For so long as the Fortis Group owns at least 50% of the outstanding Common Stock of the corporation, the Board of Directors (or any committee of the Board of Directors) shall not take any action with respect to any of the following matters without the affirmative approval of at least 75% (rounded to the nearest whole number of directors with 0.5 rounded upwards) of the then members of the Board of Directors:
- any recapitalization, reclassification, spin-off or combination of any securities of the corporation or any of its Principal Subsidiaries, except for any such reorganization, recapitalization or reclassification of any securities of any direct or indirect wholly-owned Principal Subsidiary or any merger of any direct or indirect wholly-owned Principal Subsidiary with each other;
- any liquidation, dissolution, winding up or commencement of voluntary bankruptcy, insolvency, liquidation or similar proceedings with respect to the corporation or any of its Principal Subsidiaries;
- any acquisition by the corporation or any of its Subsidiaries (in a single transaction or a series of related transactions) of any assets, business or operations in the aggregate for consideration in excess of $500 million;
- any sale, transfer, lease, pledge or other disposition by the corporation or any of its Subsidiaries (in a single transaction or a series of related transactions) of any assets, business or operations in the aggregate with a value of more than $500 million;
- the creation, incurrence, or assumption of any indebtedness of the corporation or any of its Subsidiaries resulting in total indebtedness (including short and long term debt) in excess of $1,500 million on a consolidated basis; or
- any offer or sale, whether privately or to the public, of Common Stock or other equity securities or securities convertible or exchangeable into equity securities of the corporation in excess of 10% of the outstanding Common Stock or such amounts which, on completion of any such sale, would reduce Fortis Group's ownership to below 50% of the outstanding Common Stock.
For purposes of Section 10 of this Article II and this Section 11, (i) the term "Fortis Group" shall mean Fortis SA/NV, a public company established as a societe anonyme/naamloze vennootschap under the laws of Belgium, and Fortis N.V., a public company established as a naamloze vennootschap under the laws of the Netherlands, including Fortis Insurance, and their respective Affiliates, other than the corporation and its Subsidiaries and any officers and directors; (ii) the term "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person; (iii) the term "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; (iv) the term "Person" shall mean an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof; (v) the term "Principal Subsidiary" shall have the same definition as "Significant Subsidiary" under Rule 1.02 of Regulation S-X of the Securities Exchange Act of 1934, as amended.
This Section 11 shall terminate immediately and automatically on the first date on which Fortis Group ceases to own at least 50% of the outstanding Common Stock of the corporation and shall not be reinstated.
Until such termination this Section 11 shall not be amended without the consent of Fortis Insurance.
ARTICLE III.
OFFICERS
Section 1. The Board of Directors, after each annual meeting of the stockholders, shall elect officers of the corporation, including a President and a Secretary. The Board of Directors may also from time to time elect such other officers (including one or more Vice Presidents, a Treasurer, one or more Assistant Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers) as it may deem proper or may delegate to any elected officer of the corporation the power to appoint and remove any such other officers and to prescribe their respective terms of office, authorities and duties. Any Vice President may be designated Executive, Senior or Corporate, or may be given such other designation or combination of designations as the Board of Directors may determine. Any two or more offices may be held by the same person. The Board of Directors may also elect or appoint a Chairman of the Board who may or may not be an officer of the corporation.
Section 2. All officers of the corporation elected by the Board of Directors shall hold office for such term as may be determined by the Board of Directors or until their respective successors are chosen and qualified. Any officer may be removed from office at any time either with or without cause by the affirmative vote of a majority of the members of the Board then in office, or, in the case of appointed officers, by any elected officer upon whom such power of removal shall have been conferred by the Board of Directors.
Section 3. Each of the officers of the corporation elected by the Board of Directors or appointed by an officer in accordance with these By-Laws shall have the powers and duties prescribed by law, by the By-Laws or by the Board of Directors and, in the case of appointed officers, the powers and duties prescribed by the appointing officer, and, unless otherwise prescribed by the By-Laws or by the Board of Directors or such appointing officer, shall have such further powers and duties as ordinarily pertain to that office. The President, as determined by the Board of Directors, shall be the Chief Executive Officer and shall have the general direction of the affairs of the corporation.
Section 4. Unless otherwise provided in these By-Laws, in the absence or disability of any officer of the corporation, the Board of Directors may, during such period, delegate such officer's powers and duties to any other officer or to any director and the person to whom such powers and duties are delegated shall, for the time being, hold such office.
ARTICLE IV.
CERTIFICATES OF STOCK
Section 1. The shares of stock of the corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the corporation's stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation, or as otherwise permitted by law, representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be a facsimile.
Section 2. Transfers of stock shall be made on the books of the corporation by the holder of the shares in person or by such holder's attorney upon surrender and cancellation of certificates for a like number of shares, or as otherwise provided by law with respect to uncertificated shares.
Section 3. No certificate for shares of stock in the corporation shall be issued in place of any certificate alleged to have been lost, stolen or destroyed, except upon production of such evidence of such loss, theft or destruction and upon delivery to the corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors in its discretion may require.
ARTICLE V.
CORPORATE BOOKS
The books of the corporation may be kept outside of the State of Delaware at such place or places as the Board of Directors may from time to time determine.
ARTICLE VI.
CHECKS, NOTES, PROXIES, ETC.
All checks and drafts on the corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers or agent or agents as shall be authorized from time to time by the Board of Directors. Proxies to vote and consents with respect to securities of other corporations owned by or standing in the name of the corporation may be executed and delivered from time to time on behalf of the corporation by the Chairman of the Board, the President, or by such officers as the Board of Directors may from time to time determine.
ARTICLE VII.
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of January in each year and shall end on the thirty-first day of December following.
ARTICLE VIII.
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the corporation. In lieu of the corporate seal, when so authorized by the Board of Directors or a duly empowered committee thereof, a facsimile thereof may be impressed or affixed or reproduced.
ARTICLE IX.
AMENDMENTS
Except as otherwise provided in these By-Laws, these By-Laws
may be amended, added to, rescinded or repealed at any meeting of the Board of
Directors or of the stockholders, provided notice of the proposed change was
given in the notice of the meeting of the stockholders or, in the case of a
meeting of the Board of Directors, in a notice given not less than two days
prior to the meeting; provided, however, that, notwithstanding any other
provisions of these By-Laws or any provision of law which might otherwise permit
a lesser vote of the stockholders, the affirmative vote of the holders of at
least two-thirds of all outstanding voting power of the corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required in order for the stockholders to alter, amend or repeal
Section 2 and Section 11 of Article I, Sections 1, 6 and 7 of Article II,
Article X or this proviso to this Article IX of these By-Laws or to adopt any
provision inconsistent with any of such Sections or with this proviso.
ARTICLE X.
INDEMNIFICATION
Section 1. The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a "Covered Person") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the corporation or, while a director or officer of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in Section 3 of
this Article X, the corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of Directors of the corporation.
Section 2. The corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys' fees) incurred by a Covered Person in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article X or otherwise.
Section 3. If a claim for indemnification (following the final disposition of such action, suit or proceeding) or advancement of expenses under this Article X is not paid in full within thirty days after a written claim therefor by the Covered Person has been received by the corporation, the Covered Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.
Section 4. The rights conferred on any Covered Person by this Article X shall not be exclusive of any other rights which such Covered Person may have or hereafter acquire under any statute, provision of the Restated Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested directors or otherwise.
Section 5. The corporation's obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Covered Person may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.
Section 6. Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection hereunder of any Covered Person in respect of any act or omission occurring prior to the time of such repeal or modification.
Section 7. This Article X shall not limit the right of the corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action.
Exhibit 3.3
FORM OF
SHAREHOLDERS' AGREEMENT
dated as of
-, 2004
between
ASSURANT, INC.
and
FORTIS INSURANCE N.V.
TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS Section 1.01. Definitions............................................... 1 ARTICLE 2 CORPORATE GOVERNANCE Section 2.01. Composition of the Board.................................. 3 Section 2.02. Removal................................................... 4 Section 2.03. Vacancies................................................. 5 Section 2.04. Actions By The Company.................................... 5 Section 2.05. Action by the Board....................................... 5 Section 2.06. Notice of Meeting......................................... 5 Section 2.07. Required Consents......................................... 6 Section 2.08. Conflicting Agreements.................................... 7 ARTICLE 3 REGISTRATION RIGHTS Section 3.01. Registration Rights Agreement............................. 7 ARTICLE 4 MISCELLANEOUS Section 4.01. Binding Effect; Assignability; Benefit.................... 8 Section 4.02. Notices................................................... 8 Section 4.03. Waiver; Amendment; Termination............................ 9 Section 4.04. Governing Law............................................. 9 Section 4.05. Specific Enforcement...................................... 9 Section 4.06. Counterparts; Effectiveness............................... 9 Section 4.07. Entire Agreement.......................................... 10 Section 4.08. Captions.................................................. 10 Section 4.09. Severability.............................................. 10 Exhibit A Registration Rights Agreement |
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT (the "AGREEMENT") dated as of -, 2004 between Assurant, Inc., a Delaware corporation (the "COMPANY") and Fortis Insurance N.V., a company with limited liability incorporated as naamloze vennootschap under Dutch law ("FORTIS INSURANCE"), as a majority shareholder of the Company.
W I T N E S S E T H :
WHEREAS, Fortis Insurance owns - shares of common stock, par value $0.01 per share, of the Company (the "COMMON STOCK");
WHEREAS, simultaneously with the execution and delivery of this Agreement, the Company and Fortis Insurance are offering Common Stock to the public in an underwritten secondary offering registered under the Securities Act pursuant to a registration statement on Form S-1, File No. 333-109984 (the "IPO REGISTRATION STATEMENT");
WHEREAS, upon completion of such offering, Fortis Insurance will continue to own -% of the Common Stock outstanding (or -% of the underwriters' over allotment option is exercised); and
WHEREAS, the parties hereto desire to enter into this Agreement to govern certain of their rights, duties and obligations relating to the Company following completion of such offering.
NOW, THEREFORE, in consideration of the covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions. The following terms, as used herein, have the following meanings:
"AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. For the purpose of this definition, the term "CONTROL" (including, with correlative meanings, the terms "CONTROLLING", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise provided that the term Affiliate when
used in the context of calculating the Fortis Group's percentage ownership of the Common Stock shall exclude officers and directors of the Fortis Group.
"BOARD" means the board of directors of the Company.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City, Belgium or the Netherlands are authorized or obligated by law or executive order to close.
"BYLAWS" means the Amended and Restated Bylaws of the Company, as the same may be amended from time to time.
"CAUSE" has the meaning set forth in Section 2.02.
"CHARTER" means the Restated Certificate of Incorporation of the Company, as the same may be amended from time to time.
"COMMON STOCK" has the meaning set forth in the first recital.
"COMPANY" has the meaning set forth in the preamble.
"FORTIS" means Fortis SA/NV a public company established as a societe anonyme/naamloze vennootschap under the laws of Belgium and Fortis N.V., a public company established as a naamloze vennootschap under the laws of the Netherlands.
"FORTIS DESIGNEE" means a director designated by Fortis Insurance to serve on the Company's Board as provided for in Article 2 hereof.
"FORTIS GROUP" means Fortis, including Fortis Insurance, and their respective Affiliates, other than the Company and its Subsidiaries.
"FORTIS INSURANCE" has the meaning set forth in the preamble to this Agreement.
"INDEPENDENT DIRECTOR" means an independent director within the meaning given to such term under the rules of the New York Stock Exchange or such other principal exchange or quotation system on which the Company's Common Stock is listed or traded and under the Sarbanes-Oxley Act of 2002.
"IPO" means the initial public offering of the Company pursuant to the IPO Registration Statement.
"IPO REGISTRATION STATEMENT" means the registration statement on Form S-1, (File No. 333-109984) prepared by the Company for the secondary offering by Fortis Insurance of Common Stock of the Company.
"OUTSTANDING" means, as of any date of determination, all shares of Common Stock that have been issued on or prior to such date, other than shares of Common Stock repurchased or otherwise reacquired by the Company or any of its Affiliates other than the Fortis Group.
"PERSON" means an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
"PRINCIPAL SUBSIDIARY" means, any Subsidiary, which from time to time shall satisfy any of the tests included in the definition of "significant subsidiary" as defined in Rule 1-02 of Regulation S-X.
"REGISTRATION RIGHTS AGREEMENT" means the agreement dated as of -, 2004 between the Company and Fortis Insurance attached as Exhibit A hereto.
"SUBSIDIARY" means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person.
ARTICLE 2
CORPORATE GOVERNANCE
Section 2.01. Composition of the Board. (a) The Board shall consist of
(x) no more than fourteen (14) directors for so long as Fortis Group owns at
least 50% of the outstanding Common Stock and (y) no more than twelve (12)
directors for so long as Fortis Group owns less than 50% but at least 10% of the
Outstanding Common Stock, subject to any increase in the Board as a result of
the rights of holders of preferred stock to elect directors. The Board shall
nominate designees of Fortis Group and other directors as follows, unless, based
on the advice of counsel, such nomination would be inconsistent with the
fiduciary duties of the members of the Board:
(i) so long as Fortis Group owns at least 50% of the Outstanding Common Stock, five Fortis Designees and at most nine other directors, subject to any increase in the Board as a result of the rights of holders of preferred stock to elect directors, including at least five Independent Directors if there are twelve or fewer directors and at least six Independent Directors at all other times;
(ii) so long as Fortis Group owns less than 50% but at least 10% of the Outstanding Common Stock, two Fortis Designees and at most ten other directors, subject to any increase in the Board as a result of the rights of holders of preferred stock to elect directors, including at least seven Independent Directors; and
(iii) so long as Fortis Group owns less than 10% but at least 5% of the Outstanding Common Stock, the Fortis Group shall continue to have the right to have one Fortis Designee on the Board.
(b) The Company agrees that (i) for so long as Fortis Group owns shares entitled to 50% or more of the votes entitled to be cast by the then Outstanding Common Stock, it shall not, and shall use its best efforts to cause the Board not to, alter the number of directors that comprise the Board if such action would result in more than 14 directors and (ii) for so long as Fortis Group owns shares entitled to less than 50% but at least 10% of the votes entitled to be cast by the then Outstanding Common Stock it shall not, and shall use its best efforts to cause the Board not to, alter the number of directors that comprise the Board if such action would result in more than 12 directors.
(c) As provided for in the Charter and Bylaws, the directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board. It is hereby agreed that at the time of the IPO three Fortis Designees shall be designated as Class II directors and two Fortis Designees shall be designated as Class III directors. The Fortis Designees on the Board as of the date of this Agreement are Anton van Rossum, Arie Aristide Fakkert, Georges Valckenaere, Gilbert Mittler and Michel Baise. The initial Fortis Designees to be designated Class II directors shall be Anton van Rossum, Arie Aristide Fakkert and Georges Valckenaere, and the initial Fortis Designees to be designated as Class III directors shall be Michel Baise and Gilbert Mittler. If at the end of the respective terms for such Fortis Designees included in such class, Fortis shall continue to be entitled to have Fortis Designees represented on the Board, each such position shall be filled at such time by a Person who shall be nominated by Fortis Insurance.
(d) Fortis Insurance shall cause the appropriate number of Fortis Designees to resign promptly at any time when the number of Fortis Designees on the Board exceeds the number of Fortis Designees to which the Fortis Group is entitled pursuant to Section 2.01(a) above, unless otherwise requested by the Company.
(e) Fortis Insurance agrees that it will not take any action as a shareholder, whether through proxy solicitation or otherwise, that would result in the Fortis Group having Fortis Designees on the Board in numbers which exceed that provided in Section 2.01(a) above.
Section 2.02. Removal. Any Fortis Designee will resign or retire from the Board at the written request of Fortis Insurance. Otherwise, no Fortis Designee may be removed from the Board unless such removal shall be for Cause and consented to by Fortis Insurance. Removal for "CAUSE" shall mean removal of a
director because of such director's (a) willful and continued failure substantially to perform his or her duties with the Company in his or her established position, (b) willful conduct that is injurious, monetarily or otherwise, to the Company or any of its Subsidiaries, (c) conviction for, or guilty plea to, a felony or a crime involving moral turpitude, (d) abuse of illegal drugs or other controlled substances or habitual intoxication or (e) willful breach of this Agreement.
Section 2.03. Vacancies. If, as a result of death, disability, retirement, resignation, removal (with or without Cause) or otherwise, there shall exist or occur any vacancy on the Board with respect to a Fortis Designee, or for any other reason there are at any time fewer Fortis Designees serving on the Board than are entitled to be designated by Fortis Insurance as provided for in Section 2.01, the resulting vacancy on the Board shall be filled at any time by a Person who shall be nominated by Fortis Insurance unless, based on the advice of counsel, such nomination would be inconsistent with the fiduciary duties of the members of the Board.
Section 2.04. Actions By The Company. The Company agrees to use its best efforts to cause each individual designated pursuant to Section 2.01 or 2.03 to be nominated to serve as a director on the Board, unless, based on the advice of counsel, such nomination would be inconsistent with the fiduciary duties of the members of the Board, and to take all other necessary actions so long as such actions are consistent with the Charter and Bylaws (including calling a special meeting of the Board and/or shareholders) to ensure that the composition of the Board is as set forth in Sections 2.01 and 2.03.
Section 2.05. Action by the Board. (a) Subject to Section 2.07, all actions of the Board shall require (i) the affirmative vote of at least a majority of the directors present at a duly-convened meeting of the Board at which a quorum is present or (ii) the unanimous written consent of the Board, provided that if there is a vacancy on the Board and an individual has been nominated to fill such vacancy, the first order of business shall be to fill such vacancy.
(b) At any time that the Company proposes to register any of its securities that would require it to notify Fortis Insurance of its right to "piggy-back" on such offering in accordance with Section 2.02 of the Registration Rights Agreement and it creates a pricing committee authorized by the Board to determine, among other things, the syndicate structure, if any, and the size and offer price for the offering, it shall include on such pricing committee a Fortis Designee, which Fortis Designee shall be chosen by Fortis Insurance.
Section 2.06. Notice of Meeting. The Company agrees to give each director notice and the agenda for each meeting of the Board or any committee
thereof (even if such director is not a member of such committee) at least five Business Days prior to such meeting.
Section 2.07. Required Consents. (a) For so long as the Fortis Group owns at least 50% of the outstanding Common Stock, the Company shall not take any action (including any action by the Board or any committee of the Board) after the date hereof with respect to any of the following matters without the affirmative approval of at least 75% (rounded to the nearest whole number of directors with 0.5 rounded upwards) of the then members of the Board:
- any recapitalization, reclassification, spin-off or combination of any securities of the Company or any of its Principal Subsidiaries, except for any such reorganization, recapitalization or reclassification of any securities of any direct or indirect wholly-owned Principal Subsidiary or any merger of any direct or indirect wholly-owned Principal Subsidiary with each other,
- any liquidation, dissolution, winding up or commencement of voluntary bankruptcy, insolvency, liquidation or similar proceedings with respect to the Company or any of its Principal Subsidiaries,
- any acquisition by the Company or any of its Subsidiaries (in a single transaction or a series of related transactions) of any assets, business or operations in the aggregate with a value of more than $500 million,
- any sale, transfer, lease, pledge or other disposition by the Company or any of its Subsidiaries (in a single transaction or a series of related transactions) of any assets, business or operations in the aggregate with a value of more than $500 million,
- the creation, incurrence, or assumption of any indebtedness of the Company or any of its Subsidiaries resulting in total indebtedness (including short and long term debt) in excess of $1,500 million on a consolidated basis; or
- any offer or sale, whether privately or to the public, of Common Shares or other equity securities or securities convertible or exchangeable into equity securities of the Company in excess of 10% of the Common Stock outstanding or such amounts which, on completion of any such sale, would reduce Fortis Group's ownership to below 50% of the outstanding Common Stock.
The Company shall include a provision in its Bylaws to the foregoing effect which Bylaw provision by its terms shall terminate when the conditions described above are no longer applicable to the Fortis Group.
(b) For so long as Fortis Group owns less than 50% but at least 10% of the outstanding Common Stock, the Company shall not take any action (including any action by the Board or any committee of the Board) after the date hereof with respect to any of the following matters without the affirmative approval of Fortis Insurance, as shareholder:
- any recapitalization, reclassification, spin-off or combination of any securities of the Company or any of its Principal Subsidiaries, or
- any liquidation, dissolution, winding up or commencement of voluntary bankruptcy, insolvency, liquidation or similar proceedings with respect to the Company or any of its Subsidiaries.
In the case of any vote of shareholders with respect to any of the events described above, if the Board, including any Fortis Designee, votes in favor of such action at any Board meeting at which a quorum is present or by written consent, Fortis Insurance shall vote its shares of Common Stock in favor of such action and Fortis Insurance hereby grants to the Company an irrevocable proxy coupled with an interest to effect such vote.
Section 2.08. Conflicting Agreements. Each party represents and agrees
that it shall not (a) grant any proxy or enter into or agree to be bound by any
voting trust or agreement with respect to the securities of the Company other
than this Agreement or any amendment or supplement hereto, (b) enter into any
agreement or arrangement of any kind with any Person with respect to the
securities of the Company inconsistent with the provisions of this Agreement or
(c) act, for any reason, as a member of a group or in concert with any other
Person in connection with the voting of the securities of the Company in any
manner that is inconsistent with the provisions of this Agreement.
ARTICLE 3
REGISTRATION RIGHTS
Section 3.01. Registration Rights Agreement. The Company agrees to provide Fortis Insurance with registration rights with respect to Common Stock owned by it or other members of the Fortis Group as set forth in the Registration Rights Agreement attached hereto as Exhibit A.
ARTICLE 4
MISCELLANEOUS
Section 4.01. Binding Effect; Assignability; Benefit. (a) This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by any party hereto pursuant to any transfer of the securities of the Company.
(b) Nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
Section 4.02. Notices. All notices, requests and other communications to any party shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by facsimile transmission,
if to the Company, to:
Assurant, Inc.
One Chase Manhattan Plaza New York, New York 10005 Attention: Katherine Greenzang, Esq.
Senior Vice President, General Counsel and Secretary
Fax: (212) 859-7034
if to Fortis Insurance, to:
Fortis Insurance N.V.
Archimedeslaan 6
P.O. Box 2049
3500 GA Utrecht
The Netherlands
Attention: Monica Roeling
Phone: +31 30 257 6568
Fax: +31 30 257 7835
with a copy to:
Fortis
Rue Royale, 20
1000 Brussels
Belgium
Attention: Gilbert Mittler
Phone: +32 2 510 5206
Fax: +32 2 510 5621
All notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. Any notice, request or other written communication sent by facsimile transmission shall be confirmed by certified or registered mail, return receipt requested, posted within one Business Day, or by personal delivery, whether courier or otherwise, made within two Business Days after the date of such facsimile transmissions.
Section 4.03. Waiver; Amendment; Termination. No provision of this Agreement may be amended, supplemented or modified, and waivers or consents to depart from the provisions hereof may not be given, except by an instrument in writing executed by the parties hereto. This Agreement shall terminate upon, and be of no further force and effect once Fortis Group owns less than 5% of the outstanding Common Stock.
Section 4.04. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts to be performed entirely within such state.
Section 4.05. Specific Enforcement. Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available.
Section 4.06. Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto.
Section 4.07. Entire Agreement. This Agreement, including any exhibit hereto, constitutes the entire agreement among the parties hereto and supersedes all prior and contemporaneous agreements and understandings, both oral and written, among the parties hereto with respect to the subject matter hereof and thereof.
Section 4.08. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.
Section 4.09. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated unless such a construction would be unreasonable or materially impair the rights of any party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
ASSURANT, INC.
By:___________________________________________
Name:
Title:
FORTIS INSURANCE N.V.
By:___________________________________________
Name:
Title:
Exhibit 3.4
FORM OF
REGISTRATION RIGHTS AGREEMENT
by
ASSURANT, INC.
and
FORTIS INSURANCE N.V.
Dated as of -, 2004
TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS Section 1.01. Definitions.................................................. 1 ARTICLE 2 REGISTRATION RIGHTS Section 2.01. Demand Rights................................................ 5 Section 2.02. "Piggy-Back" Rights.......................................... 8 Section 2.03. Allocation of Securities Included in a Public Offering....... 9 Section 2.04. Requirements with Respect to Registration.................... 10 Section 2.05. Transfers; Rights of Transferee of Registrable Securities.... 14 Section 2.06. Registration Expenses........................................ 14 Section 2.07. Underwriting; Due Diligence.................................. 15 Section 2.08. Registration In Connection With Hedging Transactions......... 16 Section 2.09. Unregistered Offerings....................................... 16 Section 2.10. Registration Rights of Other Persons......................... 17 Section 2.11. Inconsistent Agreements...................................... 17 Section 2.12. "Market Stand-Off" Agreement................................. 17 Section 2.13. Limitations on Availability of Registration Rights........... 18 ARTICLE 3 REPRESENTATIONS, WARRANTIES AND AGREEMENTS Section 3.01. Company Representations, Warranties and Agreements........... 18 Section 3.02. Fortis Insurance Representations, Warranties and Agreements.. 20 Section 3.03. Survival of Representations and Agreements................... 20 ARTICLE 4 INDEMNIFICATION AND CONTRIBUTION Section 4.01. Indemnification and Contribution............................. 21 ARTICLE 5 MISCELLANEOUS Section 5.01. Remedies..................................................... 24 Section 5.02. Amendments and Waivers....................................... 25 Section 5.03. Notices...................................................... 25 Section 5.04. Interpretation............................................... 26 |
Page ---- Section 5.05. Counterparts................................................. 26 Section 5.06. Entire Agreement; No Third Party Beneficiaries............... 26 Section 5.07. Governing Law................................................ 26 Section 5.08. Severability................................................. 26 Section 5.09. Successors and Assigns....................................... 26 Section 5.10. Use of Terms................................................. 27 |
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is dated as of -, 2004, and is being entered into by Assurant, Inc., a Delaware corporation (the "COMPANY") and Fortis Insurance N.V., a company with limited liability incorporated as naamloze vennootschap under Dutch law ("FORTIS INSURANCE").
RECITALS
WHEREAS, Fortis Insurance owns - shares of common stock, par value $0.01 per share, of the Company (the "COMMON SHARES");
WHEREAS, simultaneously with the execution and delivery of this Agreement, the Company and Fortis Insurance are offering Common Shares to the public in an underwritten secondary offering registered under the Securities Act pursuant to a registration statement on Form S-1, File No. 333-109984 (the "IPO REGISTRATION STATEMENT");
WHEREAS, upon completion of such offering, Fortis Insurance will continue to be a significant shareholder in the Company; and
WHEREAS, the Company has agreed to provide Fortis Insurance and its Affiliates with certain registration rights with respect to the Common Shares owned by them during the term of this Agreement.
NOW, THEREFORE, in consideration of the promises and of the mutual covenants, representations, warranties and agreements contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions. As used in this Agreement, including its preamble and recitals, the following terms shall have the following meanings:
"AFFILIATE" shall mean, with respect to any specified Person, any other Person, other than the Company or any of its Subsidiaries, that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such specified Person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing; provided that the term Affiliate when used in the context of calculating the Shareholder's percentage ownership of the
Common Stock or determining Registrable Securities shall exclude officers and directors of the Shareholder.
"BLACKOUT PERIODS" shall have the meaning set forth in Section 2.01(a).
"COMMISSION" shall mean the United States Securities and Exchange Commission.
"COMMON SHARES" shall have the meaning set forth in the first recital.
"COMPANY" shall have the meaning set forth in the preamble.
"DEMAND REQUEST" shall have the meaning set forth in Section 2.01(a).
"EXCHANGE ACT" shall mean the United States Securities Exchange Act of 1934, as amended.
"HEDGING COUNTERPARTY" means a broker-dealer registered under Section 15(b) of the Exchange Act or an Affiliate thereof or any other financial institution or third party.
"HEDGING TRANSACTION" means any transaction involving a security linked to the Registrable Class Securities or any security that would be deemed to be a "derivative security" (as defined in rule 16a-1(c) under the Exchange Act) with respect to the Registrable Class Securities or any transaction (even if not a security) which would (were it a security) be considered such a derivative security, or which transfers some or all of the economic risk of ownership of the Registrable Class Securities, including, without limitation, any forward contract, equity swap, put or call, put or call equivalent position, collar, non-recourse loan, sale of exchangeable security or similar transaction. For the avoidance of doubt, the following transactions shall be deemed to be Hedging Transactions:
(a) transactions by a Shareholder in which a Hedging Counterparty engages in short sales of Registrable Class Securities pursuant to a prospectus and may use Registrable Securities to close out its short position;
(b) transactions pursuant to which a Shareholder sells short Registrable Class Securities pursuant to a prospectus and delivers Registrable Securities to close out its short position; and
(c) transactions by a Shareholder in which the Shareholder delivers, in a transaction exempt from registration under the Securities Act, Registrable Securities to the Hedging Counterparty who will then publicly resell or otherwise transfer such Registrable Securities pursuant to a prospectus or an exemption from registration under the Securities Act.
"INITIAL PUBLIC OFFERING DATE" shall mean the date of the first closing of the initial sale of Common Shares in an initial Public Offering.
"IPO REGISTRATION STATEMENT" shall have the meaning set forth in the second recital.
"MAXIMUM NUMBER" shall have the meaning set forth in Section 2.01(b).
"OTHER SECURITIES" shall have the meaning set forth in the definition of Registrable Securities.
"PERSON" shall mean an individual, trustee, corporation, partnership, joint stock company, trust, unincorporated association, union, business association, firm or a government or agency or political subdivision thereof or other entity.
"PRELIMINARY PROSPECTUS" shall mean any preliminary prospectus that may be included in any Registration Statement.
"PROSPECTUS" shall mean the prospectus included in any Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and by all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
"PUBLIC OFFERING" shall mean the offer of Common Shares on a broadly distributed basis, not limited to sophisticated investors, pursuant to a firm-commitment or best-efforts underwriting arrangement.
"REGISTRABLE CLASS SECURITIES" means securities of the Company that are of the same class and series as the Registrable Securities.
"REGISTRABLE SECURITIES" shall mean all or any portion of the Common Shares owned by any Shareholder from time to time during the term of this Agreement. As to any particular Registrable Securities, such Common Shares shall cease to be Registrable Securities when (i) a Registration Statement with respect to the sale of such Common Shares shall have become effective under the Securities Act and such Common Shares shall have been disposed of under such Registration Statement, (ii) such Common Shares shall have been distributed to the public pursuant to Rule 144, (iii) such securities shall have otherwise been transferred or disposed of, and subsequent transfer or disposition of such
Common Shares shall not require their registration or qualification under the Securities Act or any similar state law then in force or (iv) such Common Shares shall have been repurchased by the Company or otherwise ceased to be outstanding. If as a result of any reclassification, stock split, stock dividend, bonus issue, business combination, exchange offer or other transaction or event, any capital stock, evidences of indebtedness, warrants, options, rights or other securities (collectively "OTHER SECURITIES") are issued or transferred to any Shareholder in respect of Registrable Securities held by such holder, references herein to Registrable Securities shall be deemed to include such Other Securities.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance with any registration or marketing of securities
pursuant to Article 2, including (i) the fees, disbursements and expenses of the
Company's counsel and accountants in connection with this Agreement and the
performance of the Company's obligations hereunder (including the expenses of
any annual audit letters and "cold comfort" letters required or incidental to
the performance of such obligations); (ii) all expenses, including filing fees,
in connection with the preparation, printing and filing of the registration
statement, any preliminary prospectus or final prospectus, any other offering
document and amendments and supplements thereto and the mailing and delivering
of copies thereof to any underwriters and dealers; (iii) the cost of printing
and producing any agreements among underwriters, underwriting agreements,
selling agreements and any other documents in connection with the offering, sale
or delivery of the securities to be disposed of; (iv) all expenses in connection
with the qualification of the securities to be disposed of for offering and sale
under state securities laws, including the fees and disbursements of counsel for
the underwriters or the Shareholders in connection with such qualification and
in connection with any blue sky and legal investment surveys, including the cost
of printing and producing any such blue sky or legal investment surveys; (v) the
filing fees incident to securing any required review by the National Association
of Securities Dealers, Inc. of the terms of the sale of the securities to be
disposed of; (vi) transfer agents' and registrars' fees and expenses and the
fees and expenses of any other agent or trustee appointed in connection with
such offering; (vii) all security engraving and security printing expenses;
(viii) all fees and expenses payable in connection with the listing of the
securities on any securities exchange or automated interdealer quotation system;
(ix) any other fees and disbursements of underwriters customarily paid by the
issuers of securities, but excluding underwriting discounts and commissions and
transfer taxes, if any; (x) the costs and expenses of the Company and its
officers relating to analyst or investor presentations or any "road show"
undertaken in connection with the registration and/or marketing of any
Registrable Securities; and (xi) other reasonable out-of-pocket costs, fees and
expenses, including the fees and expenses of one outside legal counsel retained
by the Shareholders.
"REGISTRATION STATEMENT" shall mean any registration statement of the Company under the Securities Act that covers any of the Registrable Securities, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statements.
"REGULATIONS" shall mean the General Rules and Regulation of the Commission under the Securities Act.
"REQUESTING HOLDER" shall mean any Shareholder requesting the registration of Registrable Securities pursuant to Section 2.01(a).
"RULE 144" shall mean Rule 144 (or any successor provisions) under the Securities Act.
"RULE 144A" shall mean Rule 144A (or any successor provisions) under the Securities Act.
"RULE 415 OFFERING" means an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule to similar effect) under the Securities Act.
"SECURITIES ACT" shall mean the United States Securities Act of 1933, as amended.
"SELLING HOLDER" shall mean a Shareholder included in a relevant Registration Statement.
"SHAREHOLDER" shall mean Fortis Insurance, and any of its Affiliates that holds Registrable Securities from time to time.
"UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" shall mean a registration in which securities of the Company are sold to an underwriter for reoffering to the public or pursuant to Rule 144A of the Securities Act.
ARTICLE 2
REGISTRATION RIGHTS
Section 2.01 Demand Rights. (a) (a) At any time, and from time to time, on or after the Initial Public Offering Date (subject to Section 2.01(b)(i)), a Shareholder shall have the right to require the Company to effect the registration under the Securities Act for a Public Offering of all or part of such Shareholder's Registrable Securities, by delivering written notice thereof to the Company
specifying the number of Registrable Securities to be included in such registration and the intended method of distribution thereof (which requested method of disposition may be a Rule 415 Offering) (the "DEMAND REQUEST"). Upon receipt of such Demand Request the Company shall comply with Section 2.04.
(b) The Company's obligations pursuant to Section 2.01(a) above are subject to the following limitations and conditions:
(i) the Company shall not be obligated to fulfill the
requirements or file the Registration Statement referred to therein (A)
during any period of time (not to exceed ninety (90) days in the
aggregate with respect to each request) when the Company has determined
to proceed with a Public Offering for its own account and, in the good
faith judgment of the managing underwriter thereof, the fulfillment of
such requirements or such filing would have an adverse effect on such
Public Offering, (B) during any period of time (not to exceed sixty
(60) days with respect to each request) when the Company is in
possession of material non-public information that the board of
directors of the Company has in its good faith judgment determined
could materially and adversely affect a material business situation,
financing transaction or negotiation affecting the Company, (C) during
the 90-day period following the effectiveness of any previous
Registration Statement or (D) during the 180-day period following the
effectiveness of the IPO Registration Statement, except, in the case of
subclause (D) hereof, with the consent of the underwriters controlling
the related lock-up agreement (the periods of time referred to in
subclauses (A), (B), (C) and (D) hereof being hereinafter referred to
as "BLACKOUT PERIODS"); provided, that the aggregate period of time
during which the Company shall be relieved from its obligation to file
such a Registration Statement pursuant to Section 2.01(b)(i), shall in
no event, except in the case of clause (D), exceed ninety (90)
consecutive days with respect to each request; provided, further, that,
in the case of a Blackout Period pursuant to subclause (A) hereof, the
Blackout Period shall earlier terminate upon the completion or
abandonment of the relevant Public Offering; provided, further, that in
the case of a Blackout Period pursuant to subclause (B) hereof, the
Blackout Period shall earlier terminate upon public disclosure by the
Company or public admission by the Company of such material nonpublic
information or such time as such material nonpublic information shall
be publicly disclosed or such time that the Company is no longer in
possession of material nonpublic information; provided, further, that
in the case of a Blackout Period pursuant to subclauses (A), (B), (C)
or (D) hereof, the Company shall furnish to the Requesting Holder a
certified resolution of the Company's board of directors to the effect
that an event permitting a Blackout Period has occurred; provided,
further, that the Company shall not be entitled to exercise its rights
under subclause (B) hereof more than one (1) time in
any twelve (12)-month period; and provided, further, if the Requesting
Holder withdraws its Demand Request pursuant to Section 2.01(e), such
request shall not be considered a Demand Request for purposes of
Section 2.01(a) and such Demand Request shall be of no further effect;
(ii) the number of Common Shares to be sold in any such Public Offering shall not exceed the maximum number which the managing underwriter thereof considers in good faith to be appropriate based on market conditions and other relevant factors, including pricing and the proportion of Common Shares being sold by the Company and by such holders (the "MAXIMUM NUMBER"); and
(iii) the Registrable Securities to be offered pursuant to such request have an aggregate offering price of (A) subject to (B) below, at least U.S. $500 million (based on the then current market price on the date of delivery of the Demand Request) and (B) when the aggregate Registrable Securities of the Shareholder is less than, or, if after giving effect to the requested offering of the Registrable Securities, the aggregate Registrable Securities will be less than, 20% of the outstanding Common Shares of the Company, at least US $250 million (based on the then current market price on the date of delivery of the Demand Request).
(c) Any Shareholder may exercise its rights under Section 2.01(a)
(x) on an unlimited number of occasions with respect to registration statements
on Forms S-2 or S-3 (or any successors thereto) from such time that the Company
becomes eligible to use such forms and (y) on not more than two occasions after
the date hereof with respect to registration statements on Form S-1 (or any
successor thereto); provided that the Company shall not be obligated to effect
more than one registration of Registrable Securities in any 90-day period.
(d) A request by a Requesting Holder that the Company file a Registration Statement shall not be considered a Demand Request if (i) the Registration Statement relating thereto does not become effective, (ii) after it has become effective such Registration Statement (or the use of the Prospectus contained in such Registration Statement) is (A) interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason other than a misrepresentation or an omission by any Requesting Holder or (B) delayed, withdrawn, suspended or terminated and, in each case, as a result thereof, at least 80% of the Registrable Securities requested to be registered cannot be completely distributed in accordance with the plan of distribution set forth in the related Registration Statement or (iii) the conditions to closing specified in any purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied or waived other than because of some act or omission by such Requesting Holder.
(e) Any such Requesting Holder delivering a Demand Request shall have the right, at any time prior to the effective date of the Registration Statement relating to such Demand Request, to withdraw such Demand Request without liability to such Requesting Holder, by giving written notice to the Company.
(f) In the event that any registration pursuant to Section 2.01(a) shall involve, in whole or in part, an underwritten offering, the Requesting Holder shall select the lead managing underwriter or underwriters and bookrunner or bookrunners for such underwritten offering (after consultation with the Company), as well as counsel for the Selling Holders, with respect to such registration; provided that in connection with any such registration the Requesting Holder shall include on its pricing committee, which pricing committee shall be responsible for, among other things, the syndicate structure of the transaction, if any, as well as the size and the pricing for any such offering, the Chief Executive Officer of the Company and such inclusion shall be deemed to be consultation with the Company for purposes of the preceding clause; and provided further that the Company shall have the right to appoint other syndicate members with the consent of the Requesting Holder not to be unreasonably withheld.
(g) Subject to Section 2.10, the Company shall have the right to cause the registration of additional equity securities for sale for the account of any Person that is not a Shareholder (including the Company and any directors, officers or employees of the Company) in any registration of Registrable Securities requested by the Shareholders; provided that the number of Registrable Securities to be included in such registration (including those sought by the Shareholders) shall not exceed the Maximum Number; and provided further that in all cases, the Requesting Holder shall have priority over any such other Person.
Section 2.02. "Piggy-Back" Rights. (a) (a) If the Company proposes to register any of its Common Shares, any other equity securities or securities convertible into or exchangeable for its equity securities under the Securities Act, whether or not for sale for its own account, in a manner that would permit registration of Registrable Securities for sale for cash to the public under the Securities Act, the Company shall give written notice of such proposal at least thirty (30) days before the anticipated filing date, to each Shareholder. In the event that the Company elects to file a "universal shelf" registration statement which registers any of the classes of securities referred to in the first sentence of this Section 2.02(a), the Company shall take such steps as would permit the shelf registration statement to be used to permit secondary sales by the Shareholders and shall give written notice of any proposal to make an offering off the shelf registration statement of any class of securities referred to in the first sentence of this Section 2.02(a) at least ten (10) days before, and, if practicable, up to thirty (30) days before, the anticipated offering date, to each Shareholder. Such notices, as applicable, shall specify at a minimum the intended method of distribution of such Common Shares or other securities, the number of Common Shares or other
securities proposed to be registered or offered, the proposed filing date of
such registration statement or offering date in the case of a shelf takedown,
any proposed means of distribution of such Common Shares or other securities and
the proposed managing underwriter, if any. Subject to Section 2.03, upon the
written request of a Shareholder (the "PIGGYBACK REQUEST"), given within fifteen
(15) days after the transmittal of any such written notice by email or facsimile
confirmed by mail (which request shall specify the Registrable Securities
intended to be disposed of by such Shareholder), the Company will include in the
registration statement with respect to such Public Offering, or any prospectus
supplement in the case of a shelf takedown, the number of the Registrable
Securities referred to in such Shareholder's request; provided, that, any
participation in such Public Offering by such Shareholder shall be on
substantially the same terms as the Company's participation therein; and
provided, further, that the number of Registrable Securities to be included in
any such Public Offering shall not exceed the Maximum Number.
(b) Any such Shareholder shall have the right to withdraw a
request to include Registrable Securities in any Public Offering pursuant to
Section 2.02(a), without any liability of such Shareholder by giving written
notice to the Company of its election to withdraw such request at any time prior
to the proposed effective date of such registration statement.
(c) The Company shall not be required to effect any registration of Registrable Securities under Section 2.02(a) incidental to the registration of any equity securities on a Form S-8 or Form S-4 (or any successor forms).
(d) No registration of Registrable Securities effected under
Section 2.02(a) shall relieve the Company of its obligation to effect a
registration of Registrable Securities pursuant to Section 2.01(a).
Section 2.03. Allocation of Securities Included in a Public Offering. If the registration referred to in Section 2.01(a) and Section 2.02(a) is to be an underwritten registration and the managing underwriter thereof advises the Company and the Selling Holders in writing that the number of Common Shares sought to be included in such Public Offering (including those sought to be offered by the Company and those sought to be offered by the Selling Holders) exceeds the Maximum Number, the Common Shares to be included in such Public Offering shall be allocated pursuant to the following procedures:
(a) if such registration or Public Offering is pursuant to Section 2.01(a): the number shall be allocated pro rata among all of the Selling Holders on the basis of the relative number of the Registrable Shares then held by each such Selling Holder (with any number in excess of a Selling Holder's request reallocated among the remaining Selling Holders in a like manner) or in such manner as shall be designated by the Selling Holders; or
(b) if such registration or Public Offering is pursuant to Section 2.02(a): (x) first, securities sought to be included at the request of the Company ("COMPANY SECURITIES") and (y) second, up to the full number of the Registrable Securities included in the Piggyback Request, in excess of the number of Company Securities, to the nearest extent possible on a pro rata basis; provided that if the number of Registrable Securities proposed to be offered by the Selling Holders shall be reduced, such Selling Holders may withdraw their request to include Registrable Securities under Section 2.02(a) and request that 90 days subsequent to the effective date of the registration statement for the registration of such securities such registration of their Registrable Securities be effected under Section 2.01(a).
Section 2.04. Requirements with Respect to Registration. Subject to
Section 2.06, if and whenever the Company is required by the provisions hereof
to register any Registrable Securities under the Securities Act, including
receipt of a Demand Request pursuant to Section 2.01(a), the Company shall:
(a) As promptly as practicable (and in the case of a Demand Request, in no event more than 60 days following such Demand Request) prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become and remain effective; provided, however, that, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to and afford each Selling Holder and the managing underwriters, if any, a reasonable opportunity to review and comment on copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed.
(b) As promptly as practicable, prepare and file with the Commission such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement current and effective and to comply with the provisions of the Securities Act and the Regulations, with respect to the sale or disposition of such Registrable Securities until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition set forth in such Registration Statement, including in connection with the issuance and sale of any mandatory exchangeable convertible securities but not in excess of 180-days.
(c) Promptly notify each Selling Holder (A) when the Registration Statement or any Prospectus or any amendment or supplement has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (B) any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (C) any order issued or threatened by the Commission
suspending the effectiveness of such Registration Statement, preventing or suspending the use of a prospectus or (D) the receipt by the Company of any notification or order with respect to the suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction or the initiation of any proceedings for such purpose. The Company shall use its best efforts to prevent the issuance of any such order referred to in (C) or (D) and, if any such order is issued, shall use its best efforts to obtain the withdrawal of any such order at the earliest possible moment.
(d) As promptly as practicable, notify each Selling Holder and any Hedging Counterparty, if applicable, in writing at any time when a Prospectus is required to be delivered under the Securities Act of the happening of any event as a result of which the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and of any request by the Commission or any other regulatory body or other body having jurisdiction for any amendment of or supplement to any Registration Statement or other document relating to such offering, and in either such case, at the request of the Selling Holders and any Hedging Counterparty, if applicable, prepare and furnish to each Selling Holder and any Hedging Counterparty, if applicable, a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading.
(e) Use its best efforts to register or qualify the Registrable Securities covered by such Registration Statement under such securities or blue sky laws of such jurisdictions in the United States as the Selling Holders or the managing underwriter thereof shall reasonably request, and do any and all other acts and things that may be reasonably necessary to enable each Selling Holder or underwriter to consummate the disposition of the Registrable Securities in such jurisdictions; provided, however, that in no event shall the Company be required to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified, or to execute or file any general consent to service of process under the laws of any jurisdiction.
(f) Subject to clause (e) above and without duplication, use its best efforts to cause all Registrable Securities covered by such Registration Statement to be registered with or approved by such other governmental agencies or authorities in the United States as may be necessary to enable the Selling Holders to consummate the disposition of such Registrable Securities.
(g) Use its best efforts to cause all Registrable Securities covered by such Registration Statement to be (A) listed on the New York Stock Exchange and (B) listed or qualified for trading on any other stock exchange or quotation service on which the Company's outstanding Common Shares are listed or qualified for trading.
(h) Furnish to each Selling Holder, Hedging Counterparty and each underwriter, if any, of the Registrable Securities covered by such Registration Statement such number of conformed copies of such Registration Statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the Prospectus included in such Registration Statement (including each preliminary prospectus and any summary Prospectus), in conformity with the requirements of the Securities Act and the Regulations, such documents incorporated by reference in such registration statement or prospectus, and such other documents as such Selling Holder, Hedging Counterparty, or such underwriter, if any, may reasonably request, and a copy of any and all transmittal letters or other correspondence to or received from, the Commission or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering.
(i) Include in the "Plan of Distribution" or any analogous section of any shelf registration statement a statement substantially in the following form:
In addition, the selling securityholder may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by the selling securityholder or borrowed from the selling securityholder or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from the selling securityholder in settlement of those derivatives to close out any related borrowings of stock. The third party in such sale transactions may be an underwriter and, if not identified in this prospectus, will be identified in the applicable prospectus supplement (or a post effective amendment).
(j) In connection with an underwritten offering of Registrable Securities and, if applicable, in connection with any Hedging Transaction, (A) cause opinions of counsel to the Company (which counsel and opinions shall be reasonably satisfactory to the managing underwriters), to be delivered to the underwriters, any Hedging Counterparty and the Selling Holders covering the matters customarily covered in opinions requested in underwritten offerings by
selling security holders and (B) cause "cold comfort" letters and updates thereof (which letters and updates shall be reasonably satisfactory to the managing underwriters) from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired or owned by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), to be delivered to each of the underwriters, any Hedging Counterparty and the Selling Holders of such Registrable Securities included in such underwritten offering, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings by selling security holders.
(k) Comply with all applicable rules and regulations of the Commission and make generally available to security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) not later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (A) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a Public Offering and (B) if not sold to underwriters in such an offering, commencing on the first day of the fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods.
(l) Cooperate with each Selling Holder, any Hedging Counterparty and the managing underwriter, if any, participating in the disposition of such Registrable Securities in connection with any filings required to be made with the National Association of Securities Dealers, Inc.
(m) At the expense of the Company, use its best efforts to cooperate as requested by the Selling Holders in customary marketing efforts undertaken in connection with the Registrable Securities, including sending appropriate officers of the Company to attend any "road shows" and investor and rating agency presentations scheduled in connection with any such registration.
(n) Furnish for delivery in connection with the closing of any offering of Registrable Securities pursuant to a registration effected pursuant to Section 2.01(a) or Section 2.02(a) unlegended certificates representing ownership of the Registrable Securities being sold in such denominations as shall be requested by each Selling Holder or the underwriters.
(o) Enter into any other customary agreements and take such other actions as are reasonably required in order to expedite or facilitate the disposition of any Registrable Securities or any Registrable Class Securities in connection with any Hedging Transaction or otherwise.
(p) It shall be a condition precedent to the obligation of the Company to take any action with respect to any Registrable Securities that the holder thereof, and any Hedging Counterparty, shall furnish to the Company such information regarding such holder, any Hedging Counterparty, the Registrable Securities and any other Company securities held by such holder as the Company shall reasonably request and as shall be required in connection with the action taken by the Company.
(q) Each holder of Registrable Securities and any Hedging Counterparty agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.04(d), such Shareholder and any Hedging Counterparty will forthwith discontinue disposition of Registrable Securities until such Shareholder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.04(d), and, if so directed by the Company such Shareholder and any Hedging Counterparty will deliver to the Company (at the Company's expense) all copies (including, without limitation, any and all drafts), other than permanent file copies, then in such Shareholder's or such Hedging Counterparty's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event that the Company shall give any such notice, the period mentioned in Section 2.04(b) shall be extended by the greater of (A) three months, or (B) the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.04(d) to and including the date when each holder of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 2.04(d).
Section 2.05. Transfers; Rights of Transferee of Registrable Securities. Each Shareholder agrees not to make any transfer of all or any portion of the Registrable Securities other than to an Affiliate unless and until (a) there is then in effect a registration statement under the Securities Act covering such proposed transfer and such transfer is made in accordance with such registration statement, (b) such transfer is made in accordance with Rule 144 or Rule 144A or (c) such transfer shall not require any registration or qualification under the Securities Act. Notwithstanding the foregoing, a Shareholder may transfer all or a portion of the Registrable Securities to an Affiliate, and such an Affiliate shall be deemed a Shareholder hereunder. The transferring Shareholder shall provide notice to the Company of any such transfer stating the name and address of such transferee and identifying the number of Registrable Securities transferred.
Section 2.06. Registration Expenses. Except as otherwise provided herein, the Company shall pay all Registration Expenses (exclusive of underwriting discounts and commissions, if any) with respect to any particular offering (or proposed offering).
Section 2.07. Underwriting; Due Diligence. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under Section 2.01 or Section 2.02, the Company shall enter into an underwriting agreement with such underwriters for such offering, which agreement will contain such representations and warranties and covenants by the Company and such other terms and provisions as are customarily contained in underwriting agreements, including indemnification and contribution provisions substantially to the effect and to the extent provided in Article 4, and agreements as to the provision of opinions of counsel and accountants' letters to the effect and to the extent provided in Section 2.04(j). The Selling Holders on whose behalf the Registrable Securities are to be distributed by such underwriters shall be parties to any such underwriting agreement and the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters, shall also be made to and for the benefit of such Selling Holders. Such underwriting agreement shall also contain such representations and warranties by such Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions on the part of selling shareholders, including indemnification and contribution provisions substantially to the effect and to the extent provided in Article 4.
(b) In connection with the preparation and filing of each Registration Statement registering Registrable Securities under the Securities Act pursuant to Section 2.01 or Section 2.02 or pursuant to Section 2.08, upon reasonable notice the Company shall give the Selling Holders, the underwriters, if any, and any Hedging Counterparty, and their respective counsel and accountants, such reasonable and customary access to its books, records and properties and such opportunities to discuss the business and affairs of the Company with its officers and the independent public accountants who have certified the financial statements of the Company as shall be necessary, in the opinion of such Selling Holders, such underwriters and any Hedging Counterparty, or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act; provided that such Selling Holders, the underwriters and any Hedging Counterparty, and their respective counsel and accountants shall use their reasonable best efforts to coordinate any such investigation of the books, records and properties of the Company and any such discussions with the Company's officers and accountants so that all such investigations occur at the same time and all such discussions occur at the same time.
Section 2.08. Registration In Connection With Hedging Transactions.
(a) The Company acknowledges that from time to time a holder of Registrable Securities may seek to enter into one or more Hedging Transactions with a Hedging Counterparty. Notwithstanding anything to the contrary provided herein but subject to the limitations of Section 2.01(a), the Company agrees that, in connection with any proposed Hedging Transaction, if, in the reasonable judgment of counsel to the Shareholder of Registrable Securities (after good faith consultation with counsel to the Company), it is necessary or desirable to register under the Securities Act such Hedging Transaction or sales or transfers (whether short or long) of Registrable Class Securities in connection therewith, then the Company shall use its best efforts to take such actions (which may include among other things, the filing of a post-effective amendment to any shelf registration statement to include additional or changed information that is material or is otherwise required to be disclosed, including, without limitation, a description of such Hedging Transaction, the name of the Hedging Counterparty, identification of the Hedging Counterparty or its Affiliates as underwriters or potential underwriters, if applicable, or any change to the plan of distribution) as may reasonably be required to register such Hedging Transactions or sales or transfers of Registrable Class Securities in connection therewith under the Securities Act in a manner consistent with the rights and obligations of the Company hereunder with respect to the registration of Registrable Securities.
(b) The Company agrees to include in each prospectus supplement filed in connection with any proposed Hedging Transaction language mutually agreed upon by the Company, the Shareholder and the Hedging Counterparty describing such Hedging Transaction.
(c) Any information regarding the Hedging Transaction included in a registration statement or prospectus pursuant to this Section 2.08 shall be deemed to be information provided by the Shareholder selling Registrable Securities pursuant to such registration statement for purposes of Section 2.04(p) of this Agreement.
(d) If in connection with a Hedging Transaction a Hedging Counterparty or any Affiliate thereof is (or may be considered) an underwriter or selling securityholder, then it shall be required to provide customary indemnities to the Company regarding itself, the plan of distribution and like matters.
Section 2.09. Unregistered Offerings. The parties hereto hereby agree that, in the event that the Company or one or more Shareholders propose to make an underwritten offering or a sale to a strategic purchaser of Common Shares, any other equity securities or securities convertible or exchangeable for equity securities of the Company (other than an acquisition by the Company financed through the issuance of Common Shares) (i) that is exempt from, or not subject to,
the registration requirements of the Securities Act and (ii) in the case of an underwritten offering or sale by one or more Shareholders, with respect to which such Shareholder(s) request the cooperation and participation of the Company or the management of the Company in performing due diligence and marketing such offering to potential investors, the relevant notice provisions of Section 2.01 or Section 2.02 will apply and the required notice will state that the offering or sale is proposed to be made on an unregistered basis. In that event, the parties agree to proceed with such an offering on an unregistered basis in good faith as and to the extent provided herein with respect to a registered offering and that the provisions of this Agreement will apply mutatis mutandis to such unregistered offering, including, without limitation, provisions relating to "piggy-back" rights, allocations of securities included in an offering, the Company's obligations with respect to an offering (including indemnification provisions and procedures), selection of underwriters (if applicable), expenses associated with an offering and representations and warranties.
Section 2.10. Registration Rights of Other Persons. Prior to the date on which the Shareholder holds Registrable Securities representing less than 50% of the outstanding Common Shares of the Company, the Company may not, without the prior written consent of the Shareholders, grant to any other Person the right to request a registration of securities of the Company under the Securities Act, or the right to be included as a Selling Holder in connection with any registration of Registrable Securities; provided that, if any such written consent is given, the terms of any such right granted or issued shall not be more favorable to such Person than the terms of this Agreement or, any more favorable terms shall also be granted to the Shareholders. On and after such date the Company may grant to any other Person the right to request a registration of securities of the Company under the Securities Act, or the right to be included as a Selling Holder in connection with any registration of Registrable Class Securities; provided that, any such rights may not be exercised by any Person prior to the second anniversary of the Initial Public Offering Date and provided further that the proviso in the preceding sentence is complied with. The Company shall not require the consent of the Shareholders in connection with granting registration rights to purchasers of its securities eligible to benefit from an "Exxon Capital" exchange offer.
Section 2.11. Inconsistent Agreements. The Company shall not hereafter enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the Shareholders in this Agreement.
SECTION 2.12. "Market Stand-Off" Agreement. Each Shareholder hereby agrees that such Shareholder shall not sell, transfer, make any short sale of, grant any option for the purchase, or enter into any hedging or similar transaction with the same economic effect as a sale, of any Common Shares or securities convertible into or exercisable for Common Shares held by such Shareholder
(other than the sale pursuant to the registration statement of those securities included in the registration) for 10 days prior to and 90 days (or such lesser period as the lead or managing underwriters may permit) after the effective date of a registration statement for an underwritten public offering of any of the Company's equity securities (or the commencement of the offering to the public of any of the Company's equity securities in the case of a Rule 415 Offering); provided that the Shareholder, in the case of the 10 day period, has been given written notice of the effective date or the commencement of the public offering to permit compliance with such undertaking and, if such written notice should be delivered after the beginning of such 10 day period, such agreement will relate only to the period from the time of receipt of notice to such effective date or commencement date. Each Shareholder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto.
Section 2.13. Limitations on Availability of Registration Rights. The
registration rights set forth in this Article 2 shall not be available to any
Requesting Holder when the aggregate ownership of the Shareholders is less than
10% of the then outstanding Common Shares and if, in the opinion of counsel to
the Company, which opinion shall be delivered to such Requesting Holder and
shall be in a form satisfactory to U.S. counsel to the Requesting Holder, all of
the Registrable Securities then owned by the Shareholders could be sold (i) in
any 90-day period pursuant to Rule 144 under the Act (without giving effect to
the provisions of Rule 144(k)) or (ii) without restrictions pursuant to Rule
144(k); provided, however, that the Company agrees that the registration rights
set forth in this Article 2 shall be available to any Requesting Holder when the
aggregate ownership of the Shareholders is less than 10% of the then outstanding
Common Shares if such Requesting Holder agrees to pay a pro rata portion of the
Registration Expenses incurred in connection with such registration, such pro
rata portion being the proportion the Registrable Securities offered bears to
the total amount of Common Shares offered on such date.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
Section 3.01. Company Representations, Warranties and Agreements. The Company represents and warrants to, and agrees with, each Shareholder that:
(i) The Company has all requisite corporate power and authority to execute, deliver, and perform this Agreement. This Agreement has been duly authorized, executed, and delivered by the Company. No consent, authorization, approval, order, license, certificate, or permit of or from, or declaration or filing with, any United States federal, state, local,
or other governmental authority or any court or other tribunal is required by the Company for the execution, delivery or performance of this Agreement by the Company (except filings under the Securities Act which will be made and any consents under blue sky or state securities laws which will be obtained).
(ii) The Company shall not enter into any transaction involving the issuance or transfer by any other Person of Other Securities to a Shareholder, or any merger or consolidation in which it is not the surviving Person or any sale, lease or other transfer of all or substantially all the assets of the Company, unless effective provision is made for the assumption by such other Person, jointly and severally with the Company if the Company shall remain in existence, of all of the obligations of the Company hereunder, and in the case of any such issuance or transfer, the registration of such Other Securities on the same basis as the registration of the other Registrable Securities hereunder.
(iii) The execution and delivery of this Agreement by the Company does not, and the consummation of the transactions contemplated hereby will not, violate, conflict with, or result in a breach of any provision of, or constitute a default (with or without notice or lapse of time or both) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination, cancellation, or acceleration of any obligation or the loss of a material benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any of its subsidiaries pursuant to any provisions of (A) the articles of incorporation, by-laws or similar governing documents of the Company or any of its subsidiaries, (B) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any governmental authority applicable to the Company or any of its subsidiaries or any of their respective properties or assets or (C) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which the Company or any of its subsidiaries is a party or by which it or any of its properties or assets may be bound or affected as soon as the conditions can be so satisfied.
(iv) The Company covenants that it will file any reports required to be filed by it under the Securities Act and the Exchange Act, will make available "adequate current public information concerning the Company within the meaning of paragraph (c) of Rule 144" and that it will take such further action as any Shareholder may reasonably request, all to the extent required from time to time to enable such Shareholder to sell Registrable Securities without registration pursuant to the available
exemptions under the Securities Act. Upon the request of any Shareholder, the Company will deliver to it a written statement as to whether it has complied with such requirements. The Company further covenants to use its reasonable efforts to cause all conditions to the availability of Form S-3 (or any successor form) under the 1933 Act for the filing of registration statements under this Agreement to at all times be satisfied.
Section 3.02. Fortis Insurance Representations, Warranties and Agreements. Fortis Insurance represents and warrants to, and agrees with, the Company, that:
(i) It is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization. Fortis Insurance has all requisite power and authority to execute, deliver, and perform this Agreement. This Agreement has been duly authorized by Fortis Insurance and has been duly executed and delivered by it.
(ii) Neither Fortis Insurance nor any of its Affiliates will take, directly or indirectly, during the term of this Agreement, any action designed to stabilize (except as may be permitted by applicable law) or manipulate the price of any security of the Company.
(iii) Fortis Insurance shall promptly furnish to the Company upon the Company's request any and all information as may be required by, or as may be necessary or advisable to comply with the provisions of, the Securities Act, the Exchange Act and the Regulations in connections with the preparation and filing of any Registration Statement pursuant hereto, or any amendment or supplement thereto, or any Preliminary Prospectus or Prospectus included therein.
Section 3.03. Survival of Representations and Agreements. All representations, warranties, covenants and agreements contained in this Agreement shall be deemed to be representations, warranties, covenants and agreements at the effective date of each Registration Statement contemplated by this Agreement, and such representations, warranties, covenants and agreements shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Company, any Shareholder, or any other Person and shall survive termination of this Agreement.
ARTICLE 4
INDEMNIFICATION AND CONTRIBUTION
Section 4.01. Indemnification and Contribution. (a) (a) The Company agrees to indemnify and hold harmless each Shareholder, each person, if any, who controls each Shareholder within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act and each affiliate of the Shareholder within the meaning of Rule 405 under the Securities Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission which is based upon information relating to a Selling Holder or underwriter which is furnished to the Company in writing by such Selling Holder or underwriter expressly for use therein. The Company also agrees to indemnify any underwriter of the Registrable Securities so offered, each person, if any, who controls such underwriter and each affiliate of such underwriter on substantially the same basis as that of the indemnification by the Company of each Selling Holder provided in this Article 4; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased Registrable Securities, or any person controlling such underwriter, or any such affiliate of such underwriter, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Registrable Securities to such person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such losses, claims, damages or liabilities, unless such failure is the result of noncompliance by the Company with Section 2.04(d) or (h) hereof.
(b) Each Selling Holder agrees to indemnify and hold harmless the Company, its directors, the officers who sign any registration statement, each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act and each affiliate of the Company within the meaning of Rule 405 under the Securities Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to a Selling Holder furnished in writing by or on behalf of such Selling Holder
expressly for use in a registration statement, any preliminary prospectus, prospectus or any amendments or supplements thereto. Each Selling Holder also agrees to indemnify any underwriter of the Registrable Securities so offered, each person, if any, who controls such underwriter and each affiliate of such underwriter on substantially the same basis as that of the indemnification by such Selling Holder of the Company provided in this Article 4; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased Registrable Securities, or any person controlling such underwriter, or any such affiliate of such underwriter, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Registrable Securities to such person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such losses, claims, damages or liabilities, unless such failure is the result of noncompliance by the Company with Section 2.04(d) or (h) hereof. Notwithstanding any other provision of this Article 4, no Selling Holder's obligations to indemnify pursuant to this Article 4 shall exceed the amount of net proceeds received by such Selling Holder in connection with any offering of its Registrable Securities. Each Selling Holder's obligations to indemnify pursuant to this Section are several in the proportion that the net proceeds of the offering received by such Selling Holder bear to the total net proceeds of the offering received by all Selling Holders and not joint.
(c) Each party indemnified under paragraph (a) or (b) above shall,
promptly after receipt of notice of a claim or action against such indemnified
party in respect of which indemnity may be sought hereunder, notify the
indemnifying party in writing of the claim or action and the indemnifying party,
upon request of the indemnified party, shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such indemnified
party, and shall assume the payment of all fees and expenses. In any such
action, any indemnified party shall have the right to retain its own counsel,
but the fees and expenses of such counsel shall be at the sole expense of such
indemnified party unless (i) the indemnifying party and the indemnified party
shall have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include both
the indemnifying and the indemnified party and representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party shall not,
in respect of the legal expenses of any indemnified party in connection with any
claim or action or related proceeding in the same jurisdiction, be liable for
(i) the fees and expenses of more than one separate firm (in addition to any
local counsel) for all underwriters and all persons, if any, who control any
underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act or who are affiliates of any underwriter within
the meaning of Rule 405 under the Securities Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the registration statement and each person,
if any, who controls the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Selling Holders and all persons, if any, who control the
Selling Holders within the meaning of either such Section, and that all such
fees and expenses shall be reimbursed as they are incurred. In the case of any
such separate firm for the Selling Holders as indemnified parties, such firm
shall be designated in writing by the indemnified party that had the largest
number of Registrable Securities included in such registration. In the case of
any such separate firm for the Company, and such directors, officers and control
persons of the Company, such firm shall be designated in writing by the Company.
The indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent, but if settled with such consent,
or if there be a final judgment for the plaintiff, the indemnifying party shall
indemnify and hold harmless such indemnified parties from and against any loss
or liability by reason of such settlement or judgment. No indemnifying party
shall, without the prior
written consent of the indemnified party, effect any settlement of any pending or threatened claim or action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability arising out of such proceeding.
(d) If the indemnification provided for in this Article 4 shall for any reason be unavailable or insufficient to an indemnified party in respect of any loss, liability, cost, claim or damage referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, cost, claim or damage (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand from the offering or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Selling Holders and the Company on the one hand and the underwriters on the other hand in connection with the offering shall be deemed to be in the same respective proportions as the net proceeds from the offering (before deducting expenses) and the total underwriting discounts and commissions received by the underwriters, in each case as set forth in the table on the cover of a prospectus, bear to the aggregate public offering price of the securities. The relative fault of the Company, the Selling Holders and the underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, by a Selling Holder or by the underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the loss, cost, claim, damage or liability, or action in respect thereof, referred to above in this paragraph (d) shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. The Company and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Article 4 were determined by pro rata allocation (even if the underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding any other provision of this Article 4, no Selling Holder shall be required to contribute any amount in excess of the amount by which the net proceeds of the offering received by such Selling Holder exceed the amount of any damages which such Selling Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. Each Selling Holder's obligations to contribute pursuant to this Section are several in the proportion that the net proceeds of the offering received by such Selling Holder bears to the total net proceeds of the offering received by all the Selling Holders and not joint. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(e) Indemnification and contribution similar to that specified in the preceding paragraphs of this Article 4 (with appropriate modifications) shall be given by the Company, the Selling Holders and the underwriters with respect to any required registration or other qualification of securities under any state law or regulation or governmental authority.
(f) The obligations of the parties under this Article 4 shall be in addition to any liability which any party may otherwise have to any other party.
ARTICLE 5
MISCELLANEOUS
Section 5.01. Remedies. In the event of breach by any party of any of its obligations under this Agreement, the other parties, in addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Shareholder agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by the Company or such Shareholder, as the case may be, of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, the Company or such Shareholder, as the case may be, shall waive the defense that a remedy at law would be adequate. No failure or delay on the part of the Company or any Shareholder in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other right, power or remedy.
Section 5.02. Amendments; Waivers and Termination. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, without the written consent of the Company and Fortis Insurance. This Agreement shall terminate (except for the provisions set forth in Sections 3.03 and 4.01), and be of no further force and effect, once the Shareholder owns less than 5% of the Outstanding Common Stock.
Section 5.03. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, by telecopier (receipt of which is confirmed) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
if to the Company, to:
Assurant, Inc.
One Chase Manhattan Plaza
New York, NY 10005
Fax: (212) 859 7034
Attention: Katherine Greenzang, Esq.,
Senior Vice President, General Counsel and Secretary
if to Fortis Insurance, to:
Fortis Insurance N.V.
Archimedeslaan 6
P.O. Box 2049
3500 GA Utrecht
The Netherlands
Attention: Monica Roeling
Phone: +31 30 257 6568
Fax: +31 30 257 7835
with a copy to:
Fortis
Rue Royale, 20
1000 Brussels
Belgium
Attention: Gilbert Mittler
Phone: +32 2 510 5206
Fax: +32 2 510 5621
Section 5.04. Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Section 5.05. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.
Section 5.06. Entire Agreement; No Third Party Beneficiaries. This Agreement (including the documents and the instruments referred to herein) (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) is not intended to confer upon any Person other than the parties hereto and their respective successors and permitted assigns, any rights or remedies hereunder.
Section 5.07. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts to be performed entirely within such State.
Section 5.08. Severability. Wherever possible, each provision hereof shall be interpreted in such a manner as to be valid, legal and enforceable under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating or rendering unenforceable the remainder of this Agreement, unless such a construction would be unreasonable or materially impair the rights of any party hereto.
Section 5.09. Successors and Assigns. All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective successors and permitted assigns of the parties hereto whether so expressed or not. This Agreement shall not be assignable by the Company or the Shareholder except to another Shareholder.
Section 5.10. Use of Terms. This Agreement contemplates the filing of Registration Statements under the Securities Act on numerous occasions involving various offers of securities. In connection with such Registration Statements, there may be identified therein one or more underwriters through which securities are to be offered on behalf of the Company or the Holder, or both, pursuant to either a "firm-commitment" or "best-efforts" arrangement, and, in the case where there is more than one underwriter, one or more of the underwriters may be designated as the "manager" or "representative" or the "co-managers" or "representatives" of the several underwriters. Accordingly, all references herein to an "underwriter" or "underwriters" are intended to refer to a "principal underwriter" (as defined in Rule 405 of the Regulations) and to provide for those transactions in which securities may be offered by or through one or more underwriters, and not to imply that any of the transactions contemplated hereby is conditioned in any manner whatsoever on the participation therein by one or more underwriters on behalf of any party.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
ASSURANT, INC.
By:___________________________
Name:
Title:
FORTIS INSURANCE N.V.
By:___________________________
Name:
Title:
.
.
.
Exhibit 4.1
NUMBER SHARES ------ ------ C-0 Incorporated under the laws of the State of Delaware |
ASSURANT, INC.
80,000,000 Shares $0.01 Par Value See Reverse for Common Stock Certain Definitions THIS IS TO CERTIFY THAT SPECIMEN IS THE OWNER OF ----------------------------- |
transferable only on the books of the Corporation by the holder thereof in person or by a duly authorized Attorney upon surrender of this Certificate properly endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly authorized officers.
DATED
CORPKIT, NEW YORK
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common |
Additional abbreviations may also be used though not in the above list.
UNIF GIFT MIN ACT Custodian --------------------------------- (Cust) (Minor) under Uniform Gifts to Minors Act --------------------------------- (State) |
For value received hereby sell, assign and transfer unto
(including postal zip code of assignee)
In presence of
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Exhibit 10.1
FORM OF
COOPERATION AGREEMENT
by and among
ASSURANT, INC.
(formerly named FORTIS, INC.),
FORTIS INSURANCE N.V.
and
FORTIS SA/NV and FORTIS N.V.
Dated as of -, 2004.
TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS Section 1.01. Certain Definitions..................................... 2 ARTICLE 2 USE OF NAME, TRADEMARKS AND DOMAIN NAMES Section 2.01. Grant of License........................................ 4 Section 2.02. Trademark Guidelines and Standards...................... 6 Section 2.03. Retention of Trademark Ownership........................ 6 Section 2.04. Termination of Trademark Licenses....................... 7 Section 2.05. Representations and Warranties.......................... 7 Section 2.06. Disclaimer.............................................. 7 ARTICLE 3 FINANCIAL AND OTHER INFORMATION Section 3.01. Fifty Percent Threshold.................................. 7 Section 3.02. Twenty Percent Threshold................................. 9 Section 3.03. Coordination, Cooperation and Access..................... 10 Section 3.04. Ten Percent Threshold.................................... 13 ARTICLE 4 RELEASE AND INDEMNIFICATION Section 4.01. General Cross Indemnification........................... 13 Section 4.02. Procedure............................................... 14 Section 4.03. Other Matters........................................... 15 ARTICLE 5 OTHER PROVISIONS Section 5.01. Insurance Maintained by Fortis.......................... 15 Section 5.02. Vendor Purchasing Arrangements.......................... 15 Section 5.03. Services Provided Prior to Trigger Date................. 16 Section 5.04. Access to Historical Records............................ 16 Section 5.05. Cosmos.................................................. 16 Section 5.06. Miscellaneous........................................... 17 |
ARTICLE 6 ALLOCATION AND EXPENSES Section 6.01. Allocation of Costs and Expenses........................ 17 Section 6.02. Expense Reimbursement................................... 18 ARTICLE 7 MISCELLANEOUS Section 7.01. Notices................................................. 18 Section 7.02. Binding Nature of Agreement............................. 19 Section 7.03. Descriptive Headings.................................... 19 Section 7.04. Remedies................................................ 19 Section 7.05. Governing Law........................................... 20 Section 7.06. Counterparts............................................ 20 Section 7.07. Severability............................................ 20 Section 7.08. Confidential Information................................ 20 Section 7.09. Amendment and Modification.............................. 21 Section 7.10. Entire Agreement........................................ 21 Section 7.11. No Assignment........................................... 21 Section 7.12. No Third Party Beneficiaries............................ 21 Section 7.13. Termination............................................. 21 |
SCHEDULES
Schedule 2 Fortis Marks Schedule 3(a) Financial Information to be provided by Assurant Schedule 3(b) Risk Information to be provided by Assurant Schedule 3(c) Compliance Information to be provided by Assurant Schedule 5 Vendor Purchasing Arrangements |
COOPERATION AGREEMENT
COOPERATION AGREEMENT, dated as of -, 2004, by and among ASSURANT, Inc. (formerly named Fortis, Inc.), a Delaware corporation ("ASSURANT"), FORTIS INSURANCE N.V. ("FORTIS INSURANCE"), a naamloze vennootschap established under the laws of the Netherlands, and FORTIS SA/NV a public company established as a societe anonyme/naamloze vennootschap under the laws of Belgium and FORTIS N.V., a public company established as a naamloze vennootschap under the laws of the Netherlands (Fortis SA/NV and Fortis N.V., together referred to as "FORTIS")
WHEREAS, Fortis is the indirect owner of all of the issued and outstanding common stock of Assurant;
WHEREAS, simultaneously with the execution and delivery of this
Agreement, Assurant is registering Common Shares owned by Fortis Insurance for
sale to the public in an underwritten secondary offering registered under the
Securities Act pursuant to a registration statement on Form S-1, File No.
333-109984 (the "IPO REGISTRATION STATEMENT").
WHEREAS, upon completion of such offering, Fortis Insurance will continue to own -% of the Common Shares outstanding (or -% if the underwriters' over allotment option is exercised);
WHEREAS, Fortis and Assurant will each be publicly held listed companies subject to applicable listing standards and disclosure obligations;
WHEREAS, Fortis will continue to account for its investment in Assurant on a consolidated basis or under the equity method of accounting which will require sharing of financial and other information between Fortis and Assurant; and
WHEREAS, in addition, Assurant and the Fortis Group (defined below) have agreed to continue to provide certain services and/or information to each other following the Initial Public Offering.
NOW, THEREFORE, in contemplation of Assurant ceasing to be wholly owned by Fortis and for good and valuable consideration, the receipt and adequacy of which is acknowledged, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Certain Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms shall have the following meanings:
"ACTIONS" has the meaning set forth in Section 4.01(a) hereof.
"AGREEMENT" and "HEREOF" and "HEREIN" means this Cooperation Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative.
"ASSURANT AUDITORS" has the meaning set forth in Section 3.03(c).
"ASSURANT FINANCIAL STATEMENTS" has the meaning set forth in Section 3.03(c).
"ASSURANT PUBLIC DOCUMENTS" has the meaning set forth in Section 3.03(a).
"BUSINESS DAY" or "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City, Belgium or the Netherlands are authorized or obligated by law or executive order to close.
"CAPITAL SECURITIES" means the $150,000,000 8.40% capital securities issued by Fortis Capital Trust I and the $50,000,000 7.94% capital securities issued by Fortis Capital Trust II on July 31, 1997.
"COMMON STOCK" means the common stock, par value $.01 per share, of Assurant.
"DESIGNATED ASSURANT SUBLICENSEE" has the meaning set forth in Section 2.01(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAP" means generally accepted accounting principles in Belgium as in effect from time to time.
"FORTIS FINANCIAL STATEMENTS" has the meaning set forth in Section 3.03.
"FORTIS AUDITORS" has the meaning set forth in Section 3.03(c).
"FORTIS DESIGNEE" means a member of the board of directors of Assurant designated by Fortis Insurance and nominated in accordance with the terms of the Shareholders' Agreement dated as of the date hereof between Assurant and Fortis Insurance.
"FORTIS GROUP" means, collectively, Fortis SA/NV and Fortis N.V. and all of their direct and indirect subsidiaries now or hereafter existing, other than Assurant and its Subsidiaries (all determinations hereunder to be made after giving effect to the IPO).
"FORTIS LICENSE" has the meaning set forth in Section 2.01(a).
"FORTIS MARKS" has the meaning set forth in Section 2.01(a).
"FORTIS US" means Fortis, Inc., a Nevada corporation and predecessor company to Assurant.
"GAAP" means United States generally accepted accounting principles.
"IAS" means International Auditing Standards/International Financial Reporting Standards, as in effect from time to time.
"IAS REQUIRED INFORMATION" has the meaning set forth in Section 3.03(g).
"INITIAL PUBLIC OFFERING" or "IPO" means the proposed initial public offering of the Common Stock as contemplated by the IPO Registration Statement.
"LOSSES" has the meaning set forth in Section 4.01(a).
"PERSON" means any individual, corporation, partnership, joint venture, limited liability company, association or other business entity and any trust, unincorporated organization or government or any agency or political subdivision thereof.
"PRIVILEGE" has the meaning set forth in Section 3.03(f).
"PROSPECTUS" means the prospectus or prospectuses included in any Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments and supplements to such prospectus, including post-effective amendments and all material incorporated by reference in such prospectus or prospectuses.
"REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement dated -, 2004 between Assurant and Fortis Insurance
"REGULATION S-K" means Regulation S-K of the General Rules and Regulations under the Securities Act.
"REGULATION S-X" means Regulation S-X of the General Rules and Regulations under the Securities Act.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARY" or "SUBSIDIARY" of Assurant shall include all corporations, partnerships, joint ventures, limited liability companies, associations and other entities (a) in which Assurant owns (directly or indirectly) 50% or more of the outstanding voting stock, voting power, partnership interests or similar ownership interests, (b) of which Assurant otherwise directly or indirectly controls or directs the policies or operations and (c) which would be considered subsidiaries of Assurant within the meaning of Regulation S-K or Regulation S-X.
"TENDER OFFER" means the tender with exit consent offered to holders of the $150 million trust capital securities issued by Fortis (US) RegCaPS Funding Trust I and $400 million trust capital securities issued by Fortis (US) RegCaPS Funding Trust II on March 1, 2000.
"TRIGGER DATE" means the last day in the fiscal quarter in which Fortis ceases to beneficially own (excluding for such purposes shares of Common Stock beneficially owned by any member of the Fortis Group but not for its own account) shares entitled to fifty percent (50%) or more of the votes entitled to be cast by the then outstanding Common Stock.
ARTICLE 2
USE OF NAME, TRADEMARKS AND DOMAIN NAMES
Section 2.01. Grant of License. (a) Fortis hereby grants to Assurant, or to the extent another member of the Fortis Group owns the Fortis Marks (as defined below) Fortis hereby causes such member to grant to Assurant, for the term set forth in Section 2.04(a) hereof, a non-exclusive worldwide royalty-free license (the "FORTIS LICENSE") to use the trademarks, company names, trade or commercial names, domain names and product names set forth in Schedule 2 hereto (hereinafter collectively referred to as the "FORTIS MARKS"), but only in the manner identified in Schedule 2 hereto or as otherwise approved in advance in writing by Fortis, in each case, solely to the extent required for the purpose of transitioning Assurant's business, products, and services
and activities related thereto to the Assurant name as set forth on Schedule 2 hereto. Assurant shall only use the Fortis Marks in connection with its business, products, and services and activities related thereto in the manner consistent with and of a nature and quality equal to that used by Assurant and its Subsidiaries in connection with the Fortis Marks as of the date of this Agreement, and in conformity with past practices regarding quality control and usage of such marks, including compliance with the Fortis Brand Manual. Assurant shall have no right to sublicense the Fortis Marks; provided, however, that Assurant may sublicense the Fortis Marks to any Subsidiary of Assurant (for so long as such Subsidiary remains a Subsidiary of Assurant) to the extent required for the purpose of transitioning products and services bearing Fortis Marks to the Assurant name in accordance with the terms of this Article 2 (a "DESIGNATED ASSURANT SUBLICENSEE"). A breach by any Assurant Subsidiary or any Designated Assurant Sublicensee of any of the provisions of this Article 2 shall be deemed a breach by Assurant of this Article 2. Assurant shall not register or use any Fortis Mark for any new business, and shall not use the term "Fortis" in the name of any new product, service, domain name or corporate entity; provided that, by way of sole exception and subject to Section 2.01(b), Assurant may continue to use the Fortis name in connection with new products or extensions of existing products being sold by Assurant subsidiaries permitted to use the Fortis Marks. Assurant will notify Fortis promptly in writing of any use of the Fortis name in any new product.
(b) Assurant agrees that the Fortis License is a "phase-out" license and agrees that during the term of the Fortis License its use of the Fortis Marks shall be consistent with the purposes of such "phase-out" licenses. Assurant agrees to use its best efforts to cause the change of all of the company, commercial and trade names to eliminate the Fortis name and/or mark and always replace it with the Assurant name and/or mark (or such other name or mark that bears no resemblance to the Fortis name and/or mark) as soon as practicable and in any case, within the respective terms stipulated in Section 2.04. Assurant further agrees promptly upon any such name change to cause the cessation of all use of the Fortis Marks by Assurant subsidiaries concerned, including but not limited to the cessation of the use of the Fortis name in any new product or extension of any existing product; provided that Assurant may use the Fortis Marks in conjunction with a phrase substantially similar to "formerly known as" for the duration of the term of the license set forth in Schedule 2.
(c) Assurant and each Assurant Subsidiary shall have no rights with respect to the Fortis Marks other than those expressly set forth in this Agreement. This Agreement supersedes all prior agreements (whether written, oral or implied) between any member of the Fortis Group and Assurant or any Subsidiary of Assurant, with respect to the use of the Fortis Marks.
(d) Assurant, each Assurant Subsidiary and each Designated Assurant Sublicensee shall execute any additional documents which Fortis may reasonably request (at Fortis' expense), both prior and subsequent to the expiration or earlier termination of the Fortis License, in order to perfect, maintain, defend or
terminate any right of any party in the Fortis Marks in any jurisdiction of the world.
Section 2.02. Trademark Guidelines and Standards. Assurant agrees that, in the conduct of the business and activities of Assurant and its Designated Assurant Sublicensees under the Fortis License, it shall, and shall cause each Designated Assurant Sublicensee to, (i) adhere to the appropriate ethical standards pertaining to Assurant's and its Designated Assurant Sublicensees' businesses and operations, (ii) comply with the requirements of the Fortis Brand Manual, (iii) do nothing to bring disrepute to or damage the goodwill symbolized by the Fortis Marks and (iv) Assurant will and will cause its Designated Assurant Sublicensees' to inform Fortis of any possible infringement of any Fortis Mark.
Section 2.03. Retention of Trademark Ownership. Assurant acknowledges and agrees that Fortis, and/or such other member of the Fortis Group referred to in the first sentence of Section 2.01(a) hereof, as the case may be, is the owner of all of the right, title, and interest in and to the Fortis Marks and all goodwill associated therewith throughout the world and acknowledges the validity of the Fortis Marks and of all trademark and service mark registrations and applications of each member of the Fortis Group pertaining thereto. Assurant agrees that it shall, and shall cause each Assurant Subsidiary and each Designated Assurant Sublicensee to, uphold the goodwill inherent in the Fortis Marks and to assist Fortis (at Fortis' expense) to protect the rights of Fortis and the other members of the Fortis Group therein. All use of the Fortis Marks by Assurant, any Assurant Subsidiary and any Designated Assurant Sublicensees (including all past, present and future use), and the goodwill generated thereby, shall inure to the benefit of Fortis and shall not vest in Assurant, any Assurant Subsidiary or in any Designated Assurant Sublicensee. Assurant shall not, directly or indirectly, contest or challenge the validity or enforceability of the Fortis Marks and/or Fortis' ownership thereof. To the extent that Assurant, any Assurant Subsidiary or any Designated Assurant Sublicensee is deemed to have any ownership rights in the Fortis Marks, Assurant shall, and shall cause each such Subsidiary or Designated Assurant Sublicensee to, assign such rights to Fortis or to a member of the Fortis Group designated by Fortis. To the extent it has not already done so prior to the date of this Agreement, Assurant together with its Subsidiaries hereby transfers and assigns any rights in the Fortis Marks that it may have to Fortis and agrees to take all actions and make any filings required to effect such assignment and transfer within 10 days of the date of this Agreement. After the date of this Agreement, if Assurant or Fortis identifies additional marks that were in use as of the date of this Agreement and should have been included in Schedule 2 hereto, then the parties agree to amend Schedule 2 to include such marks in the Fortis License and such marks shall be deemed to be Fortis Marks for all purposes under this Agreement.
Section 2.04. Termination of Trademark Licenses. (a) The Fortis License granted pursuant to this Article 2 shall automatically expire (subject to earlier termination in accordance with this Section 2.04) upon the earlier to occur of (i) the date on which Assurant, Assurant subsidiaries and the Designated Assurant Sublicensees cease use of all the Fortis Marks with no intent to resume use (for which Assurant shall notify Fortis in writing as soon as reasonably practicable thereafter) and (ii) the respective dates set forth in Schedule 2.
(b) Fortis shall have the right to terminate the Fortis License at any time if Assurant, any Assurant Subsidiary or any Designated Assurant Sublicensee has breached any term or provision of this Article 2.
(c) Upon the applicable expiration or earlier termination date of the Fortis License, Assurant shall, and shall cause each of the Designated Assurant Sublicensees to, discontinue all applicable uses of the Fortis Marks.
(d) Fortis shall have the right in its sole discretion to continue to maintain or terminate use of the Fortis Marks.
Section 2.05. Representations and Warranties. Assurant represents and warrants that the performance by it of its obligations under this Article 2 will not conflict with any other agreement or obligation to which it is bound.
Section 2.06. Disclaimer. FORTIS, ON ITS OWN BEHALF AND ON BEHALF OF THE FORTIS GROUP, HEREBY SPECIFICALLY DISCLAIMS ANY AND ALL REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED (INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY, REGISTRABILITY, OR NON-INFRINGEMENT AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE), REGARDING THE FORTIS MARKS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, ASSURANT ACKNOWLEDGES THAT THE LICENSES GRANTED IN THIS AGREEMENT AND THE FORTIS MARKS ARE PROVIDED "AS IS."
ARTICLE 3
FINANCIAL AND OTHER INFORMATION
Section 3.01. Fifty Percent Threshold. Assurant agrees that during any period in which the members of the Fortis Group beneficially own, in the aggregate (excluding for such purposes shares of Common Stock beneficially owned by the Fortis Group but not for its own account) shares entitled to fifty percent (50%) or more of the votes entitled to be cast by the then outstanding Common Stock (or in which, notwithstanding such percentage, any member of
the Fortis Group is required, in accordance with IAS 27, to fully consolidate Assurant's financial statements with its financial statements):
(a) Financial Information. Assurant shall deliver to Fortis the financial information listed on Part 1 of Schedule 3(a) hereto by such dates as are indicated thereon. Assurant agrees to provide in a timely manner all information required by Fortis for the transition from FAP to IAS.
(b) Risk Reporting. Assurant shall deliver to Fortis the risk information listed on Part 1 of Schedule 3(b) hereto by such dates as are indicated thereon.
(c) Compliance Reporting. Assurant shall deliver to Fortis the compliance information listed on Schedule 3(c) hereto by such dates as are indicated thereon. In addition, Assurant shall deliver to Fortis incident reports relating to material events consistent with past practice.
(d) Other Information. Assurant shall provide to Fortis such other supplemental information and analyses as Fortis may reasonably request on behalf of any member of the Fortis Group in order to analyze the financial information, risk management and such other information with respect to Assurant and its subsidiaries provided in accordance with clauses (a), (b) and (c) above, and shall permit the Fortis Designees (or members of their staff acting on their behalf) an opportunity to meet with management of Assurant in connection therewith.
(e) Maintenance of Books and Records. Assurant shall, and shall cause each of its consolidated subsidiaries to devise and maintain a system of internal controls sufficient to provide reasonable assurances that permit preparation of financial statements in conformity with FAP and any other criteria applicable to such statements.
(f) General Financial Statement Requirements. All information
provided by Assurant or any of its subsidiaries to Fortis pursuant to Sections
3.01(a) (with the exception of the last sentence of Section 3.01(a)), (b), (c)
and (d) shall be consistent in terms of format and detail with the practices in
effect on the date hereof with respect to the provision of such financial and
other information by Assurant and its subsidiaries to Fortis (and where
appropriate, as presently presented in financial and other reports delivered to
the Board of Directors of Fortis), with such changes therein as may be agreed to
by Fortis and Assurant from time to time, such agreement not to be unreasonably
withheld.
(g) Change in Accounting Estimates and Principles. Assurant will give Fortis reasonable notice of any significant change in any accounting estimate or accounting principle that would impact the FAP reporting to Fortis. Assurant will not implement any such change with respect to FAP reporting to Fortis without Fortis' prior written consent. Notwithstanding the foregoing, Assurant may make
such changes in accounting estimates or principles under GAAP as it deems necessary or advisable in its sole discretion.
(h) Internal Auditors. Assurant shall provide Fortis' internal auditors and, as necessary, actuaries working in conjunction with internal audit at Fortis, upon reasonable notice access to Assurant's and its subsidiaries' books and records so that Fortis may conduct reasonable audits relating to the financial statements provided by Assurant pursuant to this Article 3, as well as to the internal controls and operations of Assurant and its subsidiaries.
Section 3.02. Twenty Percent Threshold. Assurant agrees that, during any period in which the members of the Fortis Group beneficially own, in the aggregate (excluding for such purposes shares of Common Stock beneficially owned by the Fortis Group but not for its own account), shares entitled to twenty percent (20%) or more of the votes entitled to be cast by the then outstanding Common Stock, or during any period in which any member of the Fortis Group is required to account for its investment in Assurant under the equity method of accounting (determined in accordance with IAS 28):
(a) Financial Information. Assurant shall deliver to Fortis the financial information listed on Part 2 of Schedule 3(a) hereto by such dates as are indicated thereon.
(b) Risk Reporting. Assurant shall deliver to Fortis the risk information listed on Part 2 of Schedule 3(b) hereto by such dates as are indicated thereon.
(c) Compliance Reporting. Assurant shall deliver to Fortis incident reports relating to material events consistent with past practice.
(d) Other Information. Assurant shall provide to Fortis such other supplemental information and analyses as Fortis may reasonably request on behalf of any member of the Fortis Group in order to analyze the financial information, risk management and such other information with respect to Assurant and its subsidiaries, provided in accordance with clauses (a), (b) or (c) above, but only to the extent such information or analysis has otherwise been prepared by or on behalf of Assurant, and shall permit the Fortis Designees (or members of their staff) an opportunity to meet with management of Assurant and its accountants in connection therewith.
(e) General Financial Statement Requirements. All information provided by Assurant or any of its subsidiaries to Fortis pursuant to Sections 3.02(a), (b) and (d), shall be in the format and with the level of detail consistent with the procedures and practices utilized by Assurant and its subsidiaries in connection with the preparation of such financial and other information at the time the information is provided to Fortis, with such changes
therein as may be agreed to by Fortis and Assurant from time to time, such agreement not to be unreasonably withheld.
Section 3.03. Coordination, Cooperation and Access. In connection with any Fortis Group member's preparation of its quarterly earnings releases and quarterly financial statements, audited annual financial statements and its Annual Reports to Shareholders (collectively the "FORTIS FINANCIAL STATEMENTS"), during any period in which the provisions of Sections 3.01 or 3.02 apply, Assurant agrees as follows:
(a) Public Information and SEC Reports. (i) Assurant and each of its subsidiaries which files information with the SEC shall send to Fortis no later than at the time the same are delivered to the Assurant board of directors or any committee thereof, drafts of all reports, earnings releases, notices and proxy and information statements to be sent or made available by Assurant or any of its subsidiaries to their security holders and all regular, periodic and other reports filed under Sections 13, 14 and 15 of the Exchange Act (including Reports on Forms 10-K, 10-Q and 8-K and Annual Reports to Shareholders), and, subject to any additional obligations pursuant to the Registration Rights Agreement, all registration statements and prospectuses to be filed by Assurant or any of its subsidiaries with the SEC or any securities exchange pursuant to the listed company manual (or similar requirements) of such exchange (collectively, "ASSURANT PUBLIC DOCUMENTS") and shall use its reasonable best efforts to send drafts of such Assurant Public Documents to Fortis at least three (3) business days prior to filing with the SEC. In addition, Assurant and each of its relevant subsidiaries agree to send final copies of all Assurant Public Documents no later than the date the same are available to Assurant.
(ii) To the extent practicable and except as otherwise
provided by clause (i) above, prior to issuance, Assurant shall send to
Fortis, during normal business hours in Belgium and the Netherlands,
copies of all press releases and other statements to be made available
by Assurant or any of its subsidiaries to the public with respect to
material adverse developments in the business of Assurant or any of its
subsidiaries. Except as provided in clause (i) above and this clause
(ii) and below, all other press releases shall be sent to Fortis
concurrently with their public release.
(iii) No release, report, registration, information or proxy statement, prospectus or other document which refers, or contains information with respect, to any member of the Fortis Group shall be filed with the SEC or otherwise made public by Assurant or any of its subsidiaries without the prior written consent of Fortis, which consent shall not be unreasonably withheld, with respect to those portions of such document which contain information with respect to any member of the Fortis Group, except as may be required by law, rule or regulation (in such
cases Assurant shall notify the relevant member of the Fortis Group and obtain such member's consent before making such a filing with the SEC or otherwise making any such information public).
(b) Release of Information. Fortis agrees that, unless required by law, rule or regulation or unless Assurant shall have consented thereto, no member of the Fortis Group will publicly release any information included in the Assurant Public Documents sent to Fortis pursuant to this Article 3 prior to the time that Fortis publicly releases financial information of Fortis for the relevant period. Assurant and Fortis will consult on the timing of their annual and quarterly earnings releases and, to the extent practicable, Fortis will give Assurant an opportunity to review the information therein relating to Assurant and its subsidiaries and to comment thereon. In the event that any member of the Fortis Group is required by law to publicly release information included in the Assurant Public Documents prior to the public release of Fortis' financial information, Fortis will give Assurant notice of such release of such information as soon as practicable but no later than two days prior to such release of such information.
(c) Coordination of Auditors' Opinions. Assurant will use its reasonable best efforts to enable its independent certified public accountants (the "ASSURANT AUDITORS") to complete their quarterly review and annual audit such that they will date their report on such quarterly review or opinion on Assurant's audited annual financial statements prepared in accordance with GAAP (the "ASSURANT FINANCIAL STATEMENTS") on or before the date that Fortis' independent certified public accountants (the "FORTIS AUDITORS") date their report or opinion on the Fortis Financial Statements, and to enable Fortis to meet its timetable for the printing, filing and public dissemination of the Fortis Financial Statements. Assurant will instruct the Assurant Auditors to perform the work requested by the Fortis Auditors pursuant to this Agreement and Assurant will use its reasonable best effort to enable the Assurant Auditors to comply with the instruction received.
(d) Cooperation Relating to Regulatory Filings. Each of Fortis and Assurant will cooperate with each other in connection with the preparation, printing, filing, and public dissemination of their respective annual and quarterly statutory statements, their respective audited annual financial statements, their respective Annual Reports to Shareholders, their respective annual, quarterly and current reports under the Exchange Act, any registration statements, prospectuses and other filings made with the SEC, Euronext Amsterdam, Euronext Brussels, the Commission Bancaire et Financiere, the Federal Reserve Bank, state insurance requirements or any other required regulatory filings.
(e) Access to Personnel and Working Papers. Upon reasonable notice, Assurant will authorize the Assurant Auditors to make available to the Fortis Auditors both the personnel who performed or are performing the quarterly
review or annual audit of Assurant and, consistent with customary professional practice and courtesy of such auditors with respect to the furnishing of work papers, work papers related to the quarterly review or annual audit of Assurant, in all cases within a reasonable time after the Assurant Auditor's opinion date, so that the Fortis Auditors are able to perform the procedures they consider necessary to take responsibility for the work of the Assurant Auditors as it relates to the Fortis Auditors' report on the Fortis Financial Statements, all within sufficient time to enable Fortis to meet its timetable for the printing, filing and public dissemination of the Fortis Financial Statements.
(f) Information provided to the Assurant board of directors. Assurant agrees to deliver to Fortis, subject to Section 7.08, any information, data or reports prepared for or provided to the Assurant board of directors or any committee thereof; provided that any information or document provided to the Assurant board of directors or any committee thereof protected by the attorney-client privilege (a "PRIVILEGE") and so marked shall not be so delivered.
(g) IAS Reporting Obligations. In connection with providing the required IAS information as set forth in Schedules 3(a) Part I and 3(a) Part II (the "Required IAS Information"), each of Assurant and Fortis agrees as follows:
(i) Assurant hereby covenants and agrees to provide Fortis with all information that Assurant currently has with respect to IAS as a result of Assurant having been a part of the IAS project developed for the Fortis Group in anticipation of the required implementation of IAS by Fortis beginning in 2005;
(ii) Fortis understands and agrees that Assurant may hire up to three consultants to prepare the Required IAS Information and Fortis hereby agrees to reimburse Assurant for the costs incurred in utilizing such consultants; provided that Fortis shall reimburse such expense only after approving the engagement letter for such consultants, such approval not to be unreasonably withheld;
(iii) The required IAS Information prepared by Assurant (or prepared by the consultants referred to in Clause (ii) above on behalf of Assurant) must be audited (in connection with any annual financial statements or related financial information) or reviewed (in connection with any interim financial statements or related financial information) by Assurant's then independent auditors. In addition, Assurant hereby understands and agrees that the Required IAS Information is the responsibility of the management of Assurant and Assurant shall cause its management (including its Chief Financial Officer and Chief Accounting Officer) to provide its independent auditors and Fortis with such representation letters or other undertakings as may be required by Fortis in
connection with the preparation of its annual (audited) and interim (unaudited) consolidated financial statements; and
(iv) Fortis hereby confirms that there will be no requirement on the part of Assurant that it implement or become familiar with the new consolidation system to be rolled out by the Fortis Group for the purpose of preparing IAS consolidated financial statements and that the reporting of the Required IAS Information by Assurant may be made in paper format so long as such information shall be in a form that will permit Fortis to input the IAS Required Information onto the Fortis Group's consolidation system.
Section 3.04. Ten Percent Threshold. Assurant agrees that, during any period in which the members of the Fortis Group beneficially own, in the aggregate, (excluding for such purposes shares of Common Stock beneficially owned by Fortis but not for its own account) shares entitled to ten percent (10%) but less than twenty percent (20%) of the votes entitled to be cast by the then outstanding Common Stock, Assurant shall:
(a) furnish to Fortis as soon as publicly available, copies of all financial statements, reports, notices and proxy statements sent by Assurant in a general mailing to all its shareholders; reports on Forms 10-K, 10-Q and 8-K; final prospectuses filed pursuant to Rule 424 under the Securities Act; and
(b) upon reasonable notice, permit representatives of Fortis internal audit, upon request by any Fortis Designee, to visit and inspect any of the properties, corporate books, and financial and other records of Assurant and its subsidiaries, and to discuss the affairs, finances and accounts of any such corporations with the officers of Assurant and the Assurant Auditors, at such reasonable times as Fortis may reasonably request.
ARTICLE 4
RELEASE AND INDEMNIFICATION
Section 4.01. General Cross Indemnification. (a) Fortis agrees to indemnify and hold harmless Assurant and its Subsidiaries and each of the officers, directors, employees and agents of Assurant and its Subsidiaries against any and all costs and expenses arising out of third party claims (including, without limitation, attorneys' fees, interest, penalties and costs of investigation or preparation for defense), judgments, fines, losses, claims, damages, liabilities, demands, assessments and amounts paid in settlement (collectively, "LOSSES"), in each case, based on, arising out of, resulting from or in connection with any claim, action, cause of action, suit, proceeding or investigation, whether civil, criminal, administrative, investigative or other (collectively, "ACTIONS"), based
on, arising out of, pertaining to or in connection with any breach by Fortis of this Agreement.
(b) Assurant agrees to indemnify and hold harmless each member of the Fortis Group and each of the officers, directors, employees and agents of each member of the Fortis Group against any and all Losses, in each case, based on, arising out of, resulting from or in connection with any Actions, based on, arising out of, pertaining to or in connection with (i) any breach by Assurant or any of its Subsidiaries of this Agreement and (ii) any untrue statement or alleged untrue statement of a material fact contained in any Filing of any member of the Fortis Group, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with respect to information, if any, provided by Assurant or any of its Subsidiaries in writing to any member of the Fortis Group expressly for use in such Filing and which is, or would be required to be, included in any Filing of Assurant or any of its Subsidiaries.
(c) The indemnity agreement contained in Sections 4.01(a) and (b) shall be applicable whether or not any Action or the facts or transactions giving rise to such Action arose prior to, on or subsequent to the date of this Agreement.
Section 4.02. Procedure. If any Action shall be brought against any person entitled to indemnification pursuant to this Article 4 (the "INDEMNITEES") in respect of which indemnity may be sought against Assurant, such Indemnitee shall promptly notify Assurant, and Assurant shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses. Such Indemnitee shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such person unless (i) Assurant has agreed in writing to pay such fees and expenses, (ii) Assurant has failed to assume the defense and employ counsel, or (iii) the named parties to an Action (including any impleaded parties) include both an Indemnitee and Assurant and such Indemnitee shall have been advised by its outside counsel that representation of such indemnified party and Assurant by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case Assurant shall not have the right to assume the defense of such Action on behalf of such Indemnitee). It is understood, however, that Assurant shall, in connection with any one such Action or separate but substantially similar or related Actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such indemnified persons not having actual or potential differing interests among themselves, and that all such fees and expenses shall be reimbursed as they are incurred. Assurant shall not be liable for
any settlement of any such Action effected without its written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such Action, Assurant agrees to indemnify and hold harmless each Indemnitee, to the extent provided in the preceding paragraph, from and against any Losses by reason of such settlement or judgment.
Section 4.03. Other Matters. (a) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Action.
(b) Any Losses for which an indemnified party is entitled to indemnification or contribution under this Article 4 shall be paid by the indemnifying party to the indemnified party as such Losses are incurred. The indemnity and contribution agreements contained in this Article 4 shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Indemnitee, Assurant, its directors or officers, or any person controlling Assurant, and (ii) any termination of this Agreement.
ARTICLE 5
OTHER PROVISIONS
Section 5.01. Insurance Maintained by Fortis. Prior to the date of effectiveness of the IPO Registration Statement, Fortis shall use its best efforts to continue to maintain the directors' and officers' insurance coverage for itself and on behalf of Assurant and its Subsidiaries to the extent that Fortis obtains and maintains such coverage on a company-wide basis and for the benefit of the members of the Fortis Group generally. Fortis shall have no obligation to maintain such directors' and officers' insurance coverage on behalf of Assurant or its Subsidiaries on or after the date of effectiveness of the IPO Registration Statement provided that it shall use its best efforts to maintain such insurance coverage subsequent to the IPO Registration Statement for events which have occurred prior to the date of effectiveness of the IPO Registration Statement. Assurant shall use its best efforts to obtain directors' and officers' insurance coverage for itself and its Subsidiaries, such coverage to be effective on or prior to the date of effectiveness of the IPO Registration Statement.
Section 5.02. Vendor Purchasing Arrangements. The parties hereto agree that all arrangements in existence as of the date hereof pursuant to which Assurant purchases products and services (e.g., computers, telephones and certain other services,) that are also used by members of the Fortis Group in the United States
(such services and products set forth in Schedule 5 hereto) shall, to the extent permitted by the underlying vendor or supplier contract continue for their existing term; provided, that the cost associated with such arrangements are properly allocated (upon the mutual agreement of the parties) between Assurant and Fortis.
Section 5.03. Services Provided Prior to Trigger Date. Until the Trigger Date (i) Fortis may, or may cause another member of the Fortis Group to, continue to provide to Assurant and any Subsidiary of Assurant and (ii) Assurant may, or may cause one or more of its Subsidiaries to, continue to provide to the members of the Fortis Group, any and all administrative and other services (unless otherwise specifically agreed by the parties) which have been, consistent with past practices, provided by any member of the Fortis Group to Assurant and/or any Subsidiary of Assurant and vice-versa, as requested by the other party. If such services are so provided, the entity providing such services shall be reimbursed by the user of such services for all costs, fees and expenses incurred by such provider, on a basis that is consistent with the past cost allocation practices of the members of the Fortis Group.
Section 5.04. Access to Historical Records. For a period of one year
following the Trigger Date, subject to an extension of up to ten years upon the
demonstration of a legal or regulatory requirement for such extension by the
requesting party, Fortis and Assurant will retain the right to access such other
records which exist resulting from Fortis' and Assurant's relationship as
affiliates. Upon reasonable notice and at each party's own expense, Fortis (and
its authorized representatives) and Assurant (and its authorized
representatives) will be afforded access to such records at reasonable times and
during normal business hours and each party (and its authorized representatives)
will be permitted, at its own expense, to make abstracts from, or copies of, any
such records; provided, access to such records may be denied if (i) Fortis or
Assurant, as the case may be, cannot demonstrate a legitimate business need, for
the one year period following the Trigger Date, or a legal or regulatory
requirement, for the extension period described above, for such access to the
records, (ii) the information contained in the records is subject to any
applicable confidentiality commitment to a third party, (iii) a bona fide
competitive reason exists to deny such access, (iv) the records are to be used
for the initiation of, or as part of, a suit or claim against the other party,
(v) such access would serve as a waiver of any Privilege afforded to such
record, and (vi) such access will unreasonably disrupt the normal operations of
Fortis or Assurant, as the case may be.
Section 5.05. Cosmos. For a period of one year from the Trigger Date,
(a) Assurant shall continue to update the COSMOS data base in a manner
consistent with past practice and (b) Fortis shall provide Assurant with access
to such portions of the COSMOS database relating to Assurant.
Section 5.06. Miscellaneous. Fortis and Assurant each agree that, to the extent that other services provided by Fortis and Assurant to each other, or other arrangements and practices between Fortis and Assurant, are not otherwise specifically covered by this Agreement, Fortis and Assurant will cooperate with each other to mutually agree on how such service, arrangement or practice shall be discontinued and each of Fortis and Assurant agree to negotiate in good faith to reach such mutual agreement.
ARTICLE 6
ALLOCATION AND EXPENSES
Section 6.01. Allocation of Costs and Expenses. (a) Assurant shall pay
(or, to the extent paid for by any member of the Fortis Group, will promptly
reimburse such member of the Fortis Group for any and all amounts so paid) all
fees, costs and expenses (including fees and expenses of counsel for Assurant,
Fortis US and any Subsidiary of Assurant) incurred by Assurant, Fortis US or any
Subsidiary of Assurant in connection with the IPO and the redemption of the
Capital Securities, including, but not limited to, any and all fees, costs and
expenses related to (i) the preparation and negotiation of this Agreement and of
all of the documentation related to the IPO and the redemption of the Capital
Securities, (ii) the preparation and execution or filing of any and all further
documents, agreements, forms, applications, contracts or consents associated
with the IPO and the redemption of the Capital Securities, (iii) Assurant's
organizational documents, (iv) the preparation, printing and filing of the IPO
Registration Statement and any other offering document or solicitation materials
relating to the IPO, including all fees and expenses of complying with
applicable federal, state or foreign securities laws and domestic or foreign
securities exchange rules and regulations, together with fees and expenses of
counsel retained to effect such compliance, (v) the preparation, printing and
distribution of the prospectuses for the Initial Public Offering, (vi) the
redemption of any intercompany indebtedness between Assurant and the Fortis
Group, (vii) change of company names, commercial or trade names, domain names
and product names and assignment of the rights in any trademarks and such names
(viii) the listing of the Common Stock and any other securities of Assurant on
any domestic or foreign securities exchange and (ix) the preparation (including,
but not limited to, the printing of documents) related to implementing
Assurant's employee benefit plans, retirement plans and equity-based plans as a
result of the Initial Public Offering.
(b) Fortis shall pay for all fees, costs and expenses incurred by it or any member of the Fortis Group in connection with the Tender Offer, including, but not limited to, (i) any and all fees, costs and expenses related to the preparation and execution or filing of all documents, agreements, forms, applications,
contracts or consents associated with the Tender Offer, (ii) the preparation, printing and filing of the Tender Offer, (iii) the preparation, printing and distribution of any offering documents or solicitation materials for the Tender Offer, and (iv) the fees and expenses of counsel in connection therewith.
Section 6.02. Expense Reimbursement. (a) Fortis agrees to reimburse Assurant for all costs and expenses it incurs in connection with the preparation and filing of any reports or other documents required by the Federal Reserve Bank in connection with Fortis Group's status as a financial holding company. Such costs and expenses will be reimbursed upon receipt of a reasonably detailed invoice from Assurant which itemizes the costs and expenses so incurred.
(b) Except as otherwise provided in this Agreement and in Section 6.01, the parties hereto shall bear any costs and expenses incurred by such party in connection with compliance with this Agreement.
ARTICLE 7
MISCELLANEOUS
Section 7.01. Notices. All notices and other communications provided for hereunder (except for any information and documents to be sent to Fortis by Assurant pursuant to Article 3 hereof) shall be dated and in writing and shall be deemed to have been given (a) when delivered, if delivered personally, sent by confirmed telecopy or sent by registered or certified mail, return receipt requested, postage prepaid, (b) on the next business day if sent by overnight courier and (c) when received if delivered otherwise. Such notices shall be delivered to the address set forth below, or to such other address as a party shall have furnished to the other party in accordance with this Section.
If to Fortis or any other member of the Fortis Group, to:
Fortis Fortis Insurance N.V. Rue Royale, 20 Archimedeslaan 6 1000 Brussels P.O. Box 2049 Belgium 3500 GA Utrecht Attention: Gilbert Mittler and The Netherlands Phone: +32 2 510 5206 Attention: Monica Roeling Fax: +32 2 510 5621 Phone: +31 30 257 6568 Fax: +31 30 257 7835 18 |
If to Assurant, Inc.: Assurant, Inc. One Chase Manhattan Plaza New York, NY 10005 Attention: Katherine Greenzang |
Senior Vice President, General Counsel and Secretary
Phone: (212) 859-7021
Fax: (212) 859-7034
All information or documents required to be delivered or sent by Assurant to Fortis in accordance with Article 3 hereof shall be sent by Email or facsimile as follows, with a hard copy to be sent promptly to:
Veronique van Ockenburg Christiaan Fornier Rue Royal 20 Archimedeslaan 6 1000 Brussels and PO Box 2049 Belgium 3500 GA Utrecht veronique.vanockenburg@fortis.com The Netherlands Phone: +32 2 510 52 52 christiaan.fornier@fortis.com Phone: +31 30 257 2760 |
Section 7.02. Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto or their successors in interest, except as expressly otherwise provided herein.
Section 7.03. Descriptive Headings. The descriptive headings of the several articles and sections of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof.
Section 7.04. Remedies. Without limiting the rights of each party hereto to pursue any and all other legal and equitable rights available to such party for the other parties' failure to perform their obligations under this Agreement, the parties hereto acknowledge and agree that the remedy at law for any failure to perform their obligations hereunder would be inadequate and that each of them, respectively, shall be entitled to specific performance, injunctive relief or other equitable remedies in the event of any such failure.
Without limiting the generality of the foregoing, Assurant acknowledges and agrees that: (a) its covenants and obligations hereunder are special, unique and relate to matters of extraordinary importance to Fortis, that in the event Assurant fails to perform, observe or discharge any of its obligations under this agreement Fortis will be irreparably harmed and that no remedy at law will provide adequate relief to Fortis; and
(b) Fortis shall be entitled to a temporary restraining order and temporary and permanent injunctive and other equitable relief in case of any failure by Assurant to perform, observe or discharge any of its covenants or obligations hereunder and without the necessity of proving actual damages. The remedies provided herein shall be cumulative and shall not preclude assertion by
any party hereto of any other rights or the seeking of any other remedies, either legal or equitable, against any other party hereto.
Section 7.05. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts to be performed entirely within such State.
Section 7.06. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument.
Section 7.07. Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. To the extent that any such provision is so held to be invalid, illegal or unenforceable, Fortis and Assurant shall in good faith use their best efforts to find and effect an alternative means to achieve the same or substantially the same result as that contemplated by such provision.
Section 7.08. Confidential Information. All information provided by either party shall, except if the purpose for which such information is furnished pursuant to this Agreement contemplates such disclosure or is for disclosure in public documents of Assurant or the Fortis Group and except for disclosure to the other members of the Fortis Group by Fortis, be kept strictly confidential and, unless otherwise required by law, rule or regulation, neither party will disclose such information in any manner whatsoever until such information otherwise becomes generally available to the public; provided, however, this Section 7.08 shall not apply to information relating to or disclosed in the IPO Registration Statement filed in connection with the Initial Public Offering or in connection with the Exchange Offer or Tender Offer or any Registration Statement filed in accordance with the terms of the Registration Rights Agreement. Information shared or provided pursuant to this Agreement shall be used solely for reporting and risk assessment purposes. In no event shall either party use material non-public information of the other to acquire common stock or other publicly traded securities of the other. In addition, each party agrees that it shall not make public any information received by it (unless required to do so by law) except to the extent such information is published or otherwise publicly disclosed by the party providing such information.
Section 7.09. Amendment and Modification. This Agreement may be amended, modified or supplemented only by written agreement executed by the parties hereto.
Section 7.10. Entire Agreement. This Agreement, including any schedules or exhibits annexed hereto, embodies the entire agreement and understanding of the parties hereto in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
Section 7.11. No Assignment. Except as otherwise provided for in this Agreement, neither this Agreement nor any of the rights, interests or obligations of any party hereto may be assigned by such party without the prior written consent of the other parties; provided, however, that Fortis may assign all or part of its rights or obligations hereunder to one or more other members of the Fortis Group without the prior consent of Assurant.
Section 7.12. No Third Party Beneficiaries. Nothing in this Agreement shall convey any rights upon any person or entity which is not a party or a permitted assignee of a party to this Agreement.
Section 7.13. Termination. This Agreement shall terminate upon the later of (x) the date on which the members of the Fortis Group no longer beneficially own, in the aggregate (excluding for such purposes shares of Common Stock beneficially owned by Fortis but not for its own account) shares entitled to at least ten percent (10%) of the votes entitled to be cast by the then outstanding Common Stock and (y) the termination of the Fortis License.
IN WITNESS HEREOF, the parties have caused this Cooperation Agreement to be executed and delivered as of the date first above written.
ASSURANT, INC.
By:________________________________________
Name:
Title:
FORTIS INSURANCE N.V.
By:________________________________________
Name:
Title:
FORTIS SA/NV
By:________________________________________
Name:
Title:
FORTIS N.V.
By:________________________________________
Name:
Title:
SCHEDULE 2 FORTIS MARKS
MARK PERMITTED USE DURATION OF LICENSE ------------------------------------------------------------------------------------------------------------------------------------ 1. TRADEMARKS Assurant may continue to use Fortis License expires with respect to trademarks for the purpose of trademarks used by an Assurant FORTIS BENEFITS ONLINE ADVANTAGE transitioning to use of the subsidiary with "Fortis" as part FORTIS BENEFITS DENTALCARE Assurant name of its company, commercial or trade FORTISWORKS name 24 (twenty-four) months from FORTIS BENEFITS SERVICE SOLUTIONS the date of this Agreement, subject FORTIS BENEFITS SECURE INCOME to Section 2.01(b) and Section 2.04. SOLUTIONS/PLANS FORTIS BENEFITS ULTIMATE SECURE INCOME SOLUTIONS/PLANS License expires with respect to FORTIS BENEFITS ESSENTIAL INCOME trademarks used by an Assurant SOLUTIONS/PLANS subsidiary NOT having "Fortis" as part devicemark (coloured dots) of its company, commercial or trade FORTIS (wordmark) name 12 (twelve) months from the date FORTIS (wordmark) of this Agreement, subject to Section FORTIS NEWSPOINTE 2.01(b) and Section 2.04. FORTIS ADVANTAGE ONLINE SERVICES FORTIS ADVANTAGE FORTIS BENEFITS PLUS PLAN FORTIS BENEFITS EXECU PLAN FORTIS BENEFITS PRO PLAN THE FORTIS BENEFITS ADVANTAGE FORTIS BENEFITS INSURANCE COMPANY SOLID PARTNERS, FLEXIBLE SOLUTIONS FORTIS INSURANCE COMPANY |
MARK PERMITTED USE DURATION OF LICENSE ------------------------------------------------------------------------------------------------------------------------------------ FORTIS HEALTH FORTIS HEALTH FOUNDATION FORTIS/ FORTIS HEALTH FOUNDATION FORTISFAMILYLINK FORTIS BENEFITS-THE BROKER'S INSURANCE SOLUTION COMPANY* FORTIS BENEFITS-THE EMPLOYER'S INSURANCE SOLUTION COMPANY* FORTIS GUARANTEED PAYOUTPLAN* FORTIS INCOME PREFERRED* FORTIS REWARDS PREFERRED VARIABLE ANNUITY* FORTIS VALUE PREFERRED VARIABLE ANNUITY* FORTIS ULTIMATE ANNUITY* THE FORTIS BENEFITS EDGE* THE FORTIS BENEFITS SOLUTIONS PORTFOLIO* FORTIS CUSTOM ALLOCATION* * * * indicates trademarks that are listed as "dead" in the register of the U.S. Patent and Trademark Office 2. COMPANY NAMES Assurant may continue to use Fortis License expires with respect to as part of company names to the extent company names used by an Assurant Fortis, Inc. and in the form that such company name subsidiary with "Fortis" as part of First Fortis Life Insurance Company includes "Fortis" in the charter its company, commercial or trade name Fortis Family Inc. documents of the relevant company and 24 (twenty-four) months from the date Fortis Legacy Place, Int. to the extent necessary for the purpose of this Agreement, subject Fortis Insurance Company of transitioning to use of the Assurant to Section 2.01(b) and Section 2.04. Fortis Benefits Insurance Company name License expires with respect to company names used by an Assurant subsidiary NOT having "Fortis" as part of its company, commercial or trade name 12 (twelve) months from the date of this Agreement, subject to Section 2.01(b) and Section 2.04 |
MARK PERMITTED USE DURATION OF LICENSE ------------------------------------------------------------------------------------------------------------------------------------ 3. COMMERCIAL/TRADE NAMES Assurant may continue to use License expires with respect to Fortis as part of commercial commercial or trade names used by Fortis Preneed or trade names to the extent an Assurant subsidiary with "Fortis" Fortis Family necessary for the purpose of as part of its company, commercial Fortis Health transitioning to use of the or trade name 24 (twenty-four) months First Fortis Assurant name from the date of this Agreement, Fortis Benefits subject to Section 2.01(b) and Fortis Inc. Shared Services Section 2.04. Fortis Asset Management License expires with respect to commercial or trade names used by an Assurant subsidiary NOT having "Fortis" as part of its company, commercial or trade name 12 (twelve) months from the date of this Agreement, subject to Section 2.01(b) and Section 2.04 4. DOMAIN NAMES Assurant may continue to use License expires with respect to Fortis domain names for the domain names used by an Assurant www.us.fortis.com purpose of transitioning to subsidiary with "Fortis" as part of Assurant domain names its company, commercial or trade www.us.fortis.com name 24 (twenty-four) months from the date of this Agreement, subject efortishealth.com to Section 2.01(b) and Section 2.04. fbicflex.com ffgfeedback.com License expires with respect to ffgfeedback.net domain names used by an Assurant ffgfeedback.org subsidiary NOT having "Fortis" fhcpartners.net as part of its company, commercial firstfortis.com or trade name 12 (twelve) months firstfortis.net from the date of this Agreement, firstfortis.org subject to Section 2.01(b) and firstfortislifeinsurancecompany.com Section 2.04 firstfortislifeinsurancecompany.net firstfortislifeinsurancecompany.org |
MARK PERMITTED USE DURATION OF LICENSE ------------------------------------------------------------------------------------------------------------------------------------ fortis-america.com fortis-america.net fortis-america.org fortis-financial.com fortis-financial.net fortis-financial.org fortis-health.net fortis-inc.com fortis-insurance.com fortis-insurance.net fortis-north-america.com fortis-north-america.net fortis-north-america.org fortis-northamerica.com fortis-northamerica.net fortis-northamerica.org fortis-us.ca fortis-us.com fortis-us.net fortis-us.org fortis-usa.ca fortis-usa.com fortis-usa.net fortis-usa.org fortis.us fortisadvantage.com fortisadvantage.net fortisadvantage.org fortisadvantageonlineservices.com |
MARK PERMITTED USE DURATION OF LICENSE ------------------------------------------------------------------------------------------------------------------------------------ fortisadvantageonlineservices.net fortisadvantageonlineservices.org fortisadvisors.com fortisadvisors.net fortisadvisors.org fortisagent.com fortisagents.com fortisamerica.ca fortisamerica.com fortisamerica.net fortisamerica.org fortisbank.ca fortisbank.us fortisbenefitmart.com fortisbenefits.biz fortisbenefits.com fortisbenefits.net fortisbenefits.org fortisbenefitsdental.com fortisbenefitsnewspointe.com fortisbenefitsonline.biz fortisbenefitsonline.com fortiscardja.com fortiscards.com fortiscardss.com fortiscardsstm.com fortiscardstm.com fortiscareers.com fortiscareers.net |
MARK PERMITTED USE DURATION OF LICENSE ------------------------------------------------------------------------------------------------------------------------------------ fortiscareers.org fortisdentalbenefits.com fortisdentalvisionplan.com fortisdirect.net fortisdocsaver.com fortisdvplan.com fortisfamily.ca fortisfamily.com fortisfinancial.com fortisfinancial.net fortisfinancial.org fortisfinancialinsurance.com fortisfinancialinsurance.net fortisfinancialinsurance.org fortisfoundation.com fortisfoundation.org fortisfunds.net fortisfunds.org fortisgeneralagent.com fortishealth.biz fortishealth.com fortishealth.info fortishealth.tv fortishealthagent.com fortishealthagents.com fortishealthdirect.com fortishealthdirect.net fortishealthhra.com fortishealthhsa.com |
MARK PERMITTED USE DURATION OF LICENSE ------------------------------------------------------------------------------------------------------------------------------------ fortishealthmsa.com fortishealthonedeductible.com fortishealthsaver.com fortishealthsucks.com fortishealthsucks.net fortishealthsucks.org fortishealthyventures.com fortisinsurancedirect.com fortisinsurancedirect.net fortisinvestors.com fortisinvestors.net fortisinvestors.org fortisltcsucks.com fortismedicalcard.com fortismedicalplus.com fortismedicalsaver.com fortismedplus.com fortismedsaver.com fortismgas.com fortisnewspointe.com fortisnewspointe.net fortisnewspointe.org fortisnorthamerica.ca fortisnorthamerica.com fortisnorthamerica.net fortisnorthamerica.org fortisplanja.com fortisplans.com fortisplanss.com |
MARK PERMITTED USE DURATION OF LICENSE ------------------------------------------------------------------------------------------------------------------------------------ fortisplanstm.com fortispluscard.com fortispreneed.com fortisprescriptionplan.com fortisrd.com fortisrealestate.net fortisrealestate.org fortisrxplan.com fortissales.com fortissales.net fortissales.org fortissaver.com fortissaverplans.com fortisscholarship.com fortisshortterm.com fortisstudentselect.com fortiswritingagent.com myfortis.com myfortis.net myfortis.org myfortisbenefits.com thefortiscards.com thefortisrxplan.com 5. PRODUCT NAMES Assurant may offer and sell products containing License expires with respect to product names the Fortis name to the extent necessary for the used by an Assurant subsidiary with "Fortis" Same as part 1. purpose of transitioning to use of the Assurant as part of its company, commercial or trade Trademarks name. name 24 (twenty-four) months from the date of this Agreement, subject to Section 2.01(b) and Section 2.04. |
MARK PERMITTED USE DURATION OF LICENSE ------------------------------------------------------------------------------------------------------------------------------------ License expires with respect to product names used by an Assurant subsidiary NOT having "Fortis" as part of its company, commercial or trade name 12 (twelve) months from the date of this Agreement, Section 2.01(b) and subject to Section 2.04 |
SCHEDULE 3(a) FINANCIAL INFORMATION
PART 1: 50% OR FULL CONSOLIDATION THRESHOLD
INFORMATION TO BE PROVIDED: CONTENT: DEADLINE: --------------------------- -------- --------- 2004 FAP REPORTING REQUIREMENTS - quarterly internal GAAP - as prepared for Assurant's internal - within 20 Business Days of the accounts and management purposes end of each quarter commentary - FAP quarterly reporting - as currently provided including - within 20 Business Days of the quarterly updates of forecast end of each of the first three quarters and within 25 Business Days after the end of the fourth quarter IAS REPORTING REQUIREMENTS BEGINNING IN 2004 - IAS information - 2004 opening balance sheet - April 23, 2004 - quarterly P&L, balance sheet and - Q1: July 23, 2004 cash flow information, level of - Q2: October 10, 2004 detail to be provided is the same - Q3: December 11, 2004 as under FAP and reconciliation - Q4: February 6, 2005 of results, equity, the main - 2005: tbd balance sheet and P&L items from FAP to IAS per quarter for 2004 BUDGET INFORMATION - Budget - Based on Assurant models, - By the last Business Day in the including reconciliation to FAP first full week of November each year (each week beginning on a Monday) |
SCHEDULE 3(a) FINANCIAL INFORMATION
PART 2: 20% OR EQUITY ACCOUNTING THRESHOLD
INFORMATION TO BE PROVIDED: CONTENT: DEADLINE: --------------------------- -------- --------- REPORTING REQUIREMENTS - quarterly internal GAAP - as prepared for Assurant's internal - within 20 Business Days of the accounts and management purposes end of each quarter commentary - Reconciliation from GAAP - only required until end of 2004 - within 20 Business Days of the to FAP of shareholders end of each of the first three equity, net income and quarters and within 25 Business equity roll forward and Days after the end of the fourth forecast result for quarter whole year through 2004 - Reconciliation from GAAP - required quarterly for 2004 and - within 20 Business Days of the to IFRS/IAS of shareholders thereafter end of each quarter equity, net income and equity roll forward in IAS/IFRS and forecast for results for whole year BUDGET INFORMATION - Budget - Based on Assurant models, - By the last Business Day in the first including reconciliation to FAP full week of November each year (each of shareholders equity, net income week beginning on a Monday) and equity roll forward through 2004 and to IAS thereafter |
SCHEDULE 3(b) RISK INFORMATION
PART 1: 50% OR FULL CONSOLIDATION THRESHOLD
INFORMATION TO BE PROVIDED: DEADLINE: --------------------------- --------- - Fair Value Reporting - within 5 weeks of the end of each quarter - Annual Risk Based Capital (RBC) data - within 2 months of year end - Quarterly Asset Reporting - within 1 month of the end of each quarter - Bi-weekly Report on Capital Gains - Report through the last Business Day of every other week due within 2 Business Days later (each week beginning on a Monday) |
PART 2: 20% OR EQUITY ACCOUNTING THRESHOLD
INFORMATION TO BE PROVIDED: DEADLINE: --------------------------- --------- - Risk management and investment policy - Promptly after preparation thereof reports prepared for the Assurant Board of Directors or any Committee of the Board of Directors |
SCHEDULE 3(c) COMPLIANCE INFORMATION
50% OR FULL CONSOLIDATION THRESHOLD
INFORMATION TO BE PROVIDED: CONTENT: DEADLINE: --------------------------- -------- --------- - Compliance Reports - As currently provided to - No later than the covering period from Fortis Compliance last Business Day April 1 - March 31 each Department in the first full year week of May (each week beginning on a Monday), unless otherwise agreed between the parties |
SCHEDULE 5
U.S. INFORMATION TECHNOLOGY ENROLLMENTS UNDER EUROPE-HELD CONTRACTS
CONTRACT NAME: TYPE: TERMINATION DATE: -------------- ---- ---------------- IBM Passport Advantage Software Evergreen Citrix PLP Software July 31, 2004 Hewlett-Packard Hardware August 31, 2004 |
EUROPEAN ENROLLMENTS UNDER U.S.-HELD CONTRACTS
CONTRACT NAME: TYPE: TERMINATION DATE: ------------- ---- ---------------- Microsoft Select 5.1 Software - European companies that June 30, 2004 enrolled under the U.S. Microsoft select 5.1 agreement are: Beta Capital, S.V.B. (Spain) Fortis AG (Belgium) MeesPierson (CI) Ltd (Channel Islands) Fortis Financial Services, LLC (NYC - part of Fortis Bank) Corporate Express Strategic Sourcing Group ("SSG") for May 1, 2005 office supplies - Fortis Clearing House and Fortis Capital Boise SSG for paper Fortis Clearing House April 31, 2004 and Fortis Capital UPS SSG - for overnight delivery - Fortis September, 2006 Clearing House and Fortis Capital FedEx SSG - for overnight delivery - Fortis Evergreen Clearing House and Fortis Capital National Car Rental SSG - car rental (to be implemented September 1, 2004 soon) Fortis Clearing House and Fortis Capital AT&T Voice services - Fortis Financial August 31, 2005 Services Guardian Travel SSG - travel services - Fortis Capital Approval for Travel (to be implemented soon) policy & permission to move travel to Guardian Travel is in NY - timeline to be determined |
EXHIBIT 10.3
ASSURANT, INC.
2004 LONG-TERM INCENTIVE PLAN
ASSURANT, INC.
2004 LONG-TERM INCENTIVE PLAN
TABLE OF CONTENTS ARTICLE 1 PURPOSE..................................................1 1.1 General.................................................1 ARTICLE 2 DEFINITIONS..............................................1 2.1 Definitions.............................................1 ARTICLE 3 TERM OF PLAN.............................................6 3.1 Effective Date..........................................6 3.2 Termination of Plan.....................................6 ARTICLE 4 ADMINISTRATION...........................................6 4.1 Committee...............................................6 4.2 Actions and Interpretations by the Committee............7 4.3 Authority of Committee..................................7 4.4 Award Certificates......................................8 ARTICLE 5 SHARES SUBJECT TO THE PLAN...............................8 5.1 Number of Shares........................................8 5.2 Lapsed Awards...........................................8 5.3 Stock Distributed.......................................9 ARTICLE 6 ELIGIBILITY..............................................9 6.1 General.................................................9 ARTICLE 7 STOCK OPTIONS............................................9 7.1 General.................................................9 7.2 Incentive Stock Options.................................10 ARTICLE 8 STOCK APPRECIATION RIGHTS................................11 8.1 Grant of Stock Appreciation Rights......................11 ARTICLE 9 PERFORMANCE AWARDS.......................................12 9.1 Grant of Performance Awards.............................12 9.2 Performance Goals.......................................12 9.3 Right to Payment........................................12 9.4 Other Terms.............................................12 |
ARTICLE 10 RESTRICTED STOCK AWARDS.................................13 10.1 Grant of Restricted Stock...............................13 10.2 Issuance and Restrictions...............................13 10.3 Forfeiture..............................................13 10.4 Certificates for Restricted Stock.......................13 ARTICLE 11 DIVIDEND EQUIVALENTS....................................13 11.1 Grant of Dividend Equivalents...........................13 ARTICLE 12 STOCK OR OTHER STOCK-BASED AWARDS.......................13 12.1 Grant of Stock or Other Stock-Based Awards..............13 ARTICLE 13 PROVISIONS APPLICABLE TO AWARDS.........................14 13.1 Stand-Alone, Tandem, and Substitute Awards..............14 13.2 Term of Awards..........................................14 13.3 Form of Payment of Awards...............................14 13.4 Limits on Transfer......................................14 13.5 Beneficiaries...........................................14 13.6 Stock Certificates......................................15 13.7 Acceleration upon Death or Disability...................15 13.8 Acceleration upon a Change of Control...................15 13.9 Acceleration for Other Reasons..........................15 13.10 Effect of Acceleration..................................15 13.11 Termination of Employment...............................16 ARTICLE 14 CHANGES IN CAPITAL STRUCTURE............................16 14.1 General.................................................16 ARTICLE 15 AMENDMENT, MODIFICATION AND TERMINATION.................16 15.1 Amendment, Modification and Termination.................16 15.2 Awards Previously Granted...............................17 ARTICLE 16 GENERAL PROVISIONS......................................17 16.1 No Rights to Awards; Non-Uniform Determinations..........................................17 16.2 No Stockholder Rights...................................18 16.3 Withholding.............................................18 16.4 No Right to Continued Service...........................18 16.5 Unfunded Status of Awards...............................18 - 2 - |
16.6 Indemnification.........................................18 16.7 Relationship to Other Benefits..........................18 16.8 Expenses................................................19 16.9 Titles and Headings.....................................19 16.10 Gender and Number.......................................19 16.11 Fractional Shares.......................................19 16.12 Government and Other Regulations........................19 16.13 Governing Law...........................................19 16.14 Additional Provisions...................................19 16.15 No Limitations on Rights of Company.....................20 |
ASSURANT, INC.
2004 LONG-TERM INCENTIVE PLAN
ARTICLE 1
PURPOSE
1.1 GENERAL. The purpose of the Assurant, Inc. 2004 Long-Term Incentive Plan (the "Plan") is to promote the success, and enhance the value, of Assurant, Inc. (the "Company"), by linking the personal interests of employees, officers, directors and consultants of the Company or any Affiliate (as defined below) to those of Company stockholders and by providing such persons with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of employees, officers, directors and consultants upon whose judgment, interest, and special effort the successful conduct of the Company's operation is largely dependent. Accordingly, the Plan permits the grant of incentive awards from time to time to selected employees, officers, directors and consultants of the Company and its Affiliates.
ARTICLE 2
DEFINITIONS
2.1 DEFINITIONS. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Section 1.1 unless a clearly different meaning is required by the
context. The following words and phrases shall have the following meanings:
(a) "Affiliate" means (i) any Subsidiary or Parent, or (ii) an entity that directly or through one or more intermediaries controls, is controlled by or is under common control with, the Company, as determined by the Committee.
(b) "Award" means any Option, Stock Appreciation Right, Restricted Stock Award, Performance Award, Dividend Equivalent Award, or Other Stock-Based Award, or any other right or interest relating to Stock or cash, granted to a Participant under the Plan.
(c) "Award Certificate" means a written document, in such form as the Committee prescribes from time to time, setting forth the terms and conditions of an Award.
(d) "Board" means the Board of Directors of the Company or, in the case of the initial approval of the Plan, the Board of Directors of Fortis, Inc., the predecessor of the Company.
(e) "Cause" as a reason for a Participant's termination of employment shall have the meaning assigned such term in the employment agreement, if any, between such Participant and the Company or an Affiliate, provided, however that if there is no such employment agreement in which such term is defined, and unless otherwise defined in the applicable Award Certificate, "Cause" shall mean any of the following acts by the Participant, as determined by the Board: gross neglect of duty, prolonged absence from
duty without the consent of the Company, intentionally engaging in any activity that is in conflict with or adverse to the business or other interests of the Company, or willful misconduct, misfeasance or malfeasance of duty which is reasonably determined to be detrimental to the Company.
(f) "Change of Control" means and includes the occurrence of any one of the following events but shall specifically exclude a Public Offering:
(i) individuals who, on the Effective Date, constitute the Board of Directors of the Company (the "Incumbent Directors") cease for any reason to constitute at least a majority of such Board, provided that any person becoming a director after the Effective Date and whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors then on the Board shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to the election or removal of directors ("Election Contest") or other actual or threatened solicitation of proxies or consents by or on behalf of any "Person" (such term for purposes of this definition being as defined in Section 3(a)(9) of the 1934 Act and as used in Section 13(d)(3) and 14(d)(2) of the 1934 Act) other than the Board ("Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest, shall be deemed an Incumbent Director; or
(ii) any Person is or becomes a "beneficial owner" (as defined
in Rule 13d-3 under the 1934 Act), directly or indirectly, of either
(A) 30% or more of the then-outstanding shares of common stock of
the Company ("Company Common Stock") or (B) securities of the
Company representing 30% or more of the combined voting power of the
Company's then outstanding securities eligible to vote for the
election of directors (the "Company Voting Securities"); provided,
however, that for purposes of this subsection (ii), the following
acquisitions shall not constitute a Change in Control: (v) an
acquisition directly from the Company, (w) an acquisition by the
Company or a Subsidiary of the Company, (x) an acquisition by a
Person who is on the Effective Date the beneficial owner, directly
or indirectly, of 50% or more of the Company Common Stock or the
Company Voting Securities, (y) an acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any Subsidiary of the Company, or (z) an acquisition
pursuant to a Non-Qualifying Transaction (as defined in subsection
(iii) below); or
(iii) the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or a Subsidiary (a "Reorganization"), or the sale or other disposition of all or substantially all of the Company's assets (a "Sale") or the acquisition of assets or stock of another corporation (an "Acquisition"), unless immediately following such Reorganization, Sale or Acquisition: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Reorganization, Sale or Acquisition beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Reorganization, Sale or Acquisition (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets or stock either directly or through one or more subsidiaries, the "Surviving Corporation") in substantially the same proportions as their ownership, immediately prior to such Reorganization, Sale or Acquisition, of the outstanding Company Common Stock and the outstanding Company Voting Securities, as the case may be, and (B) no Person (other than (x) the Company or any Subsidiary of the Company, (y) the Surviving Corporation or its ultimate parent corporation, or (z) any employee benefit plan (or related trust) sponsored or maintained by any of the foregoing is the beneficial owner, directly or indirectly, of 30% or more of the total common stock or 30% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Surviving Corporation, and (C) at least a majority of the members of the board of directors of the Surviving Corporation were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Reorganization, Sale or Acquisition (any Reorganization, Sale or Acquisition which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or
(iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended from time to time.
(h) "Committee" means the committee of the Board described in Article 4.
(i) "Company" means Assurant, Inc., a Delaware corporation.
(j) "Continuous Status as a Participant" means the absence of any interruption or termination of service as an employee, officer, consultant or director of the Company or any Affiliate, as applicable; provided however, that for purposes of an Incentive Stock Option, or a SAR issued in tandem with an Incentive Stock Option, "Continuous Status as a Participant" means the absence of any interruption or termination of service as an employee of the Company or any Parent or Subsidiary, as applicable. Continuous Status as a Participant shall not be considered interrupted in the case of any leave of absence authorized in writing by the Company prior to its commencement.
(k) "Disability" or "Disabled" has the same meaning as provided in the long-term disability plan or policy maintained by the Company or if applicable, most recently maintained, by the Company or if applicable, an Affiliate, for the Participant, whether or not such Participant actually receives disability benefits under such plan or policy. If no long-term disability plan or policy was ever maintained on behalf of Participant or if the determination of Disability relates to an Incentive Stock Option, Disability means Permanent and Total Disability as defined in Section 22(e)(3) of the Code. In the event of a dispute, the determination whether a Participant is Disabled will be made by the Committee and may be supported by the advice of a physician competent in the area to which such Disability relates.
(l) "Dividend Equivalent" means a right granted to a Participant under Article 11.
(m) "Effective Date" has the meaning assigned such term in Section 3.1.
(n) "Eligible Participant" means an employee, officer, consultant or director of the Company or any Affiliate. To the extent necessary to preserve the employee benefits plan exemption under applicable state securities laws or regulations, until such time, if any, as the Company's common stock shall be traded on an Exchange, the term "Eligible Participant" shall exclude any person who is not an employee of the Company or an Affiliate.
(o) "Exchange" means the New York Stock Exchange or any other national securities exchange or, if applicable, the Nasdaq National Market on which the Stock may from time to time be listed or traded.
(p) "Fair Market Value", on any date, means (i) if the Stock is listed on a securities exchange or is traded over the Nasdaq National Market, the closing sales price on the immediately preceding date on which sales were reported, or (ii) if the Stock is not listed on a securities exchange or traded over the Nasdaq National Market, the mean between the bid and offered prices as quoted by Nasdaq for such immediately preceding trading date, provided that if it is determined that the fair market value is not properly reflected by such Nasdaq quotations, Fair Market Value will be determined by such other method as the Committee determines in good faith to be reasonable.
(q) "Good Reason" has the meaning assigned such term in the employment agreement, if any, between a Participant and the Company or an Affiliate, provided, however that if there is no such employment agreement in which such term is defined, and unless otherwise defined in the applicable Award Certificate, "Good Reason" shall mean any of the following acts by the Company or an Affiliate without the consent of the Participant (in each case, other than an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company or an Affiliate promptly after receipt of notice thereof given by the Participant): (i) the assignment to the Participant of duties materially inconsistent with, or a material diminution in, the Participant's position, authority, duties or responsibilities as in effect immediately prior to a Change of Control, (ii) a reduction by the Company or an Affiliate in the Participant's base salary, (iii) the Company or an Affiliate requiring the Participant, without his or her consent, to be based at any office or location more than 35 miles from the location at which the Participant was stationed immediately prior to a Change of Control, or (iv) the continuing material breach by the Company or an Affiliate of any employment agreement between the Participant and the Company or an Affiliate after the expiration of any applicable period for cure.
(r) "Grant Date" means the date an Award is made by the Committee.
(s) "Incentive Stock Option" means an Option that is intended to be an incentive stock option and meets the requirements of Section 422 of the Code or any successor provision thereto.
(t) "Non-Employee Director" means a director of the Company who is not a common law employee of the Company or any Affiliate.
(u) "Nonstatutory Stock Option" means an Option that is not an Incentive Stock Option.
(v) "Option" means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.
(w) "Other Stock-Based Award" means a right, granted to a Participant under Article 12, that relates to or is valued by reference to Stock or other Awards relating to Stock.
(x) "Parent" means a corporation, limited liability company, partnership or other entity which owns or beneficially owns a majority of the outstanding voting stock or voting power of the Company. Notwithstanding the above, with respect to an Incentive Stock Option, Parent shall have the meaning set forth in Section 424(e) of the Code.
(y) "Participant" means a person who, as an employee, officer, director or consultant of the Company or any Affiliate, has been granted an Award under the Plan; provided that in the case of the death of a Participant, the term "Participant" refers to a beneficiary designated pursuant to Section 13.5 or the legal guardian or other legal representative acting in a fiduciary capacity on behalf of the Participant under applicable state law and court supervision.
(z) "Performance Award" means Performance Shares or Performance Units granted pursuant to Article 9.
(aa) "Performance Share" means any right granted to a Participant under Article 9 to a unit to be valued by reference to a designated number of Shares to be paid upon achievement of such performance goals as the Committee establishes with regard to such Performance Share.
(bb) "Performance Unit" means a right granted to a Participant under Article 9 to a unit valued by reference to a designated amount of cash or property other than Shares to be paid to the Participant upon achievement of such performance goals as the Committee establishes with regard to such Performance Unit.
(cc) "Person" means any individual, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act.
(dd) "Plan" means this 2004 Long-Term Incentive Plan, as amended from time to time.
(ee) "Public Offering" shall occur on the closing date of a public offering of any class or series of the Company's equity securities pursuant to a registration statement filed by the Company under the 1933 Act.
(ff) "Restricted Stock Award" means Stock granted to a Participant under Article 10 that is subject to certain restrictions and to risk of forfeiture.
(gg) "Shares" means shares of the Company's Stock. If there has been
an adjustment or substitution pursuant to Section 14.1, the term "Shares"
shall also include any shares of stock or other securities that are
substituted for Shares or into which Shares are adjusted pursuant to
Section 14.1.
(hh) "Stock" means the $0.01 par value common stock of the Company and such other securities of the Company as may be substituted for Stock pursuant to Article 14.
(ii) "Stock Appreciation Right" or "SAR" means a right granted to a Participant under Article 8 to receive a payment equal to the difference between the Fair Market Value of a Share as of the date of exercise of the SAR over the grant price of the SAR, all as determined pursuant to Article 8.
(jj) "Subsidiary" means any corporation, limited liability company, partnership or other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company. Notwithstanding the above, with respect to an Incentive Stock Option, Subsidiary shall have the meaning set forth in Section 424(f) of the Code.
(kk) "1933 Act" means the Securities Act of 1933, as amended from time to time.
(ll) "1934 Act" means the Securities Exchange Act of 1934, as amended from time to time.
ARTICLE 3
TERM OF PLAN
3.1 EFFECTIVE DATE. The Plan was adopted by the Board on October 15, 2003. The Plan was approved by the sole stockholder of the Company on October 15, 2003. The Plan will become effective on the closing date of the initial Public Offering of the Stock, which is anticipated to occur in 2004.
3.2 TERMINATION OF PLAN. The Plan shall terminate on October 15, 2013, which is ten (10) years after the date on which the Board adopted the Plan. The termination of the Plan on such date shall not affect the validity of any Award outstanding on the date of termination.
ARTICLE 4
ADMINISTRATION
4.1. COMMITTEE. The Plan shall be administered by a Committee appointed by the Board (which Committee shall consist of at least two directors) or, at the discretion of the Board from time to time, the Plan may be administered by the Board. It is intended that at least two of the directors appointed to serve on the Committee shall be "non-employee directors" (within the meaning of Rule 16b-3 promulgated under the 1934 Act)"" and that any such members of the Committee who do not so qualify shall abstain from participating in any decision to make or administer Awards that are made to Eligible Participants who at the time of consideration for such Award are persons subject to the short-swing profit rules of Section 16 of the 1934 Act. However, the mere fact that a Committee member shall fail to qualify under the foregoing
requirements or shall fail to abstain from such action shall not invalidate any Award made by the Committee which Award is otherwise validly made under the Plan. The members of the Committee shall be appointed by, and may be changed at any time and from time to time in the discretion of, the Board. The Board may reserve to itself any or all of the authority and responsibility of the Committee under the Plan or may act as administrator of the Plan for any and all purposes. To the extent the Board has reserved any authority and responsibility or during any time that the Board is acting as administrator of the Plan, it shall have all the powers of the Committee hereunder, and any reference herein to the Committee (other than in this Section 4.1) shall include the Board. To the extent any action of the Board under the Plan conflicts with actions taken by the Committee, the actions of the Board shall control.
4.2 ACTION AND INTERPRETATIONS BY THE COMMITTEE. For purposes of administering the Plan, the Committee may from time to time adopt rules, regulations, guidelines and procedures for carrying out the provisions and purposes of the Plan and make such other determinations, not inconsistent with the Plan, as the Committee may deem appropriate. The Committee's interpretation of the Plan, any Awards granted under the Plan, any Award Certificate and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Company's or an Affiliate's independent certified public accountants, Company counsel or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
4.3 AUTHORITY OF COMMITTEE. Except as provided below, the Committee has the exclusive power, authority and discretion to:
(a) Grant Awards;
(b) Designate Participants;
(c) Determine the type or types of Awards to be granted to each Participant;
(d) Determine the number of Awards to be granted and the number of Shares to which an Award will relate;
(e) Determine the terms and conditions of any Award granted under the Plan, including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines;
(f) Accelerate the vesting, exercisability or lapse of restrictions of any outstanding Award, in accordance with Article 13, based in each case on such considerations as the Committee in its sole discretion determines;
(g) Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;
(h) Prescribe the form of each Award Certificate, which need not be identical for each Participant;
(i) Decide all other matters that must be determined in connection with an Award;
(j) Establish, adopt or revise any rules, regulations, guidelines or procedures as it may deem necessary or advisable to administer the Plan;
(k) Make all other decisions and determinations that may be required under the Plan or as the Committee deems necessary or advisable to administer the Plan;
(l) Amend the Plan or any Award Certificate as provided herein; and
(m) Adopt such modifications, procedures, and subplans as may be necessary or desirable to comply with provisions of the laws of non-U.S. jurisdictions in which the Company or any Affiliate may operate, in order to assure the viability of the benefits of Awards granted to participants located in such other jurisdictions and to meet the objectives of the Plan.
To the extent permitted under Delaware law, the Board or the Committee may
expressly delegate to any individual or group of individuals some or all of the
Committee's authority under subsections (a) through (i) above, except that no
delegation of its duties and responsibilities may be made with respect to Awards
to Eligible Participants who are subject to the short-swing profit rules of
Section 16 of the 1934 Act. The acts of such delegates shall be treated
hereunder as acts of the Committee and such delegates shall report to the
Committee regarding the delegated duties and responsibilities.
4.4. AWARD CERTIFICATES. Each Award shall be evidenced by an Award Certificate. Each Award Certificate shall include such provisions, not inconsistent with the Plan, as may be specified by the Committee.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 14.1 and 5.2, the aggregate number of Shares reserved and available for issuance pursuant to Awards granted under the Plan shall be 10,000,000.
5.2. LAPSED AWARDS.
(a) To the extent that an Award is canceled, terminates, expires, is forfeited or lapses for any reason, any unissued Shares subject to the Award will again be available for issuance pursuant to Awards granted under the Plan.
(b) Shares subject to Awards settled in cash will again be available for issuance pursuant to Awards granted under the Plan.
(c) If the exercise price of an Option is satisfied by delivering Shares to the Company (by either actual delivery or attestation), only the number of Shares issued in
excess of the delivery or attestation shall be considered for purposes of determining the number of Shares remaining available for issuance pursuant to Awards granted under the Plan.
(d) To the extent that the full number of Shares subject to an Option is not issued upon exercise of the Option for any reason (other than Shares used to satisfy an applicable tax withholding obligation), only the number of Shares issued and delivered upon exercise of the Option shall be considered for purposes of determining the number of Shares remaining available for issuance pursuant to Awards granted under the Plan. Nothing in this subsection shall imply that any particular type of cashless exercise of an Option is permitted under the Plan, that decision being reserved to the Committee.
5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock, or Stock purchased on the open market.
ARTICLE 6
ELIGIBILITY
6.1. GENERAL. Awards may be granted only to Eligible Participants; except that Incentive Stock Options may not be granted to Eligible Participants who are not employees of the Company or a Parent or Subsidiary as defined in Section 424(e) and (f) of the Code.
ARTICLE 7
STOCK OPTIONS
7.1. GENERAL. The Committee is authorized to grant Options to Participants on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per Share under an Option shall be determined by the Committee, subject to Section 7.2(a) with respect to an Incentive Stock Option.
(b) TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part, subject to Section 7.1(d). The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised or vested. The Committee may waive any exercise or vesting provisions at any time in whole or in part based upon factors as the Committee may determine in its sole discretion so that the Option becomes exercisable or vested at an earlier date. The Committee may permit an arrangement whereby receipt of Stock upon exercise of an Option is delayed until a specified future date.
(c) PAYMENT. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation, cash, Shares, or other property (including "cashless exercise" arrangements), and the methods by which Shares shall be delivered or deemed to be delivered to Participants; provided, however, that if Shares are used to pay the exercise price of an Option, such Shares must have been held by the Participant for such period of time, if any, as necessary to avoid variable accounting for the Option.
(d) EXERCISE TERM. In no event may any Option be exercisable for more than ten years from the Grant Date.
(e) ADDITIONAL OPTIONS UPON EXERCISE. The Committee may, in its sole discretion, provide in an original Award Certificate for the automatic grant of a new Option to any Participant who delivers Shares as full or partial payment of the exercise price of the original Option. Any new Option granted in such a case (i) shall be for the same number of Shares as the Participant delivered in exercising the original Option, (ii) shall have an exercise price of 100% of the Fair Market Value of the surrendered Shares on the date of exercise of the original Option (the grant date for the new Option), and (iii) shall have a term equal to the unexpired term of the original Option.
7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price of an Incentive Stock Option shall not be less than the Fair Market Value as of the Grant Date.
(b) LAPSE OF OPTION. An Incentive Stock Option shall lapse upon the earliest of the following circumstances; provided, however, that the Committee may, prior to the lapse of the Incentive Stock Option under the circumstances described in subsections (3), (4), (5) and (6) below, provide in writing that the Option will extend until a later date, but if an Option is so extended and is exercised after the dates specified in subsections (3) and (4) below or more than three months after termination of employment for any other reason, it will automatically become a Nonstatutory Stock Option:
(1) The expiration date set forth in the Award Certificate.
(2) The tenth anniversary of the Grant Date.
(3) Three months after termination of the Participant's Continuous Status as a Participant for any reason other than the Participant's Disability, death or termination by the Company for Cause.
(4) One year after the termination of the Participant's Continuous Status as a Participant by reason of the Participant's Disability.
(5) One year after the termination of the Participant's death if the Participant dies while employed, or during the three-month period described in paragraph (3) or during the one-year period described in paragraph (4) and before the Option otherwise lapses.
(6) The termination of the Participant's Continuous Status as a Participant if such termination is for Cause.
Unless the exercisability of the Incentive Stock Option is accelerated as provided in Article 13, if a Participant exercises an Option after termination of employment, the Option may be exercised only with respect to the Shares that were otherwise vested on the Participant's termination of employment. Upon the Participant's death, any
exercisable Incentive Stock Options may be exercised by the Participant's beneficiary, determined in accordance with Section 13.5.
(c) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market Value (determined as of the Grant Date) of all Shares with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000.00.
(d) TEN PERCENT OWNERS. No Incentive Stock Option shall be granted to any individual who, at the Grant Date, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary unless the exercise price per Share of such Option is at least 110% of the Fair Market Value per Share at the Grant Date and the Option expires no later than five years after the Grant Date.
(e) EXPIRATION OF AUTHORITY TO GRANT INCENTIVE STOCK OPTIONS. No Incentive Stock Option may be granted pursuant to the Plan after the day immediately prior to the tenth anniversary of date the Plan was adopted by the Board, or the termination of the Plan, if earlier.
(f) RIGHT TO EXERCISE. During a Participant's lifetime, an Incentive Stock Option may be exercised only by the Participant or, in the case of the Participant's Disability, by the Participant's guardian or legal representative.
(g) ELIGIBLE GRANTEES. The Committee may not grant an Incentive Stock Option to a person who is not at the Grant Date an employee of the Company or a Parent or Subsidiary.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1. GRANT OF STOCK APPRECIATION RIGHTS. The Committee is authorized to grant Stock Appreciation Rights to Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock Appreciation Right, the Participant to whom it is granted has the right to receive the excess, if any, of:
(1) The Fair Market Value of one Share on the date of exercise; over
(2) The grant price of the Stock Appreciation Right as determined by the Committee, which shall not be less than the Fair Market Value of one Share on the Grant Date in the case of any Stock Appreciation Right related to an Incentive Stock Option.
(b) OTHER TERMS. All awards of Stock Appreciation Rights shall be evidenced by an Award Certificate. The terms, methods of exercise, methods of settlement, form of consideration payable in settlement, and any other terms and conditions of any Stock Appreciation Right shall be determined by the Committee at the time of the grant of the Award and shall be reflected in the Award Certificate.
ARTICLE 9
PERFORMANCE AWARDS
9.1. GRANT OF PERFORMANCE AWARDS. The Committee is authorized to grant Performance Shares or Performance Units to Participants on such terms and conditions as may be selected by the Committee. The Committee shall have the complete discretion to determine the number of Performance Shares or Performance Units granted to each Participant and to designate the provisions of such Performance Awards as provided in Section 4.3.
9.2. PERFORMANCE GOALS. The Committee may establish performance goals for Performance Awards which may be based on any criteria selected by the Committee. Such performance goals may be described in terms of Company-wide objectives or in terms of objectives that relate to the performance of an Affiliate or a division, region, department or function within the Company or an Affiliate. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company or the manner in which the Company or an Affiliate conducts its business, or other events or circumstances render performance goals to be unsuitable, the Committee may modify such performance goals in whole or in part, as the Committee deems appropriate. If a Participant is promoted, demoted or transferred to a different business unit or function during a performance period, the Committee may determine that the performance goals or performance period are no longer appropriate and may (i) adjust, change or eliminate the performance goals or the applicable performance period as it deems appropriate to make such goals and period comparable to the initial goals and period, or (ii) make a cash payment to the participant in amount determined by the Committee.
9.3. RIGHT TO PAYMENT. The grant of a Performance Share to a Participant will entitle the Participant to receive at a specified later time a specified number of Shares, or the equivalent cash value, if the performance goals established by the Committee are achieved and the other terms and conditions thereof are satisfied. The grant of a Performance Unit to a Participant will entitle the Participant to receive at a specified later time a specified dollar value in cash or other property, including Shares, variable under conditions specified in the Award, if the performance goals in the Award are achieved and the other terms and conditions thereof are satisfied. The Committee shall set performance goals and other terms or conditions to payment of the Performance Awards in its discretion which, depending on the extent to which they are met, will determine the number and value of the Performance Awards that will be paid to the Participant.
9.4. OTHER TERMS. Performance Awards may be payable in cash, Stock, or other property, and have such other terms and conditions as determined by the Committee and reflected in the Award Certificate. For purposes of determining the number of Shares to be used in payment of a Performance Award denominated in cash but payable in whole or in part in Shares or Restricted Stock, the number of Shares to be so paid will be determined by dividing the cash value of the Award to be so paid by the Fair Market Value of a Share on the date of determination by the Committee of the amount of the payment under the Award, or, if the Committee so directs, the date immediately preceding the date the Award is paid.
ARTICLE 10
RESTRICTED STOCK AWARDS
10.1. GRANT OF RESTRICTED STOCK. The Committee is authorized to make Awards of Restricted Stock to Participants in such amounts and subject to such terms and conditions as may be selected by the Committee.
10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of performance goals or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. Except as otherwise provided in an Award Certificate, the Participant shall have all of the rights of a stockholder with respect to the Restricted Stock.
10.3. FORFEITURE. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of Continuous Status as a Participant during the applicable restriction period or upon failure to satisfy a performance goal during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited; provided, however, that the Committee may provide in any Award Certificate that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock.
10.4. CERTIFICATES FOR RESTRICTED STOCK. An Award of Restricted Stock shall be evidenced by an Award Certificate setting forth the terms, conditions, and restrictions applicable to share of Restricted Stock. Shares of Restricted Stock shall be delivered to the Participant at the time of grant either by book-entry registration or by delivering to the Participant, or a custodian or escrow agent (including, without limitation, the Company or one or more of its employees) designated by the Committee, a stock certificate or certificates registered in the name of the Participant. If physical certificates representing shares of Restricted Stock are registered in the name of the Participant, such certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock.
ARTICLE 11
DIVIDEND EQUIVALENTS
11.1 GRANT OF DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend Equivalents to Participants subject to such terms and conditions as may be selected by the Committee. Dividend Equivalents shall entitle the Participant to receive payments equal to dividends with respect to all or a portion of the number of Shares of Stock subject to an Award, as determined by the Committee. The Committee may provide that Dividend Equivalents be paid or distributed when accrued or be deemed to have been reinvested in additional Shares of Stock, or otherwise reinvested.
ARTICLE 12
STOCK OR OTHER STOCK-BASED AWARDS
12.1. GRANT OF STOCK OR OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other
Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to Shares, as deemed by the Committee to be consistent with the purposes of the Plan, including without limitation Shares awarded purely as a "bonus" and not subject to any restrictions or conditions, convertible or exchangeable debt securities, other rights convertible or exchangeable into Shares, and Awards valued by reference to book value of Shares or the value of securities of or the performance of specified Parents or Subsidiaries. The Committee shall determine the terms and conditions of such Awards.
ARTICLE 13
PROVISIONS APPLICABLE TO AWARDS
13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or (subject to Section 15.2(c)) in substitution for, any other Award granted under the Plan. If an Award is granted in substitution for another Award, the Committee may require the surrender of such other Award in consideration of the grant of the new Award. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.
13.2. TERM OF AWARD. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from its Grant Date (or, if
Section 7.2(d) applies, five years from its Grant Date).
13.3. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any applicable law or Award Certificate, payments or transfers to be made by the Company or an Affiliate on the grant or exercise of an Award may be made in such form as the Committee determines at or after the Grant Date, including without limitation, cash, Stock, other Awards, or other property, or any combination, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case determined in accordance with rules adopted by, and at the discretion of, the Committee.
13.4. LIMITS ON TRANSFER. No right or interest of a Participant in any unexercised or restricted Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or an Affiliate, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or an Affiliate. No unexercised or restricted Award shall be assignable or transferable by a Participant other than by will or the laws of descent and distribution or, except in the case of an Incentive Stock Option, pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A) of the Code if such Section applied to an Award under the Plan; provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation, (ii) does not cause any Option intended to be an Incentive Stock Option to fail to be described in Code Section 422(b), and (iii) is otherwise appropriate and desirable, taking into account any factors deemed relevant, including without limitation, state or federal tax or securities laws applicable to transferable Awards.
13.5 BENEFICIARIES. Notwithstanding Section 13.4, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant's death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the
Plan is subject to all terms and conditions of the Plan and any Award Certificate applicable to the Participant, except to the extent the Plan and Award Certificate otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If no beneficiary has been designated or survives the Participant, payment shall be made to the Participant's estate. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee.
13.6. STOCK CERTIFICATES. All Stock issuable under the Plan is subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal or state securities laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate or issue instructions to the transfer agent to reference restrictions applicable to the Stock.
13.7 ACCELERATION UPON DEATH OR DISABILITY. Except as otherwise provided in the Award Certificate or special plan document governing an Award, upon the Participant's death or Disability during his or her Continuous Status as a Participant, all of such Participant's outstanding Options, SARs, and other Awards in the nature of rights that may be exercised shall become fully exercisable and all restrictions on his or her outstanding Awards shall lapse. Any exercisable Awards shall thereafter continue or lapse in accordance with the other provisions of the Plan and the Award Certificate or special plan document governing the Award. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Section 7.2(c), the excess Options shall be deemed to be Nonstatutory Stock Options.
13.8. ACCELERATION UPON A CHANGE OF CONTROL. Except as otherwise provided in the Award Certificate or special plan document governing an Award, all of a Participant's outstanding Options, SARs and other Awards in the nature of rights that may be exercised shall become fully exercisable and all restrictions on his or her outstanding Awards shall lapse if the Participant's employment is terminated without Cause or the Participant resigns for Good Reason within two years after the effective date of a Change of Control.
13.9. ACCELERATION FOR OTHER REASONS. Regardless of whether an event has
occurred as described in Section 13.7 or 13.8 above, the Committee may in its
sole discretion at any time determine that all or a portion of a Participant's
Options, SARs and other Awards in the nature of rights that may be exercised
shall become fully or partially exercisable, and/or that all or a part of the
restrictions on all or a portion of a Participant's outstanding Awards shall
lapse, in each case, as of such date as the Committee may, in its sole
discretion, declare. The Committee may discriminate among Participants and among
Awards granted to a Participant in exercising its discretion pursuant to this
Section 13.9.
13.10 EFFECT OF ACCELERATION. If an Award is accelerated under Section
13.8 or Section 13.9, the Committee may, in its sole discretion, provide (i)
that the Award will expire after a designated period of time after such
acceleration to the extent not then exercised, (ii) that the Award will be
settled in cash rather than Stock, (iii) that the Award will be assumed by
another party to a transaction giving rise to the acceleration or otherwise be
equitably converted or substituted in connection with such transaction, (iv)
that the Award may be settled by payment in cash or cash equivalents equal to
the excess of the Fair Market Value of the underlying Stock, as of a specified
date associated with the transaction, over the exercise price of the Award, or
(v) any combination of the foregoing. The Committee's determination need not be
uniform and may be different for different Participants whether or not such
Participants are similarly situated. To
the extent that such acceleration causes Incentive Stock Options to exceed the dollar limitation set forth in Section 7.2(c), the excess Options shall be deemed to be Nonstatutory Stock Options.
13.11 TERMINATION OF EMPLOYMENT. Whether military, government or other service or other leave of absence shall constitute a termination of employment shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive. A Participant's Continuous Status as a Participant shall not be deemed to terminate (i) in a circumstance in which a Participant transfers from the Company to an Affiliate, transfers from an Affiliate to the Company, or transfers from one Affiliate to another Affiliate, or (ii) in the discretion of the Committee as specified at or prior to such occurrence, in the case of a spin-off, sale or disposition of the Participant's employer from the Company or any Affiliate. To the extent that this provision causes Incentive Stock Options to extend beyond three months from the date a Participant is deemed to be an employee of the Company, a Parent or Subsidiary for purposes of Sections 424(e) and 424(f) of the Code, the Options held by such Participant shall be deemed to be Nonstatutory Stock Options.
ARTICLE 14
CHANGES IN CAPITAL STRUCTURE
14.1. GENERAL. In the event of a corporate event or transaction involving
the Company (including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares), the
authorization limits under Section 5.1 shall be adjusted proportionately, and
the Committee may adjust Awards to preserve the benefits or potential benefits
of the Awards. Action by the Committee may include: (i) adjustment of the number
and kind of shares which may be delivered under the Plan; (ii) adjustment of the
number and kind of shares subject to outstanding Awards; (iii) adjustment of the
exercise price of outstanding Awards or the measure to be used to determine the
amount of the benefit payable on an Award; and (iv) any other adjustments that
the Committee determines to be equitable. In addition, the Committee may, in its
sole discretion, provide (i) that Awards will be settled in cash rather than
Stock, (ii) that Awards will become immediately vested and exercisable and will
expire after a designated period of time to the extent not then exercised, (iii)
that Awards will be assumed by another party to a transaction or otherwise be
equitably converted or substituted in connection with such transaction, (iv)
that outstanding Awards may be settled by payment in cash or cash equivalents
equal to the excess of the Fair Market Value of the underlying Stock, as of a
specified date associated with the transaction, over the exercise price of the
Award, or (v) any combination of the foregoing. The Committee's determination
need not be uniform and may be different for different Participants whether or
not such Participants are similarly situated. Without limiting the foregoing, in
the event of a subdivision of the outstanding Stock (stock-split), a declaration
of a dividend payable in Shares, or a combination or consolidation of the
outstanding Stock into a lesser number of Shares, the authorization limits under
Section 5.1 shall automatically be adjusted proportionately, and the Shares then
subject to each Award shall automatically be adjusted proportionately without
any change in the aggregate purchase price therefor.
ARTICLE 15
AMENDMENT, MODIFICATION AND TERMINATION
15.1. AMENDMENT, MODIFICATION AND TERMINATION. The Board or the Committee may, at any time and from time to time, amend, modify or terminate the Plan without stockholder approval; provided, however, that if an amendment to the Plan would, in the reasonable opinion of the Board or the Committee, (i) materially increase the number of Shares available under
the Plan, (ii) expand the types of awards available under the Plan, (iii) materially extend the term of the Plan, or (iv) otherwise constitute a material change requiring stockholder approval under applicable laws, policies or regulations or the applicable listing or other requirements of an Exchange, then such amendment shall be subject to stockholder approval; and provided further, that the Board or Committee may condition any other amendment or modification on the approval of stockholders of the Company for any reason, including by reason of such approval being necessary or deemed advisable to (i) permit Awards made hereunder to be exempt from liability under Section 16(b) of the 1934 Act, (ii) to comply with the listing or other requirements of an Exchange, or (iii) to satisfy any other tax, securities or other applicable laws, policies or regulations.
15.2. AWARDS PREVIOUSLY GRANTED. At any time and from time to time, the Committee may amend, modify or terminate any outstanding Award without approval of the Participant; provided, however:
(a) Subject to the terms of the applicable Award Certificate, such amendment, modification or termination shall not, without the Participant's consent, reduce or diminish the value of such Award determined as if the Award had been exercised, vested, cashed in or otherwise settled on the date of such amendment or termination (with the per-share value of an Option or Stock Appreciation Right for this purpose being calculated as the excess, if any, of the Fair Market Value as of the date of such amendment or termination over the exercise or base price of such Award);
(b) The original term of an Option may not be extended without the prior approval of the stockholders of the Company;
(c) Except as otherwise provided in Article 14, the exercise price of an Option may not be reduced, directly or indirectly, without the prior approval of the stockholders of the Company; and
(d) No termination, amendment, or modification of the Plan shall adversely affect any Award previously granted under the Plan, without the written consent of the Participant affected thereby. An outstanding Award shall not be deemed to be "adversely affected" by a Plan amendment if such amendment would not reduce or diminish the value of such Award determined as if the Award had been exercised, vested, cashed in or otherwise settled on the date of such amendment (with the per-share value of an Option or Stock Appreciation Right for this purpose being calculated as the excess, if any, of the Fair Market Value as of the date of such amendment over the exercise or base price of such Award).
ARTICLE 16
GENERAL PROVISIONS
16.1. NO RIGHTS TO AWARDS; NON-UNIFORM DETERMINATIONS. No Participant or any Eligible Participant shall have any claim to be granted any Award under the Plan. Neither the Company, its Affiliates nor the Committee is obligated to treat Participants or Eligible Participants uniformly, and determinations made under the Plan may be made by the Committee selectively among Eligible Participants who receive, or are eligible to receive, Awards (whether or not such Eligible Participants are similarly situated).
16.2. NO STOCKHOLDER RIGHTS. No Award gives a Participant any of the rights of a stockholder of the Company unless and until Shares are in fact issued to such person in connection with such Award.
16.3. WITHHOLDING. The Company or any Affiliate shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any exercise, lapse of restriction or other taxable event arising as a result of the Plan. If Shares are surrendered to the Company to satisfy withholding obligations in excess of the minimum withholding obligation, such Shares must have been held by the Participant as fully vested shares for such period of time, if any, as necessary to avoid variable accounting for the Award. With respect to withholding required upon any taxable event under the Plan, the Committee may, at the time the Award is granted or thereafter, require or permit that any such withholding requirement be satisfied, in whole or in part, by withholding from the Award Shares having a Fair Market Value on the date of withholding equal to the minimum amount (and not any greater amount) required to be withheld for tax purposes, all in accordance with such procedures as the Committee establishes.
16.4. NO RIGHT TO CONTINUED SERVICE. Nothing in the Plan, any Award Certificate or any other document or statement made with respect to the Plan, shall interfere with or limit in any way the right of the Company or any Affiliate to terminate any Participant's employment or status as an officer, director or consultant at any time, nor confer upon any Participant any right to continue as an employee, officer, director or consultant of the Company or any Affiliate, whether for the duration of a Participant's Award or otherwise.
16.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Certificate shall give the Participant any rights that are greater than those of a general creditor of the Company or any Affiliate.
16.6. INDEMNIFICATION. To the extent allowable under applicable law, each member of the Committee shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense (including, but not limited to, attorneys fees) that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which such member may be a party or in which he may be involved by reason of any action or failure to act under the Plan and against and from any and all amounts paid by such member in satisfaction of judgment in such action, suit, or proceeding against him provided he gives the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
16.7. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or benefit plan of the Company or any Affiliate unless provided otherwise in such other plan.
16.8. EXPENSES. The expenses of administering the Plan shall be borne by the Company and its Affiliates.
16.9. TITLES AND HEADINGS. The titles and headings of the Sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
16.10 GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
16.11 FRACTIONAL SHARES. No fractional Shares shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down.
16.12 GOVERNMENT AND OTHER REGULATIONS.
(a) Notwithstanding any other provision of the Plan, no Participant
who acquires Shares pursuant to the Plan may, during any period of time
that such Participant is an affiliate of the Company (within the meaning
of the rules and regulations of the Securities and Exchange Commission
under the 1933 Act), sell such Shares, unless such offer and sale is made
(i) pursuant to an effective registration statement under the 1933 Act,
which is current and includes the Shares to be sold, or (ii) pursuant to
an appropriate exemption from the registration requirements of the 1933
Act, such as that set forth in Rule 144 promulgated under the 1933 Act.
(b) Notwithstanding any other provision of the Plan, if at any time the Committee shall determine that the registration, listing or qualification of the Shares covered by an Award upon any Exchange or under any foreign, federal, state or local law or practice, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Award or the purchase or receipt of Shares thereunder, no Shares may be purchased, delivered or received pursuant to such Award unless and until such registration, listing, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Committee. Any Participant receiving or purchasing Shares pursuant to an Award shall make such representations and agreements and furnish such information as the Committee may request to assure compliance with the foregoing or any other applicable legal requirements. The Company shall not be required to issue or deliver any certificate or certificates for Shares under the Plan prior to the Committee's determination that all related requirements have been fulfilled. The Company shall in no event be obligated to register any securities pursuant to the 1933 Act or applicable state or foreign law or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law, regulation or requirement.
16.13 GOVERNING LAW. To the extent not governed by federal law, the Plan and all Award Certificates shall be construed in accordance with and governed by the laws of the State of Delaware.
16.14 ADDITIONAL PROVISIONS. Each Award Certificate may contain such other terms and conditions as the Committee may determine; provided that such other terms and conditions are not inconsistent with the provisions of the Plan.
16.15 NO LIMITATIONS ON RIGHTS OF COMPANY. The grant of any Award shall not in any way affect the right or power of the Company to make adjustments, reclassification or changes in its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. The Plan shall not restrict the authority of the Company, for proper corporate purposes, to draft or assume awards, other than under the Plan, to or with respect to any person. If the Committee so directs, the Company may issue or transfer Shares to an Affiliate, for such lawful consideration as the Committee may specify, upon the condition or understanding that the Affiliate will transfer such Shares to a Participant in accordance with the terms of an Award granted to such Participant and specified by the Committee pursuant to the provisions of the Plan.
****************************************
The foregoing is hereby acknowledged as being the Assurant, Inc. 2004 Long-Term Incentive Plan as adopted by the Board on October 15, 2003 and approved by the sole stockholder on October 15, 2003.
By: /s/ Robert Haertel --------------------------------- Its: Senior Vice President |
EXHIBIT 10.12
ASSURANT, INC.
DIRECTORS COMPENSATION PLAN
ASSURANT, INC.
DIRECTORS COMPENSATION PLAN
TABLE OF CONTENTS
ARTICLE 1 PURPOSE............................................................... 1 1.1 Purpose....................................................... 1 1.2 Eligibility................................................... 1 ARTICLE 2 DEFINITIONS........................................................... 1 2.1 Definitions................................................... 1 ARTICLE 3 ADMINISTRATION........................................................ 2 3.1 Administration................................................ 2 3.2 Reliance...................................................... 2 3.3 Indemnification............................................... 3 ARTICLE 4 SHARES................................................................ 3 4.1 Shares Subject to the Plan.................................... 3 ARTICLE 5 CASH COMPENSATION..................................................... 3 5.1 Base Annual Retainer.......................................... 3 5.2 Supplemental Annual Retainer.................................. 3 5.3 Fees.......................................................... 4 5.4 Travel Expense Reimbursement.................................. 4 ARTICLE 6 EQUITY COMPENSATION................................................... 4 6.1 Stock Grants.................................................. 4 6.2 Stock Appreciation Rights..................................... 5 6.3 Adjustments................................................... 6 ARTICLE 7 AMENDMENT, MODIFICATION AND TERMINATION............................... 7 7.1 Amendment, Modification and Termination....................... 7 ARTICLE 8 GENERAL PROVISIONS.................................................... 7 8.1 Election to Defer Payment.................................... 7 8.2 Restriction of Lenders........................................ 7 8.3 Duration of the Plan.......................................... 7 |
8.4 Expenses of the Plan.......................................... 7 8.5 Effective Date................................................ 8 |
ASSURANT, INC.
DIRECTORS COMPENSATION PLAN
ARTICLE 1
PURPOSE
1.1 PURPOSE. The purpose of the Assurant, Inc. Directors Compensation Plan is to attract, retain and compensate highly-qualified individuals who are not employees of Assurant, Inc. or any of its subsidiaries or affiliates for service as members of the Board by providing them with competitive compensation and an ownership interest in the Common Stock of the Company. The Company intends that the Plan will benefit the Company and its stockholders by allowing Non-Employee Directors to have a personal financial stake in the Company through an ownership interest in the Common Stock and will closely associate the interests of Non-Employee Directors with that of the Company's stockholders.
1.2 ELIGIBILITY. All active Non-Employee Directors shall automatically be participants in the Plan.
ARTICLE 2
DEFINITIONS
2.1 DEFINITIONS. Unless the context clearly indicates otherwise, the following terms shall have the following meanings:
(a) "Base Annual Retainer" means the annual cash retainer (excluding meeting fees and expenses) payable by the Company to a Non-Employee Director pursuant to Section 5.1 hereof for service as a director of the Company (i.e., excluding any Supplemental Annual Retainer), as such amount may be changed from time to time.
(b) "Board" means the Board of Directors of the Company.
(c) "Company" means Assurant, Inc., a Delaware corporation.
(d) "Common Stock" means the common stock, par value $0.01 per share, of the Company.
(e) "Disability" means any illness or other physical or mental condition of a Non-Employee Director that renders him or her incapable of performing as a director of the Company, or any medically determinable illness or other physical or mental condition resulting from a bodily injury, disease or mental disorder which, in the judgment of the Board, is permanent and continuous in nature. The Board may require such medical or other evidence as it deems necessary to judge the nature and permanency of a Non-Employee Director's condition.
(f) "Effective Date" has the meaning set forth in Section 8.4 of the Plan.
(g) "Fair Market Value", on any date, means (i) if the Common Stock is listed on a securities exchange or is traded over the Nasdaq National Market, the closing sales price on such exchange or over such system on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (ii) if the
Common Stock is not listed on a securities exchange or traded over the Nasdaq National Market, the mean between the bid and offered prices as quoted by Nasdaq for such date, provided that if it is determined that the fair market value is not properly reflected by such Nasdaq quotations, Fair Market Value will be determined by such other method as the Board determines in good faith to be reasonable.
(h) "Non-Employee Director" means a director of the Company who is not an employee of the Company or Fortis Insurance N.V ("Fortis"), or any of its respective subsidiaries or affiliates, and who is not a director of the Company designated by Fortis pursuant to the Shareholders' Agreement between the Company and Fortis.
(i) "Plan" means the Assurant, Inc. Directors Compensation Plan, as amended from time to time.
(j) "Plan Year(s)" means the approximate twelve-month periods between annual meetings of the stockholders of the Company, which, for purposes of the Plan, are the periods for which annual retainers are earned.
(k) "Retirement" means retirement as a director of the Company in accordance with the provisions of the Company's bylaws as in effect from time to time.
(l) "Stock Appreciation Rights" or "SARs" has the meaning set forth in Section 6.2 of the Plan.
(m) "Stock Grant Date" has the meaning set forth in Section 6.1(c) of the Plan.
(n) "Supplemental Annual Retainer" means the annual retainer (excluding meeting fees and expenses) payable by the Company to a Non-Employee Director pursuant to Section 5.2 hereof for service as a member or chair of a committee of the Board, as such amount may be changed from time to time.
ARTICLE 3
ADMINISTRATION
3.1 ADMINISTRATION. The Plan shall be administered by the Board. Subject to the provisions of the Plan, the Board shall be authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The Board's interpretation of the Plan, and all actions taken and determinations made by the Board pursuant to the powers vested in it hereunder, shall be conclusive and binding upon all parties concerned including the Company, its stockholders and persons granted awards under the Plan. The Board may appoint a plan administrator to carry out the ministerial functions of the Plan, but the administrator shall have no other authority or powers of the Board.
3.2 RELIANCE. In administering the Plan, the Board may rely upon any information furnished by the Company, its public accountants and other experts. No individual will have personal liability by reason of anything done or omitted to be done by the Company or the Board in connection with the Plan.
3.3 INDEMNIFICATION. Each person who is or has been a member of the Board or who otherwise participates in the administration or operation of the Plan shall be indemnified by the Company against, and held harmless from, any loss, cost, liability or expense that may be imposed upon or incurred by him or her in connection with or resulting from any claim, action, suit or proceeding in which such person may be involved by reason of any action taken or failure to act under the Plan and shall be fully reimbursed by the Company for any and all amounts paid by such person in satisfaction of judgment against him or her in any such action, suit or proceeding, provided he or she will give the Company an opportunity, by written notice to the Board, to defend the same at the Company's own expense before he or she undertakes to defend it on his or her own behalf. This right of indemnification shall not be exclusive of any other rights of indemnification.
ARTICLE 4
SHARES
4.1 SHARES SUBJECT TO THE PLAN. The shares of Common Stock that may be issued pursuant to the Plan shall not exceed in the aggregate 500,000. Such shares may be authorized and unissued shares or treasury shares.
ARTICLE 5
CASH COMPENSATION
5.1 BASE ANNUAL RETAINER. Each Non-Employee Director shall be paid a Base Annual Retainer for service as a director during each Plan Year, payable quarterly beginning on the first day of the Plan Year, or the Effective Date in the case of the Plan Year ending on the 2005 annual meeting of stockholders. The amount of the Base Annual Retainer shall be established from time to time by the Board. Until changed by the Board, the Base Annual Retainer shall be $35,000 for a full Plan Year. Each person who first becomes a Non-Employee Director on a date other than an annual meeting date shall be paid a pro-rata retainer equal to the Base Annual Retainer for such Plan Year, multiplied by a fraction, the numerator of which is the number of full months before the next regularly scheduled annual meeting of the Company's stockholders, and the denominator of which is 12. Payment of such prorated Base Annual Retainer shall begin on the date that the person first becomes a Non-Employee Director.
5.2 SUPPLEMENTAL ANNUAL RETAINER. Certain Non-Employee Directors shall be paid a Supplemental Annual Retainer for service as Chairman of the Board or as a member or chair of a committee of the Board during a Plan Year, payable quarterly at the same times as installments of the Base Annual Retainer are paid. The amount of the Supplemental Annual Retainer shall be established from time to time by the Board. Until changed by the Board, the Supplemental Annual Retainer for a full Plan Year shall be as follows:
CHAIR NON-CHAIR MEMBER Chairman of the Board $7,500 n/a Audit Committee $7,500 $3,750 Compensation Committee $5,000 $2,500 Governance/Nominating Committee $5,000 $2,500 Executive Committee $ 0 $ 0 |
A pro-rata Supplemental Annual Retainer will be paid to any Non-Employee Director who
becomes chairman or joins a committee of the Board on a date other than the beginning of a Plan Year, based on the number of full months between the date such Non-Employee Director became chairman or joined such committee and the beginning of the next Plan Year.
5.3 FEES. Each Non-Employee Director shall be paid a fee for each meeting or conference call of the Board or committee thereof in which he or she participates. The amount of the fees shall be established from time to time by the Board. Until changed by the Board, the fee for attending a meeting of the Board or any committee thereof shall be $2,000, and the fee for participating in a conference call of the Board or any committee thereof shall be $500; provided that no more than one fee will be payable for meetings or conference calls held on a single day. For purposes of this provision, the Chairman of the Board or chairman of the respective Board committee may authorize the full meeting fee to be payable with respect to any extended conference call or any other special off-site meeting required as part of a Non-Employee Director's service on the Board or any committee thereof.
5.4 TRAVEL EXPENSE REIMBURSEMENT All Non-Employee Directors shall be reimbursed for reasonable travel expenses (including spouse's expenses to attend events to which spouses are invited) in connection with attendance at meetings of the Board and its committees, or other Company functions at which the Chief Executive Officer requests the Non-Employee Director to participate. If the travel expense is related to the reimbursement of commercial airfare, such reimbursement will not exceed full-coach rates for domestic travel or business-class rates for international travel. If the travel expense is related to reimbursement of non-commercial air travel, such reimbursement shall not exceed the rate for comparable travel by means of commercial airlines.
ARTICLE 6
EQUITY COMPENSATION
6.1 STOCK GRANTS
(a) Initial Stock Grant. Each Non-Employee Director shall receive, on the later of the Effective Date of the Plan or the first date he or she becomes a Non-Employee Director, an award of shares of Common Stock having an aggregate Fair Market Value on the grant date equal to the non-prorated Base Annual Retainer for such Plan Year. Such shares shall be subject to the transfer restrictions described below in Section 6.1(d).
(b) Annual Stock Grants. On the day following the 2005 annual meeting of the Company's stockholders, and on the day following each subsequent annual meeting of the Company's stockholders, each Non-Employee Director in service on that date (other than a director who first became a Non-Employee Director at the stockholders meeting held on the previous day) will receive an award of shares having a Fair Market Value on the date of grant equal to the non-prorated Base Annual Retainer for such Plan Year. Such shares shall be subject to the transfer restrictions described below in Section 6.1(d). In no event will a director receive both an initial award and an annual award of shares for the same Plan Year.
(c) Reduced Awards. Each day that shares are to be granted under the Plan is referred to hereinafter as a "Stock Grant Date." If on any Stock Grant Date, shares of Common Stock are not available under the Plan to grant to Non-Employee Directors the full amount of a grant contemplated by Section 6.1(a) or (b), then each Non-Employee Director then entitled to an
award of shares shall receive a reduced grant of shares (a "Reduced Grant") in an amount equal to the number of shares of Common Stock then available under the Plan, divided by the number of Non-Employee Directors entitled to an award of shares as of the applicable Stock Grant Date. Fractional shares shall be ignored and not granted. If a Reduced Grant has been made and, thereafter, during the term of the Plan, additional shares of Common Stock become available for grant (e.g., by an amendment to the Plan approved by the stockholders), then each person who was a Non-Employee Director both on the Stock Grant Date on which the Reduced Grant was made and on the date additional shares of Common Stock become available (a "Continuing Non-Employee Director") shall receive an additional grant of shares. The number of newly available shares shall be divided equally among the shares granted to the Continuing Non-Employee Directors up to the full number of shares that were due to be granted. If more than one Reduced Grant has been made, available shares shall be granted beginning with the earliest such Stock Grant Date.
(d) Minimum Holding Period. A Non-Employee Director receiving shares of Common Stock under the Plan shall not sell, transfer, exchange, assign, pledge, hypothecate or otherwise encumber such shares to or in favor of any party other than the Company, or subject such shares to any lien, obligation or liability of the grantee to any other party other than the Company, for a period of five (5) years from the date of grant or unless the Non-Employee Director ceases to be a director of the Company by reason of his or her death, Disability or Retirement, or failure to be re-nominated or re-elected to the Board.
6.2 STOCK APPRECIATION RIGHTS
(a) Initial SAR Grant. Each Non-Employee Director shall receive, on the later of the Effective Date of the Plan or the first date he or she becomes a Non-Employee Director, an award of Stock Appreciation Rights ("SARs") with respect to that number of shares of Common Stock having an aggregate Fair Market Value on the grant date equal to the non-prorated Base Annual Retainer for such Plan Year.
(b) Annual SAR Grants. On the day following the 2005 annual meeting of the Company's stockholders, and on the day following each subsequent annual meeting of the Company's stockholders, each Non-Employee Director in service on that date (other than a director who first became a Non-Employee Director at the stockholders meeting held on the previous day) will receive an award of SARs with respect to that number of shares of Common Stock having a Fair Market Value on the date of grant equal to the non-prorated Base Annual Retainer for such Plan Year. In no event will a director receive both an initial award and an annual award of SARs for the same Plan Year.
(c) Terms and Conditions of SARs.
(i) Base Value and Benefit. The base value of each SAR granted under this Plan shall equal the Fair Market Value of a share of Common Stock on the date of grant of the SAR. Each SAR entitles the grantee, in accordance with and subject to the restrictions set forth in this Section 6.2, to receive from the Company upon the exercise of the SAR an amount, payable in cash, equal to the excess, if any, of (a) the Fair Market Value of one share of Common Stock on the date of exercise; over (b) the base value of the SAR.
(ii) Vesting and Exercise of SARs. The SARs shall be fully vested on the date of grant, but may not be exercised until the 5th anniversary of the date of grant. Notwithstanding the foregoing, to the extent not previously exercised, all SARs granted hereunder shall be automatically exercised (and shall thereupon expire) on earlier of (i) the first anniversary of a Non-Employee Director's termination as a director of the Company for any reason, or (ii) the 10th anniversary of the date of grant of the SAR. The Board may at its discretion force the early exercise of SARs in order to facilitate any reorganization, recapitalization, or other need of the Company. In requiring such mandatory exercise, the Board in its discretion shall select which SARs shall be exercised.
(iii) Restrictions on Transfer and Pledge. The SARs may not be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or an affiliate, nor shall they be subject to any lien, obligation, or liability of the grantee to any party other than the Company or an affiliate. The SARs are not assignable or transferable by the grantee other than by will or the laws of descent and distribution. The SARs may be exercised during the lifetime of the grantee only by the grantee.
(iv) Award Agreements. All awards of SARs under this Plan shall be evidenced by a written Award Agreement between the Company and the Non-Employee Director, which shall include such provisions, not inconsistent with the Plan, as may be specified by the Board.
(v) Beneficiaries. A Non-Employee Director may, in the manner determined by the Board, designate a beneficiary to exercise the rights of the Non-Employee Director and to receive any distribution with respect to any SAR upon his or her death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Non-Employee Director, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Board. If no beneficiary has been designated or survives the Non-Employee Director, payment shall be made to the Non-Employee Director's estate. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Non-Employee Director at any time provided the change or revocation is filed with the Board.
6.3 ADJUSTMENTS In the event that the Board determines that any distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Board's sole discretion, affects the Common Stock such that an adjustment is determined by the Board to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an award or awards hereunder, then the Board shall, in such manner as it may deem equitable, adjust the number and type of shares (or other securities or property) which may be granted under the Plan. Any decision of the Board pursuant to the terms of this Section 6.3 shall be final, binding and conclusive upon the Non-Employee Directors, the Company and all other interested parties. Without limiting the foregoing, in the event of a subdivision of the outstanding Common Stock (stock-split), a declaration of a dividend payable in shares of Common Stock, or a combination or consolidation
of the outstanding Common Stock into a lesser number of shares, the authorization limit under Article 4 shall automatically be adjusted proportionately, any outstanding SARs shall automatically be adjusted proportionately, and any resulting shares payable with respect to shares of Common Stock granted under this Plan shall be subject to any remaining minimum holding period for such host shares imposed under Section 6.1(d) hereof.
ARTICLE 7
AMENDMENT, MODIFICATION AND TERMINATION
7.1 AMENDMENT, MODIFICATION AND TERMINATION. The Board may, at any time and from time to time, amend, modify or terminate the Plan without stockholder approval; provided, however, that if an amendment to the Plan would, in the reasonable opinion of the Board, (i) materially increase the number of shares of Common Stock available under the Plan, (ii) expand the types of awards available under the Plan, (iii) materially extend the term of the Plan, or (iv) otherwise constitute a material change requiring shareholder approval under applicable laws, policies or regulations or the applicable listing or other requirements of a securities exchange on which the Common Stock is listed or traded, then such amendment shall be subject to stockholder approval; and provided further, that the Board may condition any other amendment or modification on the approval of stockholders of the Company for any reason.
ARTICLE 8
GENERAL PROVISIONS
8.1 ELECTION TO DEFER PAYMENT. A Participant may elect to defer receipt of any cash payment under this Plan. Such election shall be made in writing and delivered to the plan administrator (i) with respect to cash payments under Article 5, not later than the beginning of the Plan Year with respect to which such payments are made, and (ii) with respect to SARs granted under Article 6, not later than such SARs first become exercisable. As elected by the Participant, such payment may be deferred under the terms of the Assurant, Inc. Investment Plan, and such deferral shall be governed solely by the terms of such Plan.
8.2 RESTRICTIONS OF LENDERS. The Company's obligations under this Plan shall be subject to, and may from time to time be prohibited by, agreements that may be in effect from time to time among or between the Company or its affiliates and their respective lenders. In the event that the Company would not be able to perform any of its agreements or fulfill any of its obligations hereunder without violating such a loan agreement, the Company shall be excused from such performance or fulfillment with no liability therefor to the Non-Employee Directors; provided that if and when such performance or fulfillment would no longer be such a violation, the Company shall have the obligation to complete such performance or fulfillment at that time.
8.3 DURATION OF THE PLAN. The Plan shall remain in effect until the day immediately following the 2013 annual meeting of Company's stockholders, unless terminated earlier by the Board.
8.4 EXPENSES OF THE PLAN. The expenses of administering the Plan shall be borne by the Company.
8.5 EFFECTIVE DATE. The Plan was originally adopted by the Board on October 15, 2003 and was approved by the sole stockholder on October 15, 2003. The Plan was amended by the Board on December 12, 2003 and will become effective on the closing date of the initial public offering of the Common Stock pursuant to a registration statement filed by the Company under the Securities Act of 1933, as amended, which is anticipated to occur in 2004 (the "Effective Date").
ASSURANT, INC.
/s/ Robert Haertel --------------------------- By: Robert Haertel Senior Vice President |
EXHIBIT 10.13
ASSURANT, INC.
2004 EMPLOYEE STOCK PURCHASE PLAN
ASSURANT, INC.
2004 EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS ARTICLE I - BACKGROUND.................................................1 1.1 Establishment of the Plan.................................1 1.2 Applicability of the Plan.................................1 1.3 Purpose...................................................1 ARTICLE II - DEFINITIONS...............................................1 2.1 Administrator.............................................1 2.2 Board.....................................................1 2.3 Code......................................................1 2.4 Committee.................................................1 2.5 Common Stock..............................................2 2.6 Company...................................................2 2.7 Compensation..............................................2 2.8 Contribution Account......................................2 2.9 Direct Registration System................................2 2.10 Effective Date............................................2 2.11 Eligible Employee.........................................2 2.12 Employee..................................................2 2.13 Employer..................................................2 2.14 Fair Market Value.........................................2 2.15 Offering Date.............................................2 2.16 Offering Period...........................................2 2.17 Option....................................................3 2.18 Participant...............................................3 2.19 Plan......................................................3 2.20 Purchase Date.............................................3 2.21 Purchase Price............................................3 2.22 Request Form..............................................3 2.23 Stock Account.............................................3 2.24 Subsidiary................................................3 2.25 Trading Date..............................................3 ARTICLE III - ELIGIBILITY AND PARTICIPATION............................3 3.1 Eligibility...............................................3 3.2 Participation.............................................4 3.3 Leave of Absence..........................................4 ARTICLE IV - STOCK AVAILABLE...........................................4 4.1 In General................................................4 |
4.2 Adjustment in Event of Changes in Capitalization..........5 4.3 Dissolution or Liquidation................................5 4.4 Merger or Asset Sale......................................5 ARTICLE V. - OPTION PROVISIONS.........................................5 5.1 Purchase Price............................................5 5.2 Calendar Year $25,000 Limit...............................6 5.3 Offering Period Limit.....................................6 ARTICLE VI - PURCHASING COMMON STOCK...................................6 6.1 Participant's Contribution and Stock Accounts.............6 6.2 Payroll Deductions, Dividends.............................7 6.3 Discontinuance............................................7 6.4 Leave of Absence; Transfer of Ineligible Status...........7 6.5 Automatic Exercise........................................8 6.6 Listing, Registration, and Qualification of Shares........8 ARTICLE VII - WITHDRAWALS, DISTRIBUTIONS...............................8 7.1 Discontinuance of Deductions; Leave of Absence; Transfer to Ineligible Status......................................8 7.2 In-Service Withdrawals....................................8 7.3 Termination of Employment for Reasons Other Than Death....9 7.4 Death.....................................................9 7.5 Registration..............................................9 ARTICLE VIII - AMENDMENT AND TERMINATION...............................10 8.1 Amendment.................................................10 8.2 Termination...............................................10 ARTICLE IX - MISCELLANEOUS.............................................10 9.1 Employment Rights.........................................10 9.2 Tax Withholding...........................................10 9.3 Rights Not Transferable...................................10 9.4 No Repurchase of Stock by Company.........................11 9.5 Governing Law.............................................11 9.6 Indemnification...........................................11 |
ASSURANT, INC.
2004 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
BACKGROUND
1.1 ESTABLISHMENT OF THE PLAN. Assurant, Inc. (the "Company") hereby establishes a stock purchase plan to be known as the "Assurant, Inc. 2004 Employee Stock Purchase Plan" (the "Plan"), as set forth in this document. The Plan is intended to be a qualified employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended, and the regulations and rulings thereunder.
1.2 APPLICABILITY OF THE PLAN. The provisions of this Plan are applicable only to certain individuals who, on or after the Effective Date (as defined herein), are employees of the Company and its Subsidiaries participating in the Plan. The Committee shall indicate from time to time which of its Subsidiaries, if any, are participating in the Plan.
1.3 PURPOSE. The purpose of the Plan is to enhance the proprietary interest among the employees of the Company and its participating subsidiaries through ownership of Common Stock of the Company.
ARTICLE II
DEFINITIONS
Whenever capitalized in this document, the following terms shall have the respective meanings set forth below.
2.1 ADMINISTRATOR. Administrator shall mean the person or persons (who may be officers or employees of the Company) selected by the Committee to operate the Plan, perform day-to-day administration of the Plan, and maintain records of the Plan.
2.2 BOARD. Board shall mean the Board of Directors of the Company or, in the case of the initial approval of the Plan, the Board of Directors of Fortis, Inc., the predecessor of the Company.
2.3 CODE. Code shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations thereunder.
2.4 COMMITTEE. Committee shall mean a committee which consists of members of the Board and which has been designated by the Board to have the general responsibility for the administration of the Plan. Unless otherwise designated by the Board, the Compensation Committee of the Board of Directors of the Company shall serve as the Committee administering the Plan. Subject to the express provisions of the Plan, the Committee shall have plenary authority in its sole and absolute discretion to interpret and construe any and all provisions of the Plan, to adopt rules and regulations for administering the Plan, and to make all other determinations necessary or advisable for administering the Plan. The Committee's determinations on the foregoing matters shall be conclusive and binding upon all persons.
2.5 COMMON STOCK. Common Stock shall mean the common stock, par value $0.01, of the Company.
2.6 COMPANY. Company shall mean Assurant, Inc., a Delaware corporation.
2.7 COMPENSATION. Compensation shall mean, for any Participant, for any Offering Period, the Participant's gross base wages for the respective period, including salary and commissions where applicable, but subject to appropriate adjustments that would exclude items such as bonuses, overtime pay, non-cash compensation and reimbursement of moving, travel, trade or business expenses.
2.8 CONTRIBUTION ACCOUNT. Contribution Account shall mean the bookkeeping account established by the Administrator on behalf of each Participant, which shall be credited with the amounts deducted from the Participant's Compensation pursuant to Section 3.2 or Article VI. The Administrator shall establish a separate Contribution Account for each Participant for each Offering Period.
2.9 DIRECT REGISTRATION SYSTEM. Direct Registration System shall mean a direct registration system approved by the Securities and Exchange Commission and by the New York Stock Exchange or any other securities exchange on which the Common Stock is then listed, whereby shares of Common Stock may be registered in the holder's name in book-entry form on the books of the Company.
2.10 EFFECTIVE DATE. Effective Date shall mean the first July 1 or January 1 next following the closing date of the initial public offering of the Common Stock pursuant to an effective registration statement filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended.
2.11 ELIGIBLE EMPLOYEE. An Employee eligible to participate in the Plan pursuant to Section 3.1.
2.12 EMPLOYEE. Employee shall mean an individual employed by an Employer who meets the employment relationship described in Treasury Regulation Sections 1.423-2(b) and Section 1.421-7(h).
2.13 EMPLOYER. Employer shall mean the Company and any Subsidiary designated from time to time by the Board or the Committee as an employer participating in the Plan.
2.14 FAIR MARKET VALUE. Fair Market Value of a share of Common Stock, as of any designated date, shall mean the closing sales price of the Common Stock on the New York Stock Exchange on such date or on the last previous date on which such stock was traded.
2.15 OFFERING DATE. Offering Date shall mean the first Trading Date of each Offering Period.
2.16 OFFERING PERIOD. Offering Period shall mean the period of time during which offers to purchase Common Stock are outstanding under the Plan. The Committee shall determine the length of each Offering Period, which need not be uniform; provided that no Offering Period shall exceed twenty-four (24) months in length. Until specified otherwise by the
Committee, the Offering Periods will be the 6-month periods beginning July 1 and January 1 of each year. No voluntary payroll deductions shall be solicited until after the effective date of a registration statement on Form S-8 filed under the Securities Act of 1933, as amended, covering the shares to be issued under the Plan.
2.17 OPTION. Option shall mean the option to purchase Common Stock granted under the Plan on each Offering Date.
2.18 PARTICIPANT. Participant shall mean any Eligible Employee who has elected to participate in the Plan under Section 3.2.
2.19 PLAN. Plan shall mean the Assurant, Inc. 2004 Employee Stock Purchase Plan, as amended and in effect from time to time.
2.20 PURCHASE DATE. Purchase Date shall mean the last Trading Date of each Offering Period.
2.21 PURCHASE PRICE. Purchase Price shall mean the purchase price of Common Stock determined under Section 5.1.
2.22 REQUEST FORM. Request Form shall mean an Employee's authorization either in writing on a form approved by the Administrator or through electronic communication approved by the Administrator which specifies the Employee's payroll deduction in accordance with Section 6.2, and contains such other terms and provisions as may be required by the Administrator.
2.23 STOCK ACCOUNT. Stock Account shall mean the account established by the Administrator on behalf of each Participant, which shall be credited with shares of Common Stock purchased pursuant to the Plan and dividends thereon (which may be reinvested in shares of Common Stock), until such shares are distributed in accordance with Article VII of the Plan.
2.24 SUBSIDIARY. Subsidiary shall mean any present or future corporation which is a "subsidiary corporation" of the Company as defined in Code Section 424(f).
2.25 TRADING DATE. Trading Date shall mean a date on which shares of Common Stock are traded on the New York Stock Exchange or any other national securities exchange.
Except when otherwise indicated by the context, the definition of any term herein in the singular may also include the plural.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Each Employee who is an Employee regularly scheduled to work at least 20 hours each week and at least five months each calendar year shall be eligible to participate in the Plan as of the later of:
(a) the first Offering Date that occurs at least six months following the Employee's most recent date of hire by an Employer; or
(b) the Effective Date.
On each Offering Date, Options will automatically be granted to all
Employees then eligible to participate in the Plan; provided, however, that no
Employee shall be granted an Option for an Offering Period if, immediately after
the grant, the Employee would own stock, and/or hold outstanding options to
purchase stock, possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any Subsidiary.
For purposes of this Section, the attribution rules of Code Section 424(d) shall
apply in determining stock ownership of any Employee. If an Employee is granted
an Option for an Offering Period and such Employee does not participate in the
Plan for such Offering Period, such Option will be deemed never to have been
granted for purposes of applying the $25,000 annual limitation described in
Section 5.2.
3.2 PARTICIPATION. An Eligible Employee having been granted an Option under Section 3.1 may submit a Request Form to the Administrator to participate in the Plan for such Offering Period. The Request Form shall authorize a regular payroll deduction from the Employee's Compensation for the Offering Period, subject to the limits and procedures described in Article VI. A Participant's Request Form authorizing a regular payroll deduction shall remain effective from Offering Period to Offering Period until amended or canceled under Section 6.3.
3.3 LEAVE OF ABSENCE. For purposes of Section 3.1, an individual on a leave of absence from an Employer shall be deemed to be an Employee for the first 90 days of such leave, or for such longer period of time that his or her entitlement to return to work is protected by statute or agreement with the Employer, if applicable. For purposes of this Plan, such individual's employment with the Employer shall be deemed to terminate at the close of business on the 90th day of the leave, unless the individual has returned to regular employment with an Employer before the close of business on such 90th day or his entitlement to return to work is protected by statute or agreement with the employer. Termination of any individual's leave of absence by an Employer, other than on account of a return to employment with an Employer, shall be deemed to terminate an individual's employment with the Employer for all purposes of the Plan.
ARTICLE IV
STOCK AVAILABLE
4.1 IN GENERAL. Subject to the adjustments in Sections 4.2 and 4.3, an aggregate of 5,000,000 shares of Common Stock shall be available for purchase by Participants pursuant to the provisions of the Plan. These shares may be authorized and unissued shares or may be shares issued and subsequently acquired by the Company. If an Option under the Plan expires or terminates for any reason without having been exercised in whole or part, the shares subject to such Option that are not purchased shall again be available for subsequent Option grants under the Plan. If the total number of shares of Common Stock for which Options are exercised on any Purchase Date exceeds the maximum number of shares then available under the Plan, the Committee shall make a pro rata allocation of the shares available in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable; and the balance of the cash credited to Participants' Contribution Accounts shall be distributed to the Participants as soon as practicable.
4.2 ADJUSTMENT IN EVENT OF CHANGES IN CAPITALIZATION. In the event of a stock dividend, stock split or combination of shares, recapitalization or other change in the Company's capitalization, or other distribution with respect to holders of the Company's Common Stock other than normal cash dividends, an automatic adjustment shall be made in the number and kind of shares as to which outstanding Options or portions thereof then unexercised shall be exercisable and in the available shares set forth in Section 4.1, so that the proportionate interest of the Participants shall be maintained as before the occurrence of such event; provided, however, that in no event shall any adjustment be made that would cause any Option to fail to qualify as an option pursuant to an employee stock purchase plan within the meaning of Section 423 of the Code.
4.3 DISSOLUTION OR LIQUIDATION. In the event of a proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Purchase Date (the "New Purchase Date"), and shall terminate immediately prior to the consummation of the dissolution or liquidation, unless otherwise provided by the Committee. The Company shall notify each Participant, at least ten (10) business days prior to the New Purchase Date, that the next Purchase Date has been changed to the New Purchase Date and that the Participant's Option shall be exercised automatically on the New Purchase Date, unless the Participant has withdrawn from the Offering Period, as provided in Section 6.3 hereof, prior to the New Purchase Date.
4.4 MERGER OR ASSET SALE. In the event of a reorganization, merger, or consolidation of the Company with one or more corporations in which the Company is not the surviving corporation (or survives as a direct or indirect subsidiary of other such other constituent corporation or its parent), or upon a sale of substantially all of the property or stock of the Company to another corporation, then, in the discretion of the Board or the Committee, (i) each outstanding Option shall be assumed, or an equivalent option substituted, by the successor corporation or its parent, or (ii) the Offering Period then in progress shall be shortened by setting a New Purchase Date, which shall be before the date of the proposed transaction. If the Committee sets a New Purchase Date, the Company shall notify each Participant, at least ten (10) business days prior to the New Purchase Date, that the Purchase Date has been changed to the New Purchase Date and that the Participant's Option shall be exercised automatically on the New Purchase Date, unless the Participant has withdrawn from the Offering Period, as provided in Section 6.3 hereof, prior to the New Purchase Date. In lieu of the foregoing, the Committee may terminate the Plan in accordance with Section 8.2.
ARTICLE V
OPTION PROVISIONS
5.1 PURCHASE PRICE. The Purchase Price of a share of Common Stock purchased for a Participant pursuant to each exercise of an Option shall be the lesser of:
(a) the Designated Percent (as defined in the following sentence) of the Fair Market Value of a share of Common Stock on the Offering Date; or
(b) the Designated Percent of the Fair Market Value of a share of Common Stock on the Purchase Date.
Until otherwise provided by the Committee, the Designated Percent for purposes of the foregoing sentence is 90 percent. The Committee may change the Designated Percent for any Offering Period but in no event shall the Designated Percent be less than 85 percent.
5.2 CALENDAR YEAR $25,000 LIMIT. Notwithstanding anything else contained herein, no Employee may be granted an Option for any Offering Period which permits such Employee's rights to purchase Common Stock under this Plan and any other qualified employee stock purchase plan (within the meaning of Code Section 423) of the Company and its Subsidiaries to accrue at a rate which exceeds $25,000 of Fair Market Value of such Common Stock for each calendar year in which an Option is outstanding at any time. For purposes of this Section, Fair Market Value shall be determined as of the Offering Date.
5.3 OFFERING PERIOD LIMIT. Notwithstanding anything else contained herein, the maximum number of shares of Common Stock that an Eligible Employee may purchase in any Offering Period is 5,000 shares.
ARTICLE VI
PURCHASING COMMON STOCK
6.1 PARTICIPANT'S CONTRIBUTION AND STOCK ACCOUNTS. The Administrator shall
establish a book account in the name of each Participant for each Offering
Period, which shall be the Participant's Contribution Account. As discussed in
Section 6.2 below, a Participant's payroll deductions shall be credited to the
Participant's Contribution Account, without interest, until such cash is
withdrawn, distributed, or used to purchase Common Stock as described below.
During such time, if any, as the Company participates in a Direct Registration System, shares of Common Stock acquired upon exercise of an Option shall be directly registered in the name of the Participant. If the Company does not participate in a Direct Registration System, then until distribution is requested by a Participant pursuant to Article VII, (i) stock certificates evidencing the Participant's shares of Common Stock acquired upon exercise of an Option shall be held by the Company as the nominee for the Participant, or (ii) such stock shall be held in book-entry form in an account established on behalf of the Participant with a third-party brokerage firm, as described below. These shares shall be credited to the Participant's Stock Account. Shares shall be held by the Company or such brokerage firm as nominee for Participants solely as a matter of convenience. A Participant shall have all ownership rights as to the shares credited to his or her Stock Account, and the Company shall have no ownership or other rights of any kind with respect to any such certificates or the shares represented thereby. The Company may enter into an arrangement with one or more third-party firms to administer the Stock Accounts of Participants.
All cash received or held by the Company under the Plan may be used by the Company for any corporate purpose. The Company shall not be obligated to segregate any assets held under the Plan.
6.2 PAYROLL DEDUCTIONS; DIVIDENDS.
(a) Payroll Deductions. By submitting a Request Form at any time before an Offering Period in accordance with rules adopted by the Committee, an Eligible Employee may authorize a payroll deduction to purchase Common Stock under the Plan for the Offering Period. The payroll deduction shall be effective on the first pay period during the Offering Period commencing after receipt of the Request Form by the Administrator. The payroll deduction shall be in any whole dollar amount or percentage up to a maximum of fifteen percent (15%) of such Employee's Compensation payable each pay period, and at any other time an element of Compensation is payable. Notwithstanding the foregoing a Participant's payroll deduction shall not be less than one percent (1%) of such Employee's Compensation payable each payroll period and the Committee may impose a maximum dollar limit for payroll deductions in any one Offering Period, subject to Section 5.2. Until otherwise provided by the Committee, the maximum payroll deduction under the Plan by a Participant is $12,000 per year, divided equally between Offering Periods).
(b) Dividends. Cash or stock dividends paid on Common Stock which is credited to a Participant's Stock Account as of the dividend payment date may, at the election of the Company, be automatically reinvested in shares of Common Stock and credited to the Participant's Stock Account or paid or distributed to the Participant as soon as practicable.
6.3 DISCONTINUANCE. A Participant may discontinue participation in an Offering Period and thereby discontinue his or her payroll deductions for an Offering Period by filing a new Request Form with the Administrator requesting a refund of amounts accumulated in his or her Contribution Account. This discontinuance shall be effective as soon as practicable, typically on the first pay period commencing at least 15 days after receipt of the Request Form by the Administrator. A Participant who discontinues his or her participation for an Offering Period may not resume participation in the Plan until the second following Offering Period (i.e., he or she may not participate in the Offering Period immediately following the one from which he or she discontinued participation).
Any amount held in the Participant's Contribution Account for an Offering Period after the effective date of the discontinuance of his or her participation will be refunded to the Participant, without interest.
6.4 LEAVE OF ABSENCE; TRANSFER TO INELIGIBLE STATUS. If a Participant
either begins a leave of absence, is transferred to employment with a Subsidiary
not participating in the Plan, or remains employed with an Employer but is no
longer eligible to participate in the Plan, the Participant shall cease to be
eligible for payroll deductions to his or her Contribution Account pursuant to
Section 6.2. The cash standing to the credit of the Participant's Contribution
Account shall become subject to the provisions of Section 7.1.
If the Participant returns from the leave of absence before being deemed to have ceased employment with the Employer under Section 3.3, or again becomes eligible to participate in the Plan, the Request Form, if any, in effect immediately before the leave of absence or disqualifying change in employment status shall be deemed void and the Participant must again complete a new Request Form to resume participation in the Plan.
6.5 AUTOMATIC EXERCISE. Unless the cash credited to a Participant's Contribution Account is withdrawn or distributed as provided in Article VII, his or her Option shall be deemed to have been exercised automatically on each Purchase Date, for the purchase of the number of full and fractional shares of Common Stock which the cash credited to his or her Contribution Account at that time will purchase at the Purchase Price. Any other cash balance remaining in the Participant's Contribution Account at the end of an Offering Period shall be refunded to the Participant, without interest. The amount of cash that may be used to purchase shares of Common Stock may not exceed the Compensation restrictions set forth in Section 6.2 or the applicable limitations of Sections 5.2 or 5.3.
If the cash credited to a Participant's Contribution Account on the
Purchase Date exceeds the applicable Compensation restrictions of Section 6.2 or
exceeds the amount necessary to purchase the maximum number of shares of Common
Stock available during the Offering Period under the applicable limitations of
Section 5.2 or Section 5.3, such excess cash shall be refunded to the
Participant, without interest. The excess cash may not be used to purchase
shares of Common Stock nor retained in the Participant's Contribution Account
for a future Offering Period.
Each Participant shall receive a statement on not less than an annual basis indicating the number of shares credited to his or her Stock Account, if any, under the Plan.
6.6 LISTING, REGISTRATION, AND QUALIFICATION OF SHARES. The granting of Options for, and the sale and delivery of, Common Stock under the Plan shall be subject to the effecting by the Company of any listing, registration, or qualification of the shares subject to that Option upon any securities exchange or under any federal or state law, or the obtaining of the consent or approval of any governmental regulatory body deemed necessary or desirable for the issuance or purchase of the shares covered.
ARTICLE VII
WITHDRAWALS; DISTRIBUTIONS
7.1 DISCONTINUANCE OF DEDUCTIONS; LEAVE OF ABSENCE; TRANSFER TO INELIGIBLE STATUS. In the event of a Participant's complete discontinuance of participation or payroll deductions under Section 6.3 or a Participant's leave of absence or transfer to an ineligible status under Section 6.4, the cash balance then standing to the credit of the Participant's Contribution Account shall, at the election of the Participant, be--
(a) returned to the Participant, in cash, without interest, as soon as practicable, upon the Participant's written request received by the Administrator at least 30 days before the next Purchase Date; or
(b) if the Participant so requests or, in the absence of timely instruction from the Participant of a desire to receive cash under (a) above, held under the Plan and used to purchase Common Stock for the Participant under the automatic exercise provisions of Section 6.5.
7.2 IN-SERVICE WITHDRAWALS. During such time, if any, as the Company participates in a Direct Registration System, shares of Common Stock acquired upon exercise of an Option may be directly registered in the name of the Participant and the Participant may withdraw certificates in accordance with the applicable terms and conditions of such Direct Registration
System. If the Company does not participate in a Direct Registration System, a Participant may, while an Employee of the Company or any Subsidiary, withdraw certificates for any whole number of shares of Common Stock credited to his or her Stock Account at any time, upon 30 days' written notice to the Administrator, and any fractional shares will be paid in cash. If a Participant requests a distribution of only a portion of the shares of Common Stock credited to his or her Stock Account, the Administrator will distribute the oldest securities held in the Participant's Stock Account first, using a first in-first out methodology. The Administrator may at any time distribute certificates for some or all of the shares of Common Stock credited to a Participant's Stock Account, whether or not the Participant so requests.
7.3 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH. If a Participant terminates employment with the Company and the Subsidiaries for reasons other than death, the cash balance in the Participant's Contribution Account shall be returned to the Participant in cash, without interest, as soon as practicable. Certificates for the largest whole number of shares of Common Stock credited to his or her Stock Account shall be distributed to the Participant as soon as practicable, together with cash for any fractional share, unless the Company then participates in a Direct Registration System, in which case, the Participant shall be entitled to evidence of ownership of such shares in such form as the terms and conditions of such Direct Registration System permit.
7.4 DEATH. In the event a Participant dies, the cash balance in his or her Contribution Account shall be distributed to the Participant's estate, in cash, without interest, as soon as practicable. Certificates for the largest whole number of shares of Common Stock credited to the Participant's Stock Account shall be distributed to the estate as soon as practicable, together with cash for any fractional share, unless the Company then participates in a Direct Registration System, in which case, the estate shall be entitled to evidence of ownership of such shares in such form as the terms and conditions of such Direct Registration System permit.
7.5 REGISTRATION. Whether represented in certificate form, by direct registration pursuant to a Direct Registration System, or in a brokerage account established in connection with the Plan, shares of Common Stock acquired upon exercise of an Option shall be directly registered in the name of the Participant or, if the Participant so indicates on the Request Form, (a) in the Participant's name jointly with a member of the Participant's family, with the right of survivorship, (b) in the name of a custodian for the Participant (in the event the Participant is under a legal disability to have stock issued in the Participant's name), (c) in a manner giving effect to the status of such shares as community property, or (d) in street name for the benefit of any of the above with a broker designated by the Participant. No other names may be included in the Common Stock registration. The Company shall pay all issue or transfer taxes with respect to the issuance of shares of such Common Stock or the initial transfer of such shares to a brokerage account designated by the Company, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance or initial transfer. Once the shares have been issued to the Participant or initially transferred to such brokerage account on behalf of the Participant, the Company shall bear no expense for further transfers or sale of the shares.
ARTICLE VIII
AMENDMENT AND TERMINATION
8.1 AMENDMENT. The Committee shall have the right to amend or modify the Plan, in full or in part, at any time and from time to time; provided, however, that no amendment or modification shall:
(a) affect any right or obligation with respect to any grant previously made, unless required by law or deemed by the Committee to be necessary or desirable in order to enable the Company to comply with applicable securities laws or regulations, or
(b) unless previously approved by the stockholders of the Company, where such approval is necessary to satisfy applicable securities laws, the Code, or rules of any stock exchange on which the Company's Common Stock is listed:
(1) in any manner materially affect the eligibility requirements set forth in Sections 3.1 and 3.3, or change the definition of Employer as set forth in Section 2.13, or
(2) increase the number of shares of Common Stock subject to any options issued to Participants (except as provided in Sections 4.2 and 4.3).
8.2 TERMINATION. The Plan will continue into effect for a term of ten years from the Effective Date unless earlier terminated by the Committee. The Committee may terminate the Plan at any time in its sole and absolute discretion. The Plan shall be terminated by the Committee if at any time the number of shares of Common Stock authorized for purposes of the Plan is not sufficient to meet all purchase requirements, except as specified in Section 4.1.
Upon termination of the Plan, the Administrator shall give notice thereof to Participants and shall terminate all payroll deductions. Cash balances then credited to Participants' Contribution Accounts shall be distributed as soon as practicable, without interest.
ARTICLE IX
MISCELLANEOUS
9.1 EMPLOYMENT RIGHTS. Neither the establishment of the Plan, nor the grant of any Options thereunder, nor the exercise thereof shall be deemed to give to any Employee the right to be retained in the employ of the Company or any Subsidiary or to interfere with the right of the Company or any Subsidiary to discharge any Employee or otherwise modify the employment relationship at any time.
9.2 TAX WITHHOLDING. The Administrator may make appropriate provisions for withholding of federal, state, and local income taxes, and any other taxes, from a Participant's Compensation to the extent the Administrator deems such withholding to be legally required.
9.3 RIGHTS NOT TRANSFERABLE. Rights and Options granted under this Plan are not transferable by the Participant other than by will or by the laws of descent and distribution and are exercisable only by the Participant during his or her lifetime.
9.4 NO REPURCHASE OF STOCK BY COMPANY. The Company is under no obligation to repurchase from any Participant any shares of Common Stock acquired under the Plan.
9.5 GOVERNING LAW. The Plan shall be governed by and construed in accordance with the laws of the State of Delaware except to the extent such laws are preempted by the laws of the United States.
9.6 INDEMNIFICATION. To the extent allowable under applicable law, each member of the Committee shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense (including, but not limited to, attorneys fees) that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which such member may be a party or in which he may be involved by reason of any action or failure to act under the Plan and against and from any and all amounts paid by such member in satisfaction of judgment in such action, suit, or proceeding against him provided he gives the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
* * * * * * * * * * * * * *
The foregoing is hereby acknowledged as being the Assurant, Inc. 2004 Employee Stock Purchase Plan as adopted by the Board on October 15, 2003 and approved by the sole stockholder on October 15, 2003.
ASSURANT, INC.
By: /s/ Robert Haertel --------------------------------- Its: Senior Vice President |
Exhibit 10.15
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE SYMBOL "XXX" HAS BEEN INSERTED IN PLACE OF THE PORTIONS SO OMITTED.
ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made as of the 13th day of November, 1997 (the "Effective Date") by and among United Family Life Insurance Company, a Georgia domiciled insurer with offices located at 230 John Wesley Dobbs Avenue, Atlanta, Georgia 30303-2427 ("UFL"); Liberty Insurance Services Corporation, a South Carolina corporation with offices located at 2006 Wade Hampton Boulevard, Greenville, South Carolina 29615 ("Liberty"); Fortis, Inc., a Nevada corporation with offices located at One Chase Manhattan Plaza, 41st Floor, New York, New York 10005 ("Fortis"); and The Liberty Corporation, a South Carolina corporation with offices located at 2000 Wade Hampton Boulevard, Greenville, South Carolina 29615 ("The Liberty Corporation"), with Fortis and The Liberty Corporation being parties for the limited purposes set forth herein.
W I T N E S S E T H:
WHEREAS, Liberty desires to provide to UFL, for itself and, from and after the closing (the "Closing") of the transaction contemplated by the Stock Purchase Agreement by and among Fortis, Interfinancial Inc., The Liberty Corporation, Liberty Life Insurance Company and The Liberty Marketing Corporation, dated as of November 13, 1997 (the "Stock Purchase Agreement"), for and on behalf of UFL and Pierce National Life Insurance Company, a California domiciled insurer with offices located at 2000 Wade Hampton Boulevard, Greenville, South Carolina 29615 ("PNL"), and UFL, for itself and from and after the Closing for itself and PNL, desires to obtain from Liberty, the software modification, interface and development, data conversion, data processing, customer service and related services described in this Agreement, on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the agreements of the parties set forth below, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
For all purposes of this Agreement, unless the context or use clearly indicates another or different meaning or intent, the following terms shall have the following meanings and such definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined. Terms other than those defined shall be given their plain English meaning.
"Account Manager" has the definition so provided in Section 3.09.
"Account Staff" has the definition so provided in Section 3.10.
"Activation Date" has the definition so provided in Section 4.02(a).
"Additional Services" has the definition so provided in
Section 3.06.
"Additional Service Fees" has the definition so provided in
Section 3.06.
"AFA, Brookings and Pan Western Data" means the policy administration data of PNL related to books of business currently administered by Liberty for PNL and referred to by such names.
"Affiliate" means, with respect to a 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.
"Agreement" means this Agreement together with the Exhibits attached hereto.
"Back-up Copies" has the definition so provided in Section 6.02.
"Base Fees" has the definition so provided in Section 8.01.
"Base Services" means, collectively, the Software Customization Services, the Data Conversion Services, the Data Processing Services and the Customer Services.
"Books and Records" has the definition so provided in Section 3.15(f).
"Candidate" has the definition so provided in Section 3.10.
"Change of Control Event" has the definition so provided in
Section 13.02(a).
"Claims Notice" has the definition so provided in Section 14.03.
"Closing" has the definition so provided in the Recitals to this Agreement.
"Confidential Information" has the definition so provided in
Section 10.01.
"Consents" has the definition so provided in Section 11.03.
"Consumer Price Index" means Employment Cost Index for total compensation, private industry workers, professional specialty and technical occupations as published by the United States Bureau of Labor Statistics of the Department of Labor.
"Control" and its derivatives mean, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or voting interests, by contract or otherwise.
"Customer Services" has the definition so provided in Section 3.04.
"Customer Service Performance Standards" has the definition so provided in Section 3.04.
"Data Center" has the definition so provided in Section 3.07.
"Data Conversion Services" has the definition so provided in
Section 3.02.
"Data Processing Services" has the definition so provided in
Section 3.03.
"Data Processing Performance Standards" has the definition so provided in Section 3.03.
"Disaster Recovery Plan" has the definition so provided in
Section 7.01.
"Effective Date" has the definition so provided in the preamble.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.
"First Refusal Notice" has the definition so provided in
Section 13.02(c).
"FTE" has the definition so provided in Section 3.10.
"Genelco Software" means the Third Party Software identified on Exhibit N, as developed and/or licensed by Genelco Incorporated, a Missouri corporation.
"Indemnifying Party" has the definition so provided in Section 14.03.
"Indemnitee" has the definition so provided in Section 14.03.
"Insurance Risk" shall mean the mortality or morbidity risk for any Policy of UFL or, after Closing, UFL or PNL.
"Liberty" has the definition so provided in the preamble of this Agreement.
"Liberty Software" has the definition so provided in Section 4.02.
"Management Committee" has the definition so provided in
Section 12.01.
"Model Statute" has the definition so provided in Section 3.15(a).
"Modified Software" has the definition so provided in Section 4.03(a).
"Monthly New Business Fee" has the definition so provided in
Section B of Exhibit Q.
"Monthly Processing Fee" has the definition so provided in
Section A of Exhibit Q.
"Off-Site Facility" has the definition so provided in Section 6.02.
"Performance Standards" means, collectively, the Customer Services Performance Standards and the Data Processing Performance Standards.
"Person" means an association, firm, individual, partnership (general or limited), corporation, trust, financial institution, unincorporated organization or other entity.
"PNL" has the definition provided in the recitals to this Agreement.
"Policy" or "Policies" shall mean any of UFL's or, after Closing, PNL's insurance policies, whether individual or group, including paid up policies and policies on extended term insurance and reduced paid-up insurance under non-forfeiture options, policy riders, any associated policy benefits, and any annuity contract, whether originally issued by UFL or PNL, or whether acquired by UFL or PNL by assumption reinsurance or otherwise, which are the subject of this Agreement and which policies of UFL are more specifically identified in Exhibit U but shall specifically exclude any variable or separate account products.
"Pre-Need Policies" has the definition so provided in Section 3.01(e).
"Project Plan" has the definition so provided in Exhibit A. "Renewal Term" has the definition so provided in Article 2.
"Security Procedures" has the definition so provided in
Section 3.08.
"Software Customization Services" has the definition so provided in Section 3.01(c).
"Software Modifications" has the definition so provided in
Section 3.01(a).
"Special Dates" means dates used by programmers to create exceptions where no date could be determined as specified to serve as end-of-file indicators or to facilitate sort routines (e.g., 01/2/99 or 09/09/99). For example, such dates were generally used when the date is a mandatory field in a database, but could not be determined or specified, and which, when such date actually occurs, may cause computational errors.
"Specifications" has the definition so provided in Section 3.01(a).
"Standard Rates" XXX.
"Stock Purchase Agreement" has the definition so provided in the preamble to this Agreement.
"System" means the UFL Software, Liberty Software, Third Party Software and Modified Software.
"Term" has the definition so provided in Article 2.
"Termination Fee" has the definition so provided in Section 13.08.
"Third Party Software" has the definition so provided in
Section 4.06.
"UFL" has the definition so provided in the preamble.
"UFL Data" has the definition so provided in Section 5.01.
"UFL Software" has the definition so provided in Section 4.01.
"Year 2000 Compliant" means that software shall have the ability to:
(a) Correctly accept, recognize, manage, manipulate and perform calculations with respect to data involving dates or portions of dates that are before, during and after January 1, 2000 (including single-century formulas, multicentury formulas that reflect the century, Julian dates and binary dates) and not cause an abnormally ending scenario within the application or result in the generation of incorrect results or values involving dates;
(b) Cause all date-related input, user interface functionalities and data fields to include the indication of century. Liberty shall determine, in its discretion, how to display data; provided, however, that the ambiguity as to century shall be clearly evident to the product user, based on product function and documentation;
(c) Cause all date related functions (including but not limited to software interfaces) to include the indication of century if required;
(d) Cause all software, before, on and after January 1, 2000, to store and provide output of date information in ways that are unambiguous as to century, and to function accurately and without interruption at the same level and quality without changes in operation associated with the advent of the new century or the occurrence of Special Dates; and
(e) Manage the leap year occurring in the Year 2000.
ARTICLE 2
TERM
The term of this Agreement shall commence on the Effective
Date and shall continue for a period ending five years following the date of the
earlier to occur of: (i) the Closing or (ii) the date on which Liberty assumes
responsibility for servicing the UFL Policies unless terminated earlier pursuant
to Article 13 or extended as provided below (the "Term"). UFL, at its option,
may renew this Agreement and extend the Term for an additional period of either
five (5) years or three (3) years, at UFL's option (the "Renewal Term"), under
the same terms and conditions by providing notice to Liberty in accordance with
Section 16.02 at least 180
days before the expiration of the initial Term described in the first sentence of this Article 2; provided, however, that during the Renewal Term the fees for Policy Administration and Data Processing, New Business and Data Processing (as adjusted pursuant to Section 8.07) shall be as provided in Exhibit Q in the column headed "Renewal Term." UFL's notice to renew shall specify whether the Renewal Term is to be three (3) years or five (5) years.
ARTICLE 3
PROVISION OF SERVICES
3.01 Software Modification, Interface and Development Services
(a) The Data Processing Services to be provided by Liberty to
UFL pursuant to this Agreement shall be provided using certain Liberty
Software and Third Party Software. Liberty agrees to provide
modifications (the "Software Modifications") to the Liberty Software
and the Third Party Software to meet the functional specifications
generally described on Exhibit A (the "Specifications"), and to install
the Liberty Software and Third Party Software as so modified in the
Data Center, all in accordance with the schedule set forth on Exhibit A
(the "Development Schedule"), subject to testing by UFL as provided in
Section 3.01(b) below. Notwithstanding the foregoing, the parties
acknowledge that the Specifications and Development Schedule are
general in nature and, accordingly, the parties agree to negotiate in
good faith in accordance with the process described in Exhibit A under
the heading "UFL Conversion and Transition Analysis Phase" to finalize
and mutually agree upon a Project Plan on or before January 26, 1998,
which will include detailed Specifications and a completed Development
Schedule. Upon the agreement of the parties to the Project Plan, the
detailed Specifications and Development Schedule included in the
Project Plan shall supplement the general Specifications and
Development Schedule included in Exhibit A, effective as of the date of
approval of the Project Plan by UFL and Liberty. In the event that UFL
and Liberty do not agree upon the Project Plan on or before January 26,
1998, UFL may, at its option, terminate this Agreement pursuant to
Article 13 and receive a full refund of all amounts previously paid to
Liberty pursuant to this Agreement less the actual out-of-pocket
expenses incurred by Liberty since the date of this Agreement in
performance of the Base Services and a fee for the time of Liberty's
personnel engaged in the performance of the Base Services subsequent to
the date of this Agreement calculated at the Standard Rates, up to a
maximum retained by Liberty of $XXX for such expenses and services.
(b) UFL shall have sixty (60) days following the date of installation of all Software Modifications (and any modifications thereto) in final form in a model office environment, in which to conduct acceptance testing and to inspect, test and evaluate the Software Modifications to determine whether the Software Modifications (and any modifications thereto) meet the Specifications. Such period shall also be prior to the scheduled conversion of UFL Data to Liberty's data processing system pursuant to the Project Plan. If the Software Modifications (and any modifications thereto) do not meet the Specifications, UFL shall give Liberty written notice stating why the Software Modifications (and any modifications thereto) do not meet the Specifications. Liberty
shall have ten (10) days from the receipt of such notice to correct the deficiencies. Following correction of such deficiencies by Liberty, UFL shall then have ten (10) days to reinspect, test and evaluate the Software Modifications (and any modifications thereto). The foregoing inspection and correction procedures shall be repeated until the Software Modifications are accepted by UFL; provided, however, in any event the Software Modifications contemplated in Section 3.01 (a) above (without further modification as contemplated by Section 3.01(c)) shall be satisfactorily completed by September 15, 1998, unless another date is specified in the Project Plan. Software Modifications will not be deemed accepted by UFL unless and until UFL sends written notice of such acceptance to Liberty; provided, however, that Software Modifications will be deemed accepted by UFL if UFL does not reject such Software Modifications within sixty (60) days of notification by Liberty that the Software Modifications are available for acceptance testing. Within thirty (30) days of acceptance of the Software Modifications (and any modifications thereto), Liberty shall make the Software Modifications available for production use by UFL and by Liberty in providing the services under this Agreement.
(c) As new versions or releases of the Liberty Software and the Third Party Software are installed by Liberty according to the requirements of this Agreement, Liberty shall make such further modifications thereto and to any Software Modifications (or any modifications thereto) operating in conjunction with such new versions or releases as may be necessary to cause the new versions or releases and the Software Modifications to continue to meet the Specifications. All modification services described in this Section 3.01 are sometimes referred to herein collectively as the "Software Customization Services."
(d) From and after the date on which Liberty begins to provide Customer Services with respect to Policies administered by UFL prior to such date, Liberty shall be responsible for maintaining the UFL Software used for processing policy administration data with respect to such Policies, for so long as such UFL Software continues to be used to process such data.
(e) Liberty agrees that the Software Modifications (and any modifications thereto) and any other software developed by Liberty as Additional Services will not be used by Liberty, or permitted to be used by any other person, for processing policy administration data for any current issuer of insurance contracts sold through or in connection with funeral homes as a funding vehicle for pre-need funeral service contracts ("Pre-Need Policies"). Liberty agrees that it will not disclose to any current issuer of Pre-Need Policies or any Affiliate of such issuer, the design or function of any such Software Modifications or other software developed pursuant to Additional Services: The provisions of this Section 3.01(e) are intended to retain for UFL the benefit of the use of the Software Modifications and any software developed by Liberty pursuant to Additional Services within the industry issuing Pre-Need Policies. Nothing contained in this Section 3.01(e) is intended to prevent Liberty from independently developing software pursuant to an independent request by a current issuer and/or marketer of Pre-Need Policies for purposes of processing policy administration data for such issuer or for servicing closed blocks of Pre-Need Policies.
3.02 Data Conversion Services. Beginning on the Effective Date, Liberty shall commence planning and analysis of the conversion of all of the AFA, Brookings and Pan Western Data and UFL policy administration data to a format appropriate for processing by Liberty at the Data Center as described further in Exhibit B (the "Data Conversion Services") for the fees set forth in Exhibit Q. Liberty shall complete the Data Conversion Services in accordance with the conversion Schedule also set forth in Exhibit B. The parties acknowledge that the description and definition of the Data Conversion Services and the Schedule therefor attached hereto as Exhibit B are general in nature and the parties agree to negotiate in good faith to agree on or before January 26, 1998 upon the Project Plan in accordance with the procedures outlined under the heading "UFL Conversion and Transition Analysis Phase" in Exhibit A, which plan will define the Data Conversion Services and Schedule therefor in greater detail. Upon approval of the Project Plan by UFL and Liberty, the final Data Conversion Services and the Schedule therefor included in the Project Plan shall supplement the general Data Conversion Services and the Schedule therefor set forth in Exhibit B.
3.03 Data Processing Services. Beginning on the date specified in the Project Plan, Liberty shall provide to UFL the services described in Exhibit C (the "Data Processing Services") at the levels of service set forth in Exhibit D (the "Data Processing Performance Standards") for the Base Fees set forth in Exhibit Q; provided, however, that Liberty shall not be bound by the Data Processing Performance Standards until it has commenced performing the Data Processing Services from its Data Center. For so long as Liberty shall agree to provide Data Processing Services with respect to all Policies maintained by UFL and, if the Closing has occurred, PNL under this Agreement,. Liberty shall be the exclusive provider of Data Processing Services for UFL and, if the Closing has occurred, PNL; provided, however, in the event that UFL and Liberty are unable to agree upon terms on which Policies other than those listed on Exhibit U or maintained by PNL on the Effective Date will be processed by Liberty under this Agreement, UFL and, if the Closing has occurred, PNL shall be entitled to have all such Policies as to which no such agreement is reached processed by a party other than Liberty.
3.04 Customer Services. Liberty shall provide to UFL the services described in Exhibit E (the "Customer Services") commencing, with respect to all UFL Policies, on April 1, 1998 and, with respect to all PNL Policies, on the date of Closing, at the levels of service set forth in Exhibit F (the "Customer Service Performance Standards") for the Base Fees set forth in Exhibit Q. For so long as Liberty shall agree to provide Customer Services with respect to all Policies maintained by UFL and, if the Closing has occurred, PNL under this Agreement, Liberty shall be the exclusive provider of Customer Services for UFL and, if the Closing has occurred, PNL; provided, however, in the event that UFL and Liberty are unable to agree upon terms on which Policies other than those listed on Exhibit U or maintained by PNL on the Effective Date will be processed by Liberty under this Agreement, UFL and, if the Closing has occurred, PNL shall be entitled to have all such Policies as to which no such agreement is reached processed by a party other than Liberty.
3.05 Special Projects. To the extent that the Data Processing
Services to be provided under this Agreement require less than the number of
system development professional FTEs required by Section 3.10 below, Liberty
will apply such additional resources (up to the number of FTEs required by
Section 3.10), at no additional charge, to projects requested and defined from
time to time by UFL. This FTE level will be adjusted as described in Section
3.10.
3.06 Additional Services. UFL may from time to time request
that Liberty perform services (1) outside the scope of the Base Services or (2)
to augment or supplement the Base Services (the "Additional Services"). As to
all requests for Additional Services that are reasonably related to services
then being provided by Liberty to UFL under this Agreement or otherwise
reasonably related to the business of UFL or PNL or the logical extensions of
such businesses, Liberty will agree to provide the Additional Services, subject
to the reasonable availability of resources within Liberty to perform such
services at the time requested and subject to the remaining provisions of this
Section 3.06. Upon receipt of such a request from UFL, Liberty shall inform UFL
as soon as practicable after receipt of UFL's request as to whether Liberty is
able (subject to provisions of the immediately preceding sentence) to perform
such Additional Services and, if so, Liberty shall provide UFL with (a) a
written description of the work Liberty anticipates performing in connection
with such Additional Services, (b) a Schedule for commencing and completing the
Additional Services and (c) Liberty's charges for such Additional Services (the
"Additional Service Fees") which charges shall be calculated using those rates
set forth on Exhibit G (the "Standard Rates"). In the event UFL elects to have
Liberty perform the Additional Services, UFL and Liberty shall execute a written
amendment to this Agreement in substantially the form set forth in Exhibit H
(the "Amendment for Additional Services"). Liberty shall not begin performing
any Additional Services until an Amendment for Additional Services in respect of
such Additional Services has been executed on behalf of UFL, as agreed by UFL
and Liberty and in compliance with any applicable Third Party software
restrictions. Any and all Modified Software developed by Liberty pursuant to
Additional Services shall be subject to an acceptance procedure substantially
similar to those procedures set forth in Section 3.01(b).
3.07 Data Center. The Data Processing Services and the Customer Services shall be provided from (1) the data centers identified in Exhibit I and (2) any other location selected by Liberty and identified in advance to UFL ((1) and (2) collectively, the "Data Center"). Liberty may provide the Data Processing Services or the Customer Services from another location or locations which meet the security provisions of Section 3.08 and may provide the Data Processing Services and the Customer Services subject to a Disaster Recovery Plan which meets the standards set forth in Section 7.01, as long as Liberty continues to perform services in accordance with the Performance Standards.
3.08 Data Center Security Procedures. During the Term and the Renewal Term, Liberty shall maintain and enforce security procedures at the Data Center that are at least as rigorous as those security procedures in effect at the Data Center as of the date of this Agreement, which security procedures are set forth in Exhibit J (the "Security Procedures").
3.09 Account Managers. Liberty shall appoint Doug Donivan as the individual who shall be in charge of the Base Services and the Additional Services (the "Account Manager"). In addition, Liberty shall appoint Keith Medley as the program manager responsible for supervision of all technical aspects of the Software Customization Services, Data Conversion Services and Data Processing Services. Liberty shall (1) assign Mr. Medley to work on a dedicated full-time, first priority basis under this Agreement, (2) provide UFL with as much notice as possible of any change in the identity of the Account Manager, (3) not reassign the Account Manager during the first year of the Term, or Mr. Medley at any time prior to the
completion of the Data Conversion Services, and (4) use its best efforts to cause any transition of either Mr. Medley or the Account Manager to be orderly and efficient.
3.10 Account Staff. During the term of the Agreement, Liberty
shall maintain sufficient staff to provide, and management to supervise, the
Base Services (the "Account Staff"), which staffing shall at a minimum include
five (5) system development professional full-time equivalents ("FTEs"),
inclusive of appropriate management and supervision, assigned to the UFL account
with a total of 1650 hours per year per FTE of time available to work on Base
Services and Special Projects. The five (5) FTE level will be increased or
decreased appropriately as reasonably required to maintain the Data Processing
Performance Standards; provided, however, to the extent not required in order to
maintain the Data Processing Performance Standards, the number of FTEs may be
decreased (in increments of 0.1 FTEs) pro rata from five (5) FTEs, based on
aggregate Monthly Processing Fees and Monthly New Business Fees at an annualized
rate of $XXX, to a minimum of three (3) FTEs, based on aggregate Monthly Data
Processing Fees and Monthly New Business Fees at an annualized rate of $XXX.
Adjustments in the number of FTEs available pursuant to this Section 3.10 shall
be made on a quarterly basis based upon aggregate Monthly Processing Fees and
Monthly New Business Fees paid in the immediately preceding calendar quarter.
UFL may at any time and with reasonable cause require Liberty to promptly remove
a specified employee of Liberty from the Account Staff currently in place. Prior
to hiring or otherwise engaging any person who would be an exempt employee who
will (1) replace any member of the Account Staff directly assigned to providing
the Base Services or the Additional Services, including any Account Manager, or
(2) otherwise perform functions predominantly in connection with the Base
Services ((1) and (2), each a "Candidate"), Liberty shall provide UFL with (a) a
summary of the Candidate's qualifications, (b) a description of the tasks the
Candidate is to perform, and (c) an opportunity to consult with Liberty
regarding the Candidate. Upon review of the Candidate's qualifications, UFL may
object to the Candidate on the grounds that the Candidate is not sufficiently
qualified to perform the contemplated tasks. Notwithstanding any such objection,
Liberty may hire the Candidate and assign the Candidate to the Account Staff. If
within ninety (90) days of the first day the Candidate performs a significant
task in connection with the Base Services or the Additional Services and UFL (i)
notifies Liberty that the Candidate's performance is inadequate and (ii)
provides reasonable documentation to support this conclusion, Liberty shall
remove the Candidate from the Account Staff.
3.11 Conduct of Liberty's Personnel. While on UFL's premises, Liberty's personnel shall (1) observe the rules and requirements of UFL regarding personal or professional conduct and appearance and (2) otherwise conduct themselves in a businesslike manner. In the event that UFL determines that a particular employee or employees of Liberty is not conducting himself, herself, or themselves appropriately, UFL may notify Liberty of, and provide Liberty documentation of such fact and Liberty shall promptly remove him, her or them from the Account Staff.
3.12 Performance Standards.
(a) After receipt of notice from UFL in respect of Liberty's failure to provide the Data Processing Services and Customer Services in accordance with the Performance Standards, Liberty shall, within five (5) business days: (i) perform a root-cause analysis
to identify the cause of such failure, and (ii) provide UFL with a report detailing the cause of, and procedure for correcting, such failure, which report shall address how the procedure for correcting the failure will prevent recurrences. Liberty shall then (x) use commercially reasonable efforts to correct the problem as soon as practicable, and (y) take all reasonable measures to prevent recurrence of the failure.
(b) The Management Committee shall review during the last quarter of every calendar year and may adjust, as appropriate, the Performance Standards for the next succeeding calendar year and reflect any necessary adjustment in the Base Fees resulting from any such change in the Performance Standards; provided, however, that any such adjustment in the Base Fees or change in the Performance Standard must be embodied in a written amendment to this Agreement executed by UFL and Liberty. In addition, either UFL or Liberty may, at any time upon notice to the other party, initiate discussions to review and, upon agreement by the Management Committee, adjust any Performance Standards which such party in good faith believes is inappropriate at that time.
3.13 Changes.
(a) Changes in any Base Services or Additional Services shall become effective only when a written change request is executed by authorized representatives of both parties.
(b) Requests for changes in any Base Services or Additional Services shall be treated by the parties in the same manner as requests for Additional Services.
3.14 Acquisition of PNL by Fortis. From and after the Closing, all insurance and other policies, data, customers, and other assets of PNL shall, for all purposes of this Agreement and the rights and obligations of the parties hereunder, be deemed to be insurance and other policies, data, customers and other assets of UFL (i.e., all data and information of PNL of the types included in UFL Data shall become, and be deemed to be for all purposes of this Agreement, UFL Data). From and after the Closing, the obligations of Liberty under this Agreement with respect to Data Processing Services and Customer Services shall apply equally to Policies, data, customers and other assets of the type covered by this Agreement.
3.15 Other Base Services.
(a) Liberty agrees to provide the Customer Services in accordance with standard insurance industry practice, conducting itself in a manner which complies either with the Model Statute for Third Party Administrators as promulgated by the National Association of Insurance Commissioners ("Model Statute"), as the Model Statute is amended from time to time, or, alternatively, in a manner which complies with appropriate state regulations or legislation governing the Customer Services to be provided herein.
(b) Liberty agrees that all claims paid by Liberty from funds collected on behalf of UFL or PNL shall be paid only on checks or drafts of UFL or PNL, respectively, and as authorized by UFL or PNL, respectively.
(c) To the extent required by applicable state law, Liberty agrees to provide a written notice to the insureds or policyholders, as mutually agreed upon by Liberty and UFL, advising the UFL insureds or policyholders and, after Closing, the UFL and PNL insureds or policyholders, of the identity of and relationship among Liberty, the insured and UFL or PNL. The cost of such notices, however, shall be borne solely by UFL as pass-through costs. Liberty agrees that if Liberty collects funds from the insured or policyholder of UFL or, after Closing, UFL or PNL, Liberty will provide the insured or policyholder with written notice of the premium charged by UFL or PNL for such insurance coverage.
(d) Liberty agrees that information which identifies an individual covered by an ERISA plan is confidential, and that all such information furnished by UFL or, after Closing, by UFL or PNL to Liberty hereunder is confidential. During the time such ERISA confidential information is in Liberty's custody or control, Liberty agrees to hold such information in compliance with Article 10 and to take all reasonable precautions to prevent disclosure or use of the ERISA confidential information for a purpose unrelated to the administration of the ERISA plan. Liberty agrees to disclose such ERISA confidential information only: (a) in response to a court order; (b) for an examination conducted by the applicable insurance regulator for an audit or investigation conducted under ERISA; (c) to or at the request of UFL or, after Closing, of UFL or PNL; or (d) with the written consent of the identified individual or his or her legal representative.
(e) Liberty agrees to comply with the bond and insurance requirements of each state in which Liberty administers claims for UFL or, after Closing, UFL or PNL.
(f) Liberty agrees to establish and maintain facilities and procedures for the safekeeping of UFL's and, after Closing, UFL's and PNL's Policy forms, check forms and facsimile signature imprinting devices, if any, and all other documents, reports, records, books, files, and other materials relative to this Agreement and to the Base Services and the Additional Services to be provided by Liberty hereunder, and all transactions between Liberty, UFL and, after Closing, UFL and PNL, and UFL's and PNL's insureds, which shall include the identity and addresses of policyholders and certificate holders (collectively, "Books and Records"). Except as otherwise provided by regulatory authority, Liberty agrees to maintain the Books and Records of UFL and, after Closing, UFL and PNL at either UFL's or PNL's place of operations, at Liberty's principal administrative office, or at such other designated site mutually agreed upon, for the duration of this Agreement and for a period of six (6) years thereafter, unless otherwise instructed by UFL or PNL, or, at UFL's or PNL's request, shall transfer such Books and Records to UFL or UFL's designee, or to PNL or PNL's designee, respectively, at UFL's and PNL's respective cost. Such retention period for Books and Records may be extended by UFL or PNL if required by regulatory or taxing authority. Any additional expense associated with the longer retention period shall be borne by UFL or PNL.
(g) Liberty agrees that UFL and, after Closing, UFL and PNL, and any applicable insurance or pre-need regulator, shall have reasonable access, during Liberty's normal business hours, to all pertinent Books and Records of UFL and PNL which relate to the
Base Services to be performed under this Agreement for the purpose of examination, audit and inspection, in a form usable by them. UFL and, after Closing, UFL and PNL, and any applicable insurance or pre-need regulator, shall keep confidential any of Liberty's confidential information or trade secrets contained in the Books and Records of UFL or PNL, provided that the applicable insurance or pre-need regulator may use such information in a proceeding instituted against UFL, PNL or Liberty.
(h) In addition to the provisions of Article 9, Liberty agrees that UFL and, after Closing, UFL and PNL, or each of its duly authorized independent auditors, shall have the right under this Agreement to perform on-site audits of the Books and Records of UFL or PNL, respectively, directly pertaining to the Policies for which Liberty is performing the Base Services and the Additional Services under this Agreement, in accordance with reasonable procedures and at reasonable frequencies.
(i) In addition to the provisions of Article 10, Liberty, and any employee, agent, attorney, accountant, advisor, consultant, or other representative of Liberty with a need to know, shall keep UFL's and, after Closing, UFL's and PNL's confidential data and confidential information to which Liberty is directly accessible in the implementation and performance of the Base Services and the Additional Services in strictest confidence and, except for disclosures strictly required by public agencies having jurisdiction over Liberty or UFL or PNL or made as required by law or applicable regulation, will not disclose any such data and/or information to third parties without the express written consent of UFL or PNL, respectively.
(j) Liberty agrees that Liberty shall be responsible for the following functions:
(1) Liberty agrees to maintain detailed books and records that reflect all administered transactions specifically in regard to premiums for the Policies, agents' commissions for the Policies, Liberty's administrator's fees, contributions received and deposited on behalf of UFL and, after Closing, UFL and PNL, claims paid on behalf of UFL and, after Closing, UFL and PNL, and authorized expenses paid on behalf of UFL and, after Closing, UFL and PNL.
(2) The detailed preparation, journalizing, and posting of Books and Records shall be made in accordance with the terms and conditions of this Agreement, and, if applicable, in accordance with ERISA, as amended, and in such a manner as to enable UFL and, after Closing, UFL and PNL to complete its respective annual financial statement in accordance with the National Association of Insurance Commissioners' guidelines, as amended, or other reports as may be required by any applicable law or insurance or pre-need regulatory authority.
(3) Liberty shall maintain a cash receipts register of all premiums and contributions received.
(4) The description of a disbursement shall be in
sufficient detail to identify the source document the purpose of the
disbursement; and shall include all of the following: (i) the check number; (ii)
the date of disbursement; (iii) the person to whom the disbursement was made;
(iv) the amount disbursed; and (v) ledger account number. If the
amount disbursed does not agree with the amount billed or authorized, Liberty shall prepare a written record as to the application for the disbursement. If the disbursement is for the earned administrative fee or commission, the disbursement shall be supported by evidential matter. The evidential matter must be referenced in the journal entry so that it may be traced for verification.
(5) Liberty shall prepare and maintain monthly financial institution account reconciliations if such service is requested by UFL or PNL as part of the Base Services or as an Additional Service.
(6) Liberty shall render accounts to UFL and, after Closing, to UFL and PNL detailing all transactions and remit all money due to UFL and, after Closing, to UFL or PNL, under this Agreement at least monthly. Liberty will not less often than monthly render an accounting to UFL and, after Closing, to UFL and PNL, detailing all transactions performed by Liberty pertaining to the Policies for which Liberty is performing Base Services and Additional Services under this Agreement.
(k) Liberty agrees that it will maintain complaint records and
logs for UFL and, after Closing, UFL and PNL, as required by respective
insurance regulatory authorities. Liberty will follow prescribed UFL
standards for response to such complaints and for other complaints
which are not received through an insurance regulatory authority.
Liberty will make available all records and logs required in connection
with any audits or examinations of UFL and, after Closing, UFL and PNL.
Liberty will notify UFL and, after Closing, UFL and PNL, of any
suspected employee or agent fraud or defalcations within forty-eight
(48) hours of Liberty becoming aware of such suspected problem. Liberty
will promptly notify UFL and, after Closing, UFL and PNL, of any
threatened or filed lawsuits which have any connection to the Policies
or to this Agreement. Liberty will provide UFL and, after Closing, UFL
and PNL, with a copy of any proposed written response to an insurance
regulatory authority complaint on behalf of UFL or PNL, and UFL or PNL,
as the case may be, shall either approve said proposed written
response or make suggested changes within forty eight (48) hours of
receipt of said proposed written response in order to facilitate a
timely response to the insurance regulatory authority on behalf of UFL
or PNL, respectively.
(l) Notwithstanding anything to the contrary herein, Liberty shall not receive commissions, fees, or charges contingent upon savings obtained in the adjustment, settlement and payment of losses covered by UFL's obligations, and, after Closing, UFL's and PNL's obligations, but Liberty may receive compensation based on premiums or charges collected or the number of claims paid or processed. Liberty shall not receive from UFL and, after Closing, UFL and PNL, or any covered individual any compensation or other payments except as expressly set forth in this Agreement.
(m) In addition to the provisions of Article 10, Liberty shall not use any confidential information for any purpose other than providing the Base Services and the Additional Services to UFL or, after Closing, PNL.
(n) Except as specifically granted in this Agreement, this Agreement grants to Liberty no right to use, possess, or reproduce any products or customer lists or other
confidential material of UFL or any UFL affiliate company or, after Closing, UFL or PNL or any UFL or PNL affiliate company.
(o) Upon termination of this Agreement, any monies held by Liberty on behalf of UFL or PNL and owing to UFL or PNL shall immediately become due and payable and shall be forwarded to UFL or PNL, as the case may be. Thereafter, any additional funds of UFL or PNL received by Liberty shall immediately be sent to UFL or PNL, as the case may be.
(p) Any policies, certificates, booklets, termination notices or other written communications delivered by UFL or PNL to Liberty for delivery to UFL or PNL policyholders shall be delivered by Liberty promptly after receipt of instructions from UFL or PNL to do so.
(q) Payments received by Liberty for insurance on behalf of UFL or PNL shall be deemed received by UFL or PNL, respectively. The payment of return premiums or claims by UFL or PNL to Liberty is not considered payment to UFL or PNL or claimant until the payments are received by UFL or PNL or claimant.
(r) Liberty may only use advertising pertaining to the business of UFL or PNL which has been approved in writing by UFL or PNL, and which has been approved by state regulatory authorities as required by applicable insurance or pre-need laws.
(s) In performing the Base Services and the Additional Services, Liberty must use the underwriting standards which are set by UFL or PNL in writing.
(t) Notwithstanding any other provision in this Agreement to the contrary, whenever a policy is issued to a trustee, a copy of the trust agreement and any amendments to it must be furnished to UFL or PNL by Liberty and be retained as part of the official records of both Liberty and UFL or PNL, respectively, for the duration of the policy and for five (5) years thereafter.
(u) All insurance charges, premiums, returned premiums, or other money collected by Liberty on behalf of UFL or PNL shall be held by Liberty in a fiduciary capacity and deposited in an account established and maintained by Liberty on behalf of UFL or PNL, respectively, or such other account as UFL or PNL may designate.
3.16 Provisions Related to Certain Insurance Laws. Liberty and UFL and, after Closing, Liberty, UFL and PNL, each agree as follows:
(a) Pursuant to A.R.S. Section 20-485.01.E of the Insurance Laws of the State of Arizona which specifies that UFL must provide fifteen (15) days written notice to the Director of Insurance for the State of Arizona in the event of termination, cancellation or any other change in the Agreement, Liberty and UFL and, after Closing, Liberty, UFL and PNL, all agree to provide such notice in compliance therewith in the event any of the services provided under this Agreement are provided in ARIZONA.
(b) Liberty and UFL and, after Closing, Liberty, UFL and PNL, all agree as follows in the event any of the services provided under this Agreement are provided in GEORGIA: Liberty agrees to maintain for UFL and PNL, at Liberty's principal administrative office, a complete file of all UFL's and PNL's advertisements, regardless of by whom written, created or designed, which are used by UFL and PNL, respectively, with respect to policyholders or potential policyholders of UFL and PNL located in Georgia, with a notation indicating the manner and extent of distribution and the form number of any Policy advertised. Such file shall be subject to inspection by the Office of Commissioner of Insurance of the State of Georgia. All such advertisements shall be maintained in said file for a period of not less than five (5) years. UFL and PNL shall each prepare, with Liberty's assistance, and Liberty shall, on behalf of UFL and PNL, respectively, file with the Commissioner of Insurance of the State of Georgia on or before March 1 in each year, UFL's and PNL's certification executed by an authorized officer of UFL and PNL, respectively, wherein it is stated that to the best of his knowledge, information and belief, the advertisements disseminated by Liberty, on behalf of UFL and PNL, during the preceding calendar year complied, or were made to comply in all respects, with the advertising regulations of GEORGIA.
(c) Pursuant to Sections 41-905, 41-909, 41-910, and 41-911 of the Idaho Code, Liberty and UFL and, after Closing, Liberty, UFL and PNL, all agree as follows in the event any of the services provided under this Agreement are provided in IDAHO:
(1) Notwithstanding any other provision in this Agreement to the contrary, Liberty may only use advertising pertaining to the business underwritten by UFL and PNL which has been approved in writing by UFL and PNL, respectively. UFL and PNL shall each have the prior approval of the Director of Insurance before approving advertising for use by Liberty.
(2) Notwithstanding any other provision in this Agreement to the contrary, any policies, certificates, booklets, termination notices or other written communications delivered by UFL or PNL to Liberty for delivery to its respective policyholders shall be delivered by Liberty promptly after receipt of instructions from UFL or PNL to do so.
(3) Notwithstanding any other provision in this Agreement to the contrary, compensation to Liberty for any Policies where Liberty adjusts or settles claims shall in no way be contingent on a claim experience.
(4) Notwithstanding any other provision in this Agreement to the contrary, Liberty will retain records of UFL and PNL, respectively, for a period of six (6) years.
(5) Notwithstanding any other provision in this Agreement to the contrary, Liberty shall be bonded in an amount not less than ten percent (10%) of the amount of total funds handled with a minimum bonding amount of $5,000. For purposes of fixing the amount of such bond, the amount of funds handled shall be determined by the total funds handled by Liberty during the preceding year, or if no funds were handled during the preceding year, the amount of funds reasonably estimated to be handled during the current calendar year by Liberty. Such bond shall provide protection to UFL and PNL, respectively, against loss by
reason of acts of fraud or dishonesty and may include individual bonds or Schedule or blanket forms of bonds. Only one (1) such bond shall be required of Liberty for all insureds which utilize the services of Liberty, unless provided otherwise in this Agreement or any amendments thereto.
(d) Pursuant to Section 33-17-602, Montana Code Annotated, Liberty and UFL and, after Closing, Liberty, UFL and PNL, all agree as follows in the event any of the services provided under this Agreement are provided in MONTANA:
(1) Notwithstanding any other provision in this Agreement to the contrary, payments received by Liberty for insurance on behalf of UFL or PNL, respectively, shall be deemed received by UFL or PNL, respectively. The payment of return premiums or claims by UFL or PNL to Liberty is not considered payment to UFL or PNL or claimant until the payments are received by UFL or PNL or claimant.
(2) Notwithstanding any other provision in this Agreement to the contrary, Liberty may only use advertising pertaining to the business of UFL or PNL which has been approved in writing by UFL or PNL, respectively.
(3) Notwithstanding any other provision in this Agreement to the contrary, underwriting standards are set by UFL or PNL, respectively.
(4) Notwithstanding any other provision in this Agreement to the contrary, any policies, certificates, booklets, termination notices, or other written communications delivered by UFL or PNL to Liberty for delivery to UFL's or PNL's policyholders shall be delivered by Liberty promptly after receipt of instructions from UFL or PNL to do so.
(5) Notwithstanding any other provision in this Agreement to the contrary, this Agreement must be retained as part of the official records of both Liberty and UFL and PNL, respectively, for the duration of this Agreement and for five (5) years thereafter.
(6) Notwithstanding any other provision in this Agreement to the contrary, whenever a policy is issued to a trustee, a copy of the trust agreement and any amendments to it must be furnished to UFL or PNL by Liberty and be retained as part of the official records of both Liberty and UFL or PNL for the duration of the policy and for five (5) years thereafter.
(7) Notwithstanding any other provision in this Agreement to the contrary, with respect to any policies where Liberty adjusts or settles claims, the compensation to Liberty with regard to the policies shall in no way be contingent on claim experience, but may be based on premiums or charges collected or number of claims paid or processed.
(e) Pursuant to N.R.S. 683A.0857 of the Insurance Laws of the State of Nevada, Liberty and UFL and, after Closing, Liberty, UFL and PNL, all agree as follows in the event any of the services provided under this Agreement are provided in NEVADA:
(1) Notwithstanding any other provision in this Agreement to the contrary, Liberty will retain records of UFL and PNL for a period of at least five (5) years.
(2) Notwithstanding any other provision in this Agreement to the contrary, Liberty will hold in a fiduciary capacity all insurance charges or premiums collected by it on behalf of or for UFL or PNL with respect to insureds, and return premiums received from UFL or PNL, respectively. Liberty shall comply with all applicable fiduciary account statutes and regulations. Liberty will immediately (and in any event within fifteen days) remit such funds to the person or persons entitled thereto, or shall promptly (and in any event within fifteen days) deposit them in a fiduciary account established and maintained by Liberty in the name of UFL or PNL, respectively, which fiduciary account, with respect to funds relating to Nevada policyholders, shall be deposited in an account located at a financial institution located in Nevada. Liberty shall require the bank in which such fiduciary account is maintained to keep records clearly recording the deposits in and withdrawals from such account on behalf of or for each insurer for which Liberty may collect charges or premiums. Liberty shall promptly obtain and keep copies of all such records and, upon request of UFL or PNL, respectively, furnish UFL or PNL with copies of such records pertaining to deposits and withdrawals on behalf of or for UFL or PNL, respectively. Liberty may make withdrawals from such account for:
i. remittance to UFL or PNL when entitled thereto;
ii. transfer to and deposit in a claims paying account, with claims to be paid as provided in this Agreement; or
iii. remittance of return premiums to the person or persons entitled thereto.
(f) Pursuant to Chapter IV of the Wyoming Insurance Regulations, Liberty and UFL and, after Closing, Liberty, UFL and PNL, all agree as follows in the event any of the services provided under this Agreement are provided in WYOMING:
(1) Notwithstanding any other provision in this Agreement to the contrary, payments received by Liberty for insurance on behalf of UFL or PNL, respectively shall be deemed received by UFL or PNL, respectively.
(2) Notwithstanding any other provision in this Agreement to the contrary, Liberty may only use advertising pertaining to UFL or PNL which has been approved in writing by UFL or PNL, respectively.
(3) Notwithstanding any other provision in this Agreement to the contrary, underwriting standards are to be set by UFL and PNL, respectively.
(4) Notwithstanding any other provision in this Agreement to the contrary, withdrawals from any bank account shall be made for the following items: (i) remittance to UFL or PNL, respectively; (ii) deposit into account for UFL or PNL, respectively; (iii) transfer to or deposit in claims paying account; (iv) payment to a group policy; (v) payment to Liberty for its commissions (if any); and (vi) remittance of returned premiums to persons.
(5) Notwithstanding any other provision in this Agreement to the contrary, Liberty may only act in the capacity in which it is licensed.
(6) Notwithstanding any other provision in this Agreement to the contrary, when Liberty is used as an administrator, UFL and PNL, respectively, shall each provide such information in writing to the insured.
3.17 Certain Agreements Regarding Benefit Plans and Other Employee Matters.
(a) For purposes of this section, "Company Employee" means each individual employed by UFL or any of its Affiliates ("Prior Employer") at the Effective Date who is hired by Liberty in connection with this Agreement prior to the thirtieth (30th) day following the date on which servicing of the UFL Policies is assumed by Liberty.
(b) With respect to each Company Employee, service with the Prior Employer shall be counted for purposes of determining whether any period required for eligibility to participate or to vest in benefits is satisfied under Liberty's benefit plans to the same extent such service was counted in any similar type of benefit plan of the Prior Employer under which such Company Employee was covered at the Effective Date including, without limitation, carry over of accumulated and unused sick leave up to 400 hours or vacation, in each case as of date of termination of employment with the Prior Employer and provided, however, that any such service will be credited only up to 10 years after age 40 for purposes of eligibility for the post-retirement medical plan coverage of Liberty and for eligibility for early retirement under The Liberty Corporation Retirement and Savings Plan (as amended and restated effective April 1, 1997). For purposes of deductible limits and out of pocket annual maximums under their welfare plans, Liberty shall credit each Company Employee with the actual applicable deductibles satisfied and actual amounts credited toward out of pocket annual maximums, in each case in the year in which hire of such Company Employee occurs, under the same type of benefit plan in which such Company Employee is participating as of date of termination of employment with the Prior Employer. For each Company Employee, Liberty group health plans shall not exclude coverage for pre-existing conditions.
ARTICLE 3A.
CERTAIN COVENANTS OF UFL AND,
AFTER CLOSING, UFL and PNL
3A.01 UFL and, after Closing, UFL and PNL, each acknowledges that Liberty assumes no Insurance Risk for any of UFL's or PNL's Policies, policyholders, certificateholders, and insureds. UFL and, after Closing, UFL and PNL, shall each retain the Insurance Risk for all of UFL's and PNL's Policies, policyholders, certificateholders, and insureds.
3A.02 UFL agrees to provide to Liberty, at UFL's sole expense, access to UFL's employees and independent contractors that may be required in the performance of the Base Services.
3A.03 UFL and, after Closing, UFL and PNL each agrees that it shall be solely responsible for determining the benefits, premium rates, underwriting standards and criteria, claims payment procedures and claims settlement procedures applicable to coverage of UFL's and PNL's Policies, respectively, for which the Base Services and the Additional Services are to be performed by Liberty, and for securing reinsurance for the Policies, if any is necessary. UFL and, after Closing, UFL and PNL shall each provide Liberty, in writing, with all rules, procedures, guidelines, and instructions pertaining to these matters.
3A.04 UFL and, after Closing, UFL and PNL each agrees that it shall be responsible for approving all written responses to insurance or pre-need regulators relating to the Policies or to acts or omissions of agents who sold or serviced the Policies. UFL and, after Closing, UFL and PNL each agrees that it will approve or revise any Liberty drafted responses to insurance or pre-need regulators within forty-eight (48) hours of receipt of said proposed written response from Liberty in order to facilitate a timely response on behalf of UFL or PNL to the insurance or pre-need regulator.
3A.05 UFL and, after Closing, UFL and PNL each agrees that it shall be responsible for filing and maintaining anti-fraud plans in the jurisdictions requiring such anti-fraud plans to be filed, whether currently required or required during the term of this Agreement. Liberty shall cooperate with UFL in UFL's efforts to prepare any such required anti-fraud plan.
3A.06 UFL agrees to allow Liberty to offer employment to those of UFL's employees identified by UFL in writing in a list provided to Liberty by UFL on or before December 1, 1997, to assist Liberty in the performance of the Base Services, and will cooperate with Liberty to support an orderly transition of the Customer Services, the Data Conversion Services, the Data Processing Services, the Software Customization Services and the Software Modifications. UFL agrees that UFL shall bear all costs and expenses associated with any employment termination costs, severance costs and costs of employee benefits for UFL's employees who are displaced as a result of this Agreement. Liberty agrees to provide employees hired from UFL with a benefit program consistent with Liberty's then current benefit programs.
3A.07 UFL and, after Closing, UFL and PNL each agrees that it shall be responsible for fulfilling all lawful obligations provided for under the Policies which are serviced by Liberty pursuant to this Agreement, regardless of any dispute between UFL, or PNL, and Liberty.
3A.08 UFL and, after Closing, UFL and PNL, each agrees that Liberty shall have the right, as Liberty deems necessary from time to time, to audit UFL-provided facts and figures and, after Closing, UFL- and PNL-provided facts and figures, in order to independently verify any information provided by either UFL or PNL. Any such audit shall be conducted by Liberty during UFL's or PNL's normal business hours and at Liberty's sole expense. All such audits pursuant to this Section 3A.08 shall be conducted in such a manner so as not to unreasonably interfere with UFL's or PNL's normal operations. While on UFL's or PNL's premises, Liberty's personnel shall (1) observe the rules and requirements of UFL or PNL regarding personal or professional conduct and appearance and (2) otherwise conduct themselves in a businesslike manner. In the event that UFL or PNL determines that a particular employee or employees of Liberty is not conducting himself, herself or themselves appropriately, UFL or PNL may notify
Liberty of, and provide Liberty documentation of, such fact and Liberty shall promptly correct such conduct to UFL's or PNL's reasonable satisfaction or remove him, her or them from UFL's or PNL's premises. All Confidential Information of UFL or PNL obtained as a result of any monitoring, audits or inspections pursuant to this Section 3A.08 shall be held by Liberty in accordance with the provisions of Article 10.
3A.09 UFL and, after Closing, UFL and PNL, each agrees that fees specified for the Base Services may be increased by Liberty in the event that major legislative and/or regulatory changes affecting the Policies which occur during the term of this Agreement and which are not currently contemplated by the parties cause Liberty's cost of performing the Base Services to result in unforeseen increases; provided that such increase shall not exceed XXX.
ARTICLE 4
SYSTEMS AND PROPRIETARY RIGHTS
4.01 UFL Software. UFL hereby grants to Liberty, at no cost to Liberty, a nonexclusive, royalty-free, non-transferable right and license to use, copy, maintain and adapt the software listed in Exhibit L, together with any and all associated documentation (the "UFL Software") solely to provide the Base Services and the Additional Services, subject to any and all applicable license restrictions of UFL's third-party software licensors. To the extent necessary, UFL shall, at its expense, obtain from applicable third-party software licensors, the right of Liberty to use and modify the UFL Software as a third party consultant to UFL as necessary to perform the Base Services. Upon expiration or termination of this Agreement for any reason or the end of Liberty's need to use portions of the UFL Software, the applicable rights granted to Liberty in this Section 4.01 immediately shall, except as necessary for Liberty to carry out its obligations under Section 13.07(1) of this Agreement revert to UFL, and Liberty shall, except as necessary for Liberty to carry out its obligations under Section 13.07(1) of this Agreement, (1) deliver to UFL, a current copy of all the UFL Software in the form in use as of the date of such expiration or termination, (2) destroy or erase all other copies of the UFL Software in Liberty's possession, and (3) certify in writing that Liberty has complied with the obligations of this paragraph. All modifications, enhancements or other changes in the UFL Software made by or for Liberty shall be and shall remain the sole and exclusive property of UFL and be included in the license granted hereby.
4.02 Liberty Software.
(a) License. Liberty hereby grants to UFL, at no cost to UFL, a perpetual, non-transferable (except as transferability is permitted in this Agreement), royalty-free, worldwide, non-exclusive license to use, execute, reproduce, display, perform, modify, prepare derivative works based upon and sublicense as provided in Section 4.02(c) all software (including but not limited to modifications or enhancements to software owned by others) owned by Liberty and used at any time during the Term to provide the Base Services or Additional Services (the "Liberty Software"), together with any and all associated documentation for use by UFL in connection with the Base Services and the Additional Services and, following the termination of this Agreement, in connection with performing, or having performed by others, services for UFL's Policies comparable to the Base Services and the Additional Services. The Liberty Software as of the date of this Agreement is set forth on Exhibit M. The software licensed hereunder may not be used by UFL until expiration of this Agreement or, if earlier, the date UFL sends notice of termination to Liberty (the "Activation Date") provided that prior to the actual date of
termination or expiration, the Liberty Software will only be used in a non-production environment.
(b) Title to Software and Confidentiality. UFL acknowledges that
Liberty represents that the Liberty Software, all copies thereof and all
related documentation, are proprietary to Liberty. Nothing in this
Agreement grants title of the Liberty Software, or any patents,
copyrights, trademarks and trade secrets therein, to UFL. In addition to
the obligations of UFL pursuant to Article 10, UFL shall protect the
confidentiality of all source code and related documentation, object code
and other confidential and proprietary information, trade secrets, and
know-how related to the Liberty Software that UFL receives from Liberty in
connection with the license of the Liberty Software, and UFL shall use
such source code, documentation, object code and other information, trade
secrets and know-how only for the purposes of exercising UFL's rights
under its license to the Liberty Software. UFL shall not sell its license
to use the Liberty Software to a third party (except as permitted by
Section 4.02(c) or 16.01) or disclose any of such code, documentation,
information, trade secrets or know-how, except to those officers, agents,
employees and third-party contractors of UFL and to the officers, agents,
third-party contractors and employees of its Affiliates or subsidiaries
who require access thereto in connection with the exercise of UFL's rights
under its license to the Liberty Software and who have agreed to be bound
by the confidentiality obligations of UFL hereunder. This restriction
shall not apply to any information that is generally available to the
public without restriction other than through the actions of UFL in
violation of its obligations under this Agreement, or is previously known
to, independently developed by, or rightfully acquired by UFL, in each
case without confidentiality restriction.
(c) Transferability: Sublicensing. UFL may, upon notice to Liberty,
assign all of the rights granted under this Section 4.02 with respect to
the Liberty Software, without Liberty's consent, to any Affiliate of UFL,
or to a successor entity pursuant to a merger, corporate reorganization or
sale of all or substantially all of the assets of UFL related to its
pre-need insurance business as long as the subsidiary, affiliate or
successor entity agrees in writing to be bound by the terms and conditions
of this Section 4.02. UFL may sublicense the rights granted under this
Section 4.02 with respect to the Liberty Software to another entity for
the sole purpose of such entity's performing services for UFL that are
substantially similar to the Base Services and Additional Services
performed by Liberty under this Agreement, or reasonably related to such
services or otherwise reasonably related to the business of UFL or PNL;
provided such entity agrees in writing to be bound by obligations
substantially similar to the obligations set forth in this Section 4.02.
(d) Unauthorized Disclosure. UFL shall notify Liberty promptly upon discovery of any prohibited use or disclosure of the Liberty Software (or any copies thereof) and/or any related documentation, and shall reasonably cooperate with Liberty, at UFL's expense, to help Liberty regain possession of any unauthorized disclosures, which are the fault of UFL, and prevent the further prohibited use or disclosure.
(e) WARRANTY DISCLAIMER. AFTER THE ACTIVATION DATE, THE LIBERTY SOFTWARE IS LICENSED "AS IS" AND LIBERTY DISCLAIMS, AND
UFL HEREBY EXPRESSLY WAIVES, ALL WARRANTIES EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. AFTER THE ACTIVATION DATE, LIBERTY DOES NOT WARRANT THAT THE LIBERTY SOFTWARE WILL MEET UFL'S REQUIREMENTS OR THAT THE OPERATION OF THE LIBERTY SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE OR THAT ERRORS IN THE LIBERTY SOFTWARE WILL BE CORRECTED.
(f) Breach. After the Activation Date, Liberty may terminate the license to the Liberty Software granted in this Section 4.02, without prejudice to any other remedy Liberty may have, immediately without further obligation to UFL, in the event of (i) any material breach by UFL of any of the conditions of this license as set forth in this Section 4.02 if such breach is not cured within thirty (30) days after notice of such breach is given to UFL by Liberty, or (ii) UFL making an assignment for the benefit of its creditors, the filing under any voluntary bankruptcy or insolvency law, under the reorganization or arrangement provisions of the United States Bankruptcy Code, or under the provisions of any law of like import in connection with UFL, or the appointment of a trustee or receiver for UFL or its property.
4.03 Modified Software.
(a) License. Liberty hereby grants to UFL, at no cost to UFL, a perpetual, non-transferable (except as transferability is permitted in this Agreement) royalty-free, worldwide, non-exclusive license to use, execute, reproduce, display, perform, modify, prepare derivative works based upon and sublicense as provided in Section 4.03(c), (1) all enhancements and modifications to the Liberty Software developed by Liberty pursuant to this Agreement, (2) all enhancements and modifications to the Third Party Software developed by Liberty pursuant to this Agreement and (3) all other software or enhancements and modifications thereto developed by Liberty pursuant to this Agreement (collectively, (1) through (3), inclusive, shall be referred to as the "Modified Software"), together with any and all associated documentation for use by UFL in connection with the Base Services and the Additional Services and, following the termination of this Agreement, in connection with performing, or having performed by others, services comparable to the Base Services and the Additional Services. The software licensed hereunder may not be used by UFL until expiration of this Agreement or, if earlier, the Activation Date, provided that prior to the actual date of termination or expiration, the Modified Software will only be used in a non-production environment.
(b) Title to Software and Confidentiality. UFL acknowledges that Liberty represents that the Modified Software, all copies thereof and all related documentation, are proprietary to Liberty. Nothing in this Agreement grants title of the Modified Software, or any patents, trademarks and trade secrets therein, to UFL. In addition to the obligations of UFL pursuant to Article 10, UFL shall protect the confidentiality of all source code and related documentation, object code and other confidential and proprietary information, trade secrets, and know-how related to the Modified Software that UFL receives from Liberty in connection with the license of the Liberty Software, and UFL shall use such source code, documentation, object code and other information,
trade secrets and know-how only for the purposes of exercising UFL's rights under its license to the Modified Software. UFL shall not sell its license to use the Modified Software to a third party (except as permitted by Section 4.03(c) or 16.01) or disclose any of such code, documentation, information, trade secrets or know-how, except to those officers, agents, employees and third-party contractors of UFL and to the officers, agents, third-party contractors and employees of its Affiliates or subsidiaries who require access thereto in connection with the exercise of UFL's rights under its license to the Modified Software. This restriction shall not apply to any information that is generally available to the public without restriction other than through the actions of UFL in violation of its obligations under this Agreement, or is previously known to, independently developed by, or rightfully acquired by UFL, in each case without confidentiality restriction.
(c) Transferability: Sublicensing. UFL may, upon notice to Liberty,
assign all of the rights granted under this Section 4.03 with respect to
the Liberty Software, without Liberty's consent, to any Affiliate of UFL,
or to a successor entity pursuant to a merger, corporate reorganization or
sale of all or substantially all of the assets of UFL related to its
pre-need insurance business as long as the subsidiary, affiliate or
successor entity agrees in writing to be bound by the terms and conditions
of this Section 4.03. UFL may sublicense the rights granted under this
Section 4.03 with respect to the Modified Software to any other entity for
the purpose of such entity's performing services for UFL that are
substantially similar to the Base Services and Additional Services
performed by Liberty under this Agreement, or reasonably related to such
services or otherwise reasonably related to the business of UFL or PNL;
provided such entity agrees in writing to be bound by obligations
substantially similar to the obligations set forth in this Section 4.03.
(d) Unauthorized Disclosure. UFL shall notify Liberty promptly upon discovery of any prohibited use or disclosure of the Modified Software (or any copies thereof) and/or any related documentation, and shall reasonably cooperate with Liberty, at UFL's expense, to help Liberty regain possession of any unauthorized disclosures, which are the fault of UFL, and prevent the further prohibited use or disclosure.
(e) WARRANTY DISCLAIMER. AFTER THE ACTIVATION DATE, THE MODIFIED SOFTWARE IS LICENSED "AS IS" AND LIBERTY DISCLAIMS, AND UFL HEREBY EXPRESSLY WAIVES, ALL WARRANTIES EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. AFTER THE ACTIVATION DATE, LIBERTY DOES NOT WARRANT THAT THE MODIFIED SOFTWARE WILL MEET UFL'S REQUIREMENTS OR THAT THE OPERATION OF THE MODIFIED SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE OR THAT ERRORS IN THE LIBERTY SOFTWARE WILL BE CORRECTED.
(f) Breach. After the Activation Date, Liberty may terminate the license to the Modified Software granted in this Section 4.03, without prejudice to any other remedy Liberty may have, immediately without further obligation to UFL, in the event of (i) any material breach by UFL of any of the conditions of this license as set forth in this Section 4.03 if such breach is not cured within thirty (30) days after notice of such breach
is given to UFL by Liberty, or (ii) UFL making an assignment for the benefit of its creditors, the filing under any voluntary bankruptcy or insolvency law, under the reorganization or arrangement provisions of the United States Bankruptcy Code, or under the provisions of any law of like import in connection with UFL, or the appointment of a trustee or receiver for UFL or its property.
4.04 Changes and Upgrades to the System. Except as provided below or as may be approved by UFL, Liberty shall not make any changes or modifications to the: (1) Liberty Software, Third Party Software or the Modified Software that would materially adversely alter the functionality or materially degrade the performance of the Liberty Software or the Third Party Software; or (2) UFL Software other than emergency fixes necessary for continued performance of the Base Services and the Additional Services. UFL shall have the right to require that Liberty (i) at all times use a production (non-beta) version of the Genelco Software (and any replacement for the Genelco Software) and operating systems that is within two releases of the most current release of such Genelco Software (or replacement for the Genelco Software) or operating system running in a production environment (it being agreed that for purposes hereof an upgraded software "release" is noted by an increase in the first-level software identifier (e.g., 3.0 or 3.7 to 4.0)), that is Year 2000 Compliant and for which maintenance and support is then provided by the vendor thereof and to upgrade to a newer version or release of such Genelco Software (or replacement for the Genelco Software) as necessary to fix errors therein or to maintain compliance with applicable laws or regulations, all of which shall be performed for the Base Fees; and (ii) upgrade to any newer version or release of Genelco Software (or replacement for the Genelco Software), for which UFL agrees to compensate Liberty at the Standard Rates. Notwithstanding the foregoing, UFL agrees that through December 31, 2000, Liberty may use Genelco's LSP system (Release 3.7.1 or higher) so long as such release continues to be supported by Genelco. In addition, Liberty shall pay the cost of any modification or enhancement to, or substitution for, the System and any other equipment or software used in connection with the Base Services or the Additional Services necessitated by (a) unauthorized changes to the UFL Software, (b) unauthorized changes to the Liberty Software (except as may result from the implementation of an Additional Service), (c) unauthorized changes to the Modified Software (except as may result from the implementation of an Additional Service) or (d) unauthorized changes to the Third Party Software, including the operating environment for the System.
4.05 Independent Contractor Agreements. Liberty shall obtain and maintain in effect written agreements with each of its independent contractors who participate in any of Liberty's work under this Agreement sufficient to support all grants and assignments of rights and ownership in this Article 4.
4.06 Third-Party Software and Services. If Liberty anticipates using any software developed or otherwise owned by a third party, including but not limited to the Genelco Software (together with any and all associated documentation, "Third Party Software"), to provide any Base Services or Additional Services, Liberty shall identify in writing to UFL: (1) the nature of the Third Party Software, (2) its owner, (3) any restrictions or royalty terms applicable to Liberty's or UFL's use of the Third Party Software, (4) the source of Liberty's authority to employ the Third Party Software in the provision of Base Services or Additional Services, (5) any modifications to the Third Party Software made by or for Liberty and whether
such modifications or enhancements are owned by Liberty or the third party
vendor of the Software, and (6) whether the object and/or source code (and
appropriate use license) for the Third Party Software will be delivered to UFL
by Liberty upon termination or expiration of this Agreement. The Third Party
Software as of the date of this Agreement is set forth on Exhibit N. If Liberty
anticipates using any services provided by a third party to provide any Base
Services or Additional Services, Liberty shall identify in writing to UFL: (1)
the nature of the third party service and (2) the identity and address of the
entity, person or persons providing such service. On a quarterly basis, within
the first two weeks of each calendar quarter, Liberty shall deliver to UFL a
written update of all information required to be provided pursuant to this
Section 4.06.
4.07 Hardware. Unless otherwise provided in the Agreement, Liberty shall obtain and maintain, at its cost and expense (including but not limited to delivery, installation and connectivity), all computer hardware and peripherals, telecommunications products and services and other equipment, together with any and all associated documentation ("Hardware") necessary for the performance of the Base Services and the Additional Services that are performed at Liberty's facilities. Liberty will provide UFL with a complete listing of all Hardware, which listing shall be updated on an annual basis throughout the Term or the Renewal Term.
ARTICLE 5
UFL DATA
5.01 Ownership of UFL Data. All data and information submitted to Liberty by UFL in connection with the Base Services and the Additional Services or produced by Liberty in performing the Base Services and Additional Services (the "UFL Data") is and shall remain the exclusive property of UFL and shall be considered the Confidential Information of UFL. UFL Data shall not be (1) used by Liberty other than in connection with providing the Base Services and the Additional Services, (2) disclosed, sold, assigned, leased or otherwise provided to third parties by Liberty or (3) commercially exploited by or on behalf of Liberty, its employees or agents. Data and information submitted to Liberty by PNL in connection with the Base Services and the Additional Services or produced by Liberty in performing the Base Services and Additional Services is and shall remain the exclusive property of PNL but, from and after the Closing, shall be deemed to be UFL Data and for purposes of this Agreement to be considered the Confidential Information of UFL.
5.02 Correction of Errors. At its own expense, Liberty shall promptly correct any errors or inaccuracies in the UFL Data (1) caused by Liberty or (2) which fall within the normal level of such errors or inaccuracies at UFL's facilities prior to the date of this Agreement. At UFL's expense (calculated using the Standard Rates and subject to the prior agreement of UFL), Liberty shall, with reasonable promptness in light of the nature of the errors or inaccuracies, correct any other errors or inaccuracies in the UFL Data. UFL is responsible for (a) the accuracy and completeness of the UFL Data provided by UFL and (b) any errors in and with respect to data obtained from Liberty because of any inaccurate or incomplete UFL Data provided by UFL.
5.03 Ownership of Media. Unless furnished or paid for by UFL, all media upon which UFL Data is stored is and shall remain the property of Liberty.
5.04 Return of Data. Upon (i) the expiration or termination of this Agreement for any reason, (ii) the reasonable request by UFL at any time, at Standard Rates, (iii) with respect to any particular UFL Data, on such earlier date that such data are no longer required by Liberty in order to provide the Base Services or Additional Services or in order to comply with applicable third-party insurance administrator laws and regulations, Liberty shall (1) promptly return to UFL, in the format and on the media reasonably requested by UFL, all UFL Data or, at the election and direction of UFL (2) with respect to UFL Data returned pursuant to clauses (i) or (iii) above and at the election and direction of UFL, erase or destroy all UFL Data in Liberty's possession and provide written certification thereof. Any archival tapes containing UFL Data shall be used by Liberty solely for backup purposes.
ARTICLE 6
SOURCE AND OBJECT CODE AND BACK-UP.
6.01 Source Code. Except as may be prohibited by the applicable license of Third-Party Software, Liberty shall deliver to UFL every ninety (90) days after the date of this Agreement during the Term or the Renewal Term a copy of all of the source and object code and related documentation in respect of the UFL Software, if modified, the Liberty Software, the Third Party Software and the Modified Software as may be necessary to recreate the functionality of, and operate, the UFL Software, the Liberty Software, the Third Party Software and the Modified Software.
6.02 Back-Up. Liberty shall make tapes, microfiche and other hardcopy backups containing copies of any and all UFL Data then residing on the System (the "Back-Up Copies") and shall maintain the Back-Up Copies in accordance with the procedures and for the time periods set forth in Exhibit O. Liberty shall send the Back-Up Copies to the off-site storage facilities (collectively, the "Off Site Facilities"; each, an "Off Site Facility") also described in Exhibit O or to any other facility which Liberty may select to replace a current Off-Site Facility, provided, however, that (1) UFL receives at least thirty (30) days advance written notice of any change in the location of an Off Site Facility and (2) that each new Off Site Facility is reasonably acceptable to UFL and maintains at least the same level of security procedures which were maintained at the replaced Off Site Facility and otherwise complies with the provisions of this Agreement. Upon request, authorized personnel of UFL shall be permitted access to the Off Site Facilities during normal business hours subject to any reasonable security procedures or other restrictions in effect at the Off Site Facilities at the time of the access. Upon the reasonable request of UFL, Liberty shall make available to UFL a copy of such of the Back-Up Copies as UFL shall request and UFL shall compensate Liberty therefor at Standard Rates.
ARTICLE 7
CONTINUED PROVISION OF SERVICES.
7.01 Disaster Recovery Plan. Exhibit P sets forth the procedures to
be followed with respect to the continued provision of the Base Services and the
Additional Services in the event the Data Center is unavailable for use by
Liberty because it has been destroyed, damaged or is otherwise not available for
use (the "Disaster Recovery Plan") to such an extent that Liberty is unable to
provide any or all of the Base Services or the Additional Services. Liberty may
modify or change the Disaster Recovery Plan at any time; provided, however, that
such change or modification shall be reasonably acceptable to UFL and shall not
materially adversely affect Liberty's ability to restore the Base Services or
the Additional Services. Liberty shall (1) notify UFL of any material change or
modification in the Disaster Recovery Plan, (2) test the Disaster Recovery Plan
at least once every calendar year during the Term or the Renewal Term and
certify to UFL that the Disaster Recovery Plan is operational, (3) consult with
UFL regarding the priority to be given to the Base Services and the Additional
Services during the pendency of any such disaster and (4) not be excused from
implementing the Disaster Recovery Plan as a result of the events described in
Section 7.02.
7.02 Force Majeure. Neither party shall be liable, or be deemed to be in default, to the other party hereunder (except as provided in Section 7.01) by reason or on account of any delay or omission caused by epidemic, fire, order of a court of competent jurisdiction (other than preliminary or permanent injunctions issued pursuant to Liberty's indemnity obligations for intellectual property infringement set forth in Section 14.02), executive decree or order, act of God or public enemy, war, riot, civil commotion, flood, earthquake, accident, explosion, casualty, embargo or any other cause beyond the reasonable control of such party; provided that such force majeure event that is an accident or casualty is not caused directly or indirectly by the excused party and could not have been prevented by such party's reasonable diligence; and provided, further, that such events shall not be excused to the extent they are within or can be obviated by the implementation of Liberty's Disaster Recovery Plan. The time of performance for each party's obligations under this Agreement shall be extended by such period of enforced delay; provided, however, that in the event such enforced delay on the part of Liberty exceeds thirty (30) days, UFL may terminate this Agreement upon notice to Liberty without regard to Article 13. For clarity, neither financial hardship nor issues related to whether products are Year 2000 Compliant shall be considered a force majeure event.
ARTICLE 8
PAYMENTS TO LIBERTY.
8.01 Base Fees. In consideration of Liberty providing the Base Services, UFL shall pay to Liberty the fees set forth in Exhibit Q (the "Base Fees"), subject to any applicable adjustments set forth in this Agreement, according to the payment terms set forth in Exhibit Q.
8.02 Additional Service Fees. In consideration of Liberty providing the Additional Services, UFL shall pay the Additional Service Fees in the manner agreed upon by UFL and Liberty in accordance with Section 3.02.
8.03 Telecommunication Charges. Unless set forth otherwise in this Agreement, all telecommunication charges incurred by Liberty in respect to the Base Services or the Additional Services shall be paid by Liberty and the same will be deemed included in the fee for such services.
8.04 Payment Schedule. Unless set forth otherwise in this Agreement, the Base Fees, the Additional Service Fees and any other fees or charges owed by UFL shall be due and payable no later than thirty (30) days after UFL's receipt of an invoice from Liberty, unless disputed in good faith in accordance with Section 12.02 of this Agreement. Each invoice shall include one or more reports describing (1) the charges in a detailed itemized fashion, and (2) such other information as may be reasonably requested by UFL to ascertain Liberty's compliance with this Agreement. Liberty shall invoice UFL for charges under this Agreement on a monthly basis, unless otherwise specified in this Agreement. UFL shall be invoiced on the first of each month for the estimated services to be performed in such month based upon the fees set forth in Exhibit Q and for any Additional Services provided in the prior month. Payment shall be due by UFL fifteen (15) days after receipt of the invoice. All estimated amounts on the prior month's invoice are to be trued-up in the current month's invoice. UFL shall pay Liberty all amounts when due by ACH transfer of immediately available funds in U.S. dollars. Subject to the provisions of Section 12.02, if any invoice is not paid within thirty (30) days of receipt by UFL, UFL shall pay Liberty interest on the past due amount at a rate of XXX% per month; provided, however, that the charging of interest is not a consent to late payment. Except as provided in Section 9.03 neither (i) the failure of Liberty to deliver an invoice for services rendered or to be rendered under the terms of this Agreement nor (ii) any error in the amount billed by Liberty for such services shall constitute a waiver by Liberty of UFL's obligation to pay for such services.
8.05 Taxes
(a) UFL shall pay to Liberty all sales, use and excise taxes (not including any personal property taxes or taxes based on Liberty's net income) based on the provision of the Base Services or the Additional Services which are found to be applicable and that Liberty is required under applicable law to collect. The appropriate amount of tax shall be invoiced to and paid by UFL to Liberty at the same time and on the same conditions as applied to the payment due.
(b) If UFL disagrees with Liberty's determination that any tax is due with respect to the subject matter of this Agreement, and Liberty is attempting to invoice UFL for such tax as provided in Section 8.05(a) then UFL shall have the right to seek an administrative determination from the applicable taxing authority, or alternatively, UFL shall have the right to legally contest any asserted claim for taxes and, to the extent allowed by law, withhold payment of such contested taxes. UFL shall have the right to control any such administrative or legal proceedings, and in connection therewith Liberty shall (i) be consulted, and (ii) cooperate with UFL and take any and all actions reasonably requested by UFL (at UFL's expense).
(c) If any taxes payable by UFL that are required to be collected by Liberty pursuant to Section 8.05(a) are not invoiced by Liberty (or are invoiced on a date such
that UFL and Liberty are not reasonably able to deliver the amount of such taxes to the relevant taxing authority in a timely fashion), and it is ultimately determined that such taxes are due and payable, then UFL shall reimburse Liberty for the amount of such taxes, provided that Liberty shall indemnify UFL from any and all interest and other penalties assessed as a result of such taxes not being paid in a timely manner.
(d) Amounts paid to Liberty as a result of this Section 8.05 shall be reduced or refunded to the extent that Liberty obtains a net tax benefit (including but not limited to foreign tax credits) resulting from the payment of the relevant taxes. The parties will cooperate in good faith to determine the amount of such net tax benefit (if any).
(e) UFL shall not be required to pay or otherwise be liable or responsible for, and Liberty hereby indemnifies, defends and holds UFL harmless against, any penalty, additional tax, costs or interest that may be assessed or levied by any taxing authority as a result of the failure of Liberty to file any return, form, or information statement that may be duly required from Liberty by such taxing authority or to pay any tax amounts collected from UFL hereunder.
(f) In addition, notwithstanding the foregoing provisions of this
Section 8.05, with respect to all individuals it provides to perform the
services required under this Agreement, Liberty shall be responsible for
and make all appropriate tax payments and tax withholding and shall verify
such individuals as being legally able to work in the United States.
8.06 XXX
8.07 Adjustment to Fees. XXX
8.08 Expenses. Except for those certain pass-through expenses identified in Exhibit Q (which will be reimbursed by UFL at out-of-pocket cost), any expenses, including expenses for supplies, facilities, management, clerical help, application development tools, overtime expenses, travel expenses related to the Base Services (except for travel specifically requested by UFL) incurred by Liberty in connection with its provision of the Base Services, installation and ongoing dedicated lines from Liberty's facilities to UFL's facility in Atlanta and all telecommunications hardware and software located at Liberty's facilities required for performance by Liberty are included in the Base Fees and shall not be reimbursed by UFL unless agreed to in advance in writing by UFL. If agreed upon in advance in writing by UFL, UFL shall pay or reimburse Liberty for the reasonable and actual documented expenses, including travel and travel-related expenses, incurred by Liberty in connection with its performance of the Additional Services provided that such expenses are incurred in accordance with UFL's then-current reimbursement policy for such expenses. Liberty will reasonably cooperate with UFL to reduce the costs associated with any reimbursable expenses.
8.09 [RESERVED]
8.10 Proration. All fees or charges under this Agreement that are to be computed on a periodic basis (e.g., monthly, yearly, etc.) will be prorated on a daily basis for any partial period (or prorated as otherwise agreed by the parties).
8.11 Reports
(a) Unless agreed otherwise by the parties, Liberty agrees to provide to UFL at least monthly a written report on the services and the progress of any work required under this Agreement, any anticipated problems (resolved or unresolved), and any indication of delay in fixed or tentative schedules.
(b) Approximately once every three months unless mutually agreed otherwise, the Management Committee and other invited parties shall meet for a formal progress presentation during which Liberty's management shall describe the status of the services and work required under this Agreement. Such presentation shall provide projections of the time of completion and the status of services, and shall address any problems that have come to Liberty's attention and Liberty's views as to how such problems may be resolved.
(c) Liberty shall, from time to time and upon reasonable notice, allow access to its premises by UFL for purposes of ongoing supervision, design reviews, "walk throughs," and discussions by UFL with management and personnel of Liberty concerning the status and conduct of services and work being performed under this Agreement.
(d) Liberty shall also submit to UFL any reports concerning the performance of the services as UFL may reasonably request from time to time. Other than reports provided for in the Project Plan or otherwise expressly provided for in this Agreement, reports requested pursuant to this Section 8.11(d) shall be provided at Standard Rates.
8.12 Records. Liberty shall maintain complete and accurate accounting records in accordance with sound accounting practices to substantiate Liberty's charges under this Agreement and on each invoice. Such records shall not include Liberty's pricing model for this Agreement. Liberty shall preserve such records for a period of at least two (2) years after completion of the pertinent services.
ARTICLE 9
AUDITS.
9.01 Monitoring Audit of Services
(a) In connection with the provision of the Base Services and the Additional Services, Liberty shall provide UFL with the right to regularly monitor on-site the performance of such services. In connection therewith, Liberty will provide during the period that either Base Services or Additional Services are being provided to UFL, office
space at Liberty's customer support facility for one on-site monitor designated from time to time by UFL. Such space shall be reasonably appropriate for use by UFL's monitor and shall contain appropriate furniture, telephone and computer access to the System for inquiry only. Liberty shall make access to this office available to UFL's on-site monitor during all hours that Customer Services are being performed. Liberty shall provide UFL's on-site monitor with access to all customer service reports related to performance of the Base Services and the Additional Services and the ability to monitor Customer Services being performed, including telephone conversations.
(b) In addition to regular on-site monitoring as provided in Section 9.01(a), upon notice from UFL (which notice shall be reasonable advance notice in the case of audits or inspections not requested or required by a federal or state authority), Liberty shall provide such auditors and inspectors as UFL or any federal or state regulatory authority may, from time to time, designate with access to the Data Center and for the purpose of performing, at UFL's expense, audits or inspections of the business of Liberty (including Liberty's provision of the Base Services and the Additional Services to UFL). Such audits may include, but are not limited to, the internal control audits described in Exhibit R. Liberty shall provide to such auditors and inspectors any assistance that they reasonably require. If any audit by a regulatory authority having jurisdiction over UFL or Liberty results in Liberty being notified that it is not in compliance with any rule, regulation or law relating to the Base Services and the Additional Services, Liberty shall, at its own expense and within the period of time specified by such regulatory authority, comply with such regulatory authority.
(c) All on-site monitoring and other audits and inspections pursuant to this Section 9.01 shall be conducted in such a manner so as not to unreasonably interfere with Liberty's normal operations. While on Liberty's premises, UFL's personnel shall (1) observe the rules and requirements of Liberty regarding personal or professional conduct and appearance and (2) otherwise conduct themselves in a businesslike manner. In the event that Liberty determines that a particular employee or employees of UFL is not conducting himself, herself or themselves appropriately, Liberty may notify UFL of and provide UFL documentation of, such fact and UFL shall promptly correct such conduct to Liberty's reasonable satisfaction or remove him, her or them from Liberty's premises. All Confidential Information of Liberty obtained as a result of any monitoring, audits or inspections pursuant to this Section 9.01 shall be held by UFL in accordance with the provisions of Article 10.
9.02 Audit of Charges. Upon at least five days' notice from UFL and no more than twice during any calendar year (unless a previous audit reveals a discrepancy), Liberty shall provide UFL with access to all of the financial records and supporting documentation in respect of its charges to UFL, excluding Liberty's pricing model for this Agreement. If, as a result of such audit, UFL determines that Liberty has overcharged UFL, UFL shall notify Liberty of the amount of such overcharge and Liberty shall promptly pay to UFL the amount of the overcharge, plus interest at the rate of XXX% per month, but in no event to exceed the highest lawful rate of interest, calculated from the date of receipt by Liberty of the overcharged amount until the date of payment to UFL. All Confidential Information of UFL obtained as a result of such audits shall be held by Liberty in accordance with the provisions of Article 10.
9.03 Undercharges. If as a result of an internal audit of its charges to UFL, Liberty determines that it has undercharged UFL, Liberty may provide UFL with an invoice in respect of such amount. Any such invoice shall include the information specified in Section 8.04 and evidence that the amount was not charged to UFL previously. Upon receipt of this information and evidence, UFL shall pay the amount of the undercharge according to Section 8.04 unless disputed in good faith; provided, however, that UFL shall not be obligated to pay any charges related to Base Services or Additional Services provided more than twelve (12) months before the date of the invoice for such charges; provided, further that charges for Base Services or Additional Services that are by their terms due more than twelve (12) months following the date of such services may only be covered in an invoice delivered no later than six (6) months after the date on which such charges were originally due.
ARTICLE 10
CONFIDENTIALITY
10.01 Confidential Information. All confidential or proprietary information and documentation ("Confidential Information") relating to either party shall be held in confidence by the other party (including its Affiliates or subsidiaries) to the same extent and in at least the same manner as such party protects its own confidential or proprietary information, but in any event using no less than reasonable security measures. Neither party shall disclose, publish, release, transfer or otherwise make available Confidential Information of the other party in any form to, or for the use or benefit of, any person or entity without the other party's approval. Each party shall, however, be permitted to disclose relevant aspects of the other party's Confidential Information to its officers, agents, employees and third-party contractors and to the officers, agents, third-party contractors and employees of its Affiliates or subsidiaries to the extent that such disclosure is reasonably necessary for the performance of its duties and obligations under this Agreement, provided that such party shall take all reasonable measures to ensure that Confidential Information of the other party is not disclosed or duplicated in contravention of the provisions of this Agreement by such officers, agents and employees. The obligations in this Section 10.01 shall not restrict any disclosure by either party pursuant to any applicable law, or by order of any court or government agency (provided that the disclosing party shall endeavor to give such notice to the non-disclosing party as may be reasonable under the circumstances) and shall not apply with respect to information that is independently developed by the other party, becomes part of the public domain (other than through unauthorized disclosure), is disclosed by the owner of such information to a third party free of any obligation of confidentiality or which either party gained knowledge or possession of free of any obligation of confidentiality.
10.02 Unauthorized Acts. Each party shall: (1) notify the other party promptly of any material unauthorized possession, use or knowledge, or attempt thereof, of the other party's Confidential Information by any person or entity which may become known to such party, (2) promptly furnish to the other party full details of the unauthorized possession, use or knowledge, or attempt thereof, and assist the other party in investigating or preventing the reoccurrence of any unauthorized possession, use or knowledge, or attempt thereof, of Confidential Information, (3) use reasonable efforts to cooperate with the other party in any litigation and investigation against third parties deemed necessary by the other party to protect its
proprietary rights and (4) promptly use all reasonable efforts to prevent a reoccurrence of any such unauthorized possession, use or knowledge of Confidential Information. Each party shall bear the cost it incurs as a result of compliance with this Section 10.02.
10.03 Action by Parties. Neither Liberty nor UFL shall commence any legal action or proceeding in respect of any unauthorized possession, use or knowledge, or attempt thereof, of the other party's Confidential Information by any person or entity without the consent of such other party.
ARTICLE 11
REPRESENTATIONS AND WARRANTIES
11.01 BY UFL. UFL represents, warrants and covenants that:
(a) it is a corporation duly incorporated, validly existing and in good standing under the laws of Georgia;
(b) it has all the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement;
(c) the execution, delivery and performance of this Agreement has been duly authorized by UFL;
(d) no approval, authorization or consent of any governmental or regulatory authority is required to be obtained or made by it in order for it to enter into and perform its obligations under this Agreement;
(e) it has not, and will not, disclose any Confidential Information of Liberty in violation of the terms of this Agreement;
(f) the UFL Software (i) is original works of authorship of which UFL is the owner or licensee of all right, title and interest, with the right to sublicense to Liberty; (ii) is not subject to any valid patent, copyright, trademark or any other proprietary rights of any third party; and (iii) does not and will not infringe upon the proprietary rights of any third party;
(g) it has obtained, or shall have obtained on or before April 1, 1998, consent or licenses from all necessary third-party software vendors to permit Liberty to gain access to and to use the UFL Software to provide the Base Services for the term necessary during this Agreement, at no cost to Liberty;
(h) the Policies which are the subject of the Base Services hereunder were issued in conformity in all material respects with the laws and regulations of the jurisdiction governing the issue or delivery of such Policies at the time of issue and such Policies will remain in compliance in all material respects with applicable laws and regulations during the term of this Agreement. The policy forms that have been used by UFL to issue the Policies which are the subject of the Base Services, and any Policies acquired by UFL
during the term of this Agreement which are the subject of the Base Services hereunder have been filed, where necessary, with the appropriate state insurance authorities in the states where such products have been offered and meet in all material respects all applicable legal requirements of each such state;
(i) there is no claim, action, suit, investigation, or proceeding pending or, to UFL's knowledge, contemplated or threatened against UFL which seeks damages or penalties in connection with any of the transactions contemplated by this Agreement or to restrict or delay the transactions contemplated hereby or to limit in any manner Liberty's rights under this Agreement;
(j) there are no brokers with claims to fees based upon the transactions contemplated under this Agreement; and
(k) the nature of its obligations are time sensitive, and accordingly, time is of the essence in the performance of UFL's obligations under this Agreement.
11.02 By Liberty. Liberty represents, warrants and covenants that:
(a) it is a corporation duly incorporated, validly existing and in good standing under the laws of South Carolina;
(b) it has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement;
(c) the execution, delivery and performance of this Agreement has been duly authorized by Liberty;
(d) no approval, authorization or consent of any governmental or regulatory authority is required to be obtained or made by it in order for it to enter into and perform its obligations under this Agreement;
(e) it has not, and will not, disclose any Confidential Information of UFL in violation of the terms of this Agreement;
(f) the Base Services and the Additional Services shall be rendered by personnel reasonably qualified by training and experience to perform such services;
(g) the Base Services and the Additional Services do not and will not infringe upon the proprietary rights of any third party;
(h) the Liberty Software is, and the Modified Software developed by Liberty when delivered will be, original works of authorship of which Liberty is the owner of all right, title and interest; are not subject to any valid patent, copyright, trademark or any other proprietary rights of any third party; and do not and will not infringe upon the proprietary rights of any third party;
(i) the Base Services and the Additional Services will be provided with diligence and shall be executed in a workmanlike manner in accordance with practices and professional standards used in well-managed operations performing services similar to the Base Services and the Additional Services;
(j) it will use all commercially reasonable efforts to complete the Software Modification Services (including making the Modified Software, the Liberty Software and the Third Party Software, other than software on which no PNL Policies other than the Pan Western and Brookings blocks are currently being processed, Year 2000 Compliant) and Data Conversion Services, and commence the Data Processing Services with respect to all Policies except the Pan Western and Brookings blocks by December 31, 1998;
(k) it has obtained all consents, approvals, licenses or assignments necessary to perform the Base Services and the Additional Services;
(l) Liberty will take reasonable precautions and will apply testing procedures to assure that the Liberty Software, Third Party Software and the Modified Software are free from material reproducible programming errors and defects in workmanship and materials, and the Modified Software will conform in all material respects to the Specifications. If material reproducible programming errors are discovered, Liberty shall promptly remedy them at no additional expense to UFL;
(m) Liberty will take reasonable precautions and will use industry-accepted virus scan software to verify that no portion of the Liberty Software, Third Party Software or the Modified Software contains or will contain any protection feature designed to prevent its use. This includes, without limitation, any computer virus, worm, software lock, drop dead device, Trojan-horse routine, trap door, time bomb or any other codes or instructions that may be used to access, modify, delete, damage or disable the Liberty Software or the Modified Software. Liberty further warrants that it will not impair the operation of the Liberty Software or the Modified Software in any way other than by order of a court of law;
(n) the Modified Software, the Liberty Software and the Third Party Software is Year 2000 Compliant or will be Year 2000 Compliant by August 1, 1998, or such other date as may be mutually agreed to by UFL and Liberty. Exhibit V contains a materially accurate description of the portions of the Modified Software, Liberty Software and Third Party Software that are not currently Year 2000 Compliant as well as Liberty's intended Schedule for making those portions Year 2000 Compliant;
(o) Liberty has, or prior to the performance of any Customer Services will have, all licenses and permits from state or federal regulatory authorities required for the performance of the Base Services;
(p) there is no claim, action, suit, investigation, or proceeding pending or, to Liberty's knowledge, contemplated or threatened against Liberty which seeks damages or penalties in connection with any of the transactions contemplated by this Agreement or to
restrict or delay the transactions contemplated hereby or to limit in any manner UFL's or, after Closing UFL's and PNL's rights under this Agreement;
(q) there are no brokers with claims to fees based upon the transactions contemplated under this Agreement; and
(r) the nature of its obligations are time sensitive and accordingly, time is of the essence in the performance of Liberty's obligations under this Agreement.
11.03 Consents
(a) All licenses, consents and approvals necessary for Liberty to provide the Base Services pursuant to this Agreement have been, or prior to the requirement therefor will be, obtained by Liberty. Liberty shall bear the cost of obtaining the Consents, including any additional license or sublicense fees or transfer fees. Liberty has provided to UFL a consent letter from Genelco with respect to the Genelco software.
(b) All licenses, consents and approvals necessary for Liberty to grant the license rights granted to UFL pursuant to this Agreement have been, or prior to the requirement therefor will be, obtained by Liberty. To the extent that the grantor of such licenses, consents and approvals requires the payment of a fee by Liberty in connection with such license grant to UFL, UFL shall reimburse Liberty for the full amount of such fee. All licenses, consents and approvals described in this Section 11.03(a) and (b) are sometimes referred to herein as the "Consents."
11.04 DISCLAIMER. EXCEPT AS SPECIFIED IN SECTIONS 11.01 or 11.02, NEITHER LIBERTY NOR UFL MAKES ANY OTHER WARRANTIES IN RESPECT OF THE BASE SERVICES, THE ADDITIONAL SERVICES OR THE SYSTEM AND EACH EXPLICITLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A SPECIFIC PURPOSE.
ARTICLE 12
DISPUTE RESOLUTION
12.01 Management Committee. UFL and Liberty shall each appoint a member or an equal number of members of its managerial staff to serve on a joint management committee (the "Management Committee"). The Management Committee shall meet during the first week of each calendar month during the Term and the Renewal Term (or such other time as the Management Committee may agree upon from time to time) for the purpose of reporting progress, discussing opportunities, reviewing business plans that may impact the Base Services or Additional Services, and resolving disputes that may arise under this Agreement. The Management Committee shall consider the disputes in the order such disputes are brought before it. In the event that the Management Committee is unable to resolve a dispute, the Management Committee shall notify the senior management of UFL and Liberty and the dispute shall be escalated to UFL's and Liberty's presidents for their review and resolution. If the dispute cannot
be resolved by such officers, then the parties may initiate formal proceedings; provided however, formal proceedings for the judicial resolution of any such dispute may not be commenced until the earlier of:
(i) the designated representatives concluding in good faith that amicable resolution through continued negotiation of the matter in issue does not appear likely;
(ii) thirty (30) days after the initial request to negotiate such dispute; or
(iii) thirty (30) days before the statute of limitations governing any cause of action relating to such dispute would expire.
No dispute under this Agreement shall be the subject of litigation
or other formal proceeding between UFL and Liberty before being considered by
the Management Committee (excluding a party's indemnity obligations under
Section 14 and an action to compel compliance with this Section); provided,
however, that either party may seek injunctive relief to prevent or stay a
breach of Article 5 and Article 10 without appearing before the Management
Committee.
All service by Liberty's personnel on the Management Committee and in connection with the resolution of disputes is included in the Base Services.
12.02 Continued Performance. In the event of a good faith dispute between UFL and Liberty regarding this Agreement that cannot be resolved by the Management Committee pursuant to which UFL in good faith believes it is entitled to withhold payment, UFL shall, upon request by Liberty and on the date which any Base Fees or Additional Service Fees are required to be made during the pendency of such dispute, deposit the disputed amount only of the Base Fees or the Additional Service Fees in an interest-bearing escrow account in the bank or depository specified by Liberty and furnish evidence of such deposit to Liberty; provided, that the maximum aggregate amount of disputed Base Fees or Additional Service Fees which may be held in any such escrow account at any one time shall be a maximum of five percent (5%) of total amounts paid in the prior year under this Agreement, exclusive of any Conversion Costs or Software Modification Costs (as defined on Exhibit Q); and provided further, however, that if this Agreement shall have been in effect for less than one year, the amounts paid since the Effective Date shall be annualized. The parties shall escalate the resolution of any such dispute to the presidents of UFL and Liberty within 30 days of the deposit of the funds into the escrow account. For as long as UFL makes such escrow deposits during the pendency of such dispute, Liberty shall continue to provide the Base Services and the Additional Services. Upon resolution of the dispute, the prevailing party shall be entitled to all money in the escrow account, plus any interest earned on such money.
12.03 Non-Competition. During the term of this Agreement and for a period of two (2) years after its termination or expiration for any reason, Liberty and The Liberty Corporation and their Affiliates will not compete directly or indirectly with UFL or PNL in the marketing or underwriting of insurance contracts sold through or in connection with funeral homes as a funding vehicle for funeral service contracts in any state of the United States or province of Canada in which PNL or Affiliates markets such insurance contracts as of the
Effective Date, if UFL or PNL is then marketing or underwriting such insurance contracts in such state or province. Nothing contained in this Section 12.03 shall preclude the Liberty Corporation or its Affiliates from continuing to sell other types of final expense insurance. Nothing contained in this Agreement shall be construed to restrict Liberty from offering or providing to any competitor of UFL or PNL services similar to the Base Services or the Additional Services.
ARTICLE 13
TERMINATION: EFFECT OF TERMINATION OR EXPIRATION
13.01 UFL Termination. UFL may terminate the Term of this Agreement on and after the first anniversary of the Effective Date, at any time and without cause, upon at least ninety (90) days notice to Liberty prior to such termination date, provided that UFL pays to Liberty the applicable Termination Fee as set forth in Section 13.08, payable together with the notice of termination.
13.02 Termination on Change of Control.
(a) In the event of a sale of all or substantially all of the assets
of Liberty or a sale of sufficient stock of Liberty to effect a change in
Control (a "Change of Control Event"), scheduled to occur within eighteen
(18) months after the Effective Date:
(i) if Liberty delivers to UFL a First Refusal Notice with respect to the Change in Control Event as provided in Section 13.02(c), and UFL rejects the offer thereunder in accordance with the time period set forth in Section 13.02(c), upon consummation of the Change of Control Event, UFL may terminate this Agreement by giving ninety (90) days prior written notice to Liberty, and UFL shall pay the applicable Termination Fee, as set forth in Section 13.08 payable together with the notice of termination;
(ii) if Liberty does not deliver a First Refusal Notice to UFL, Liberty shall give UFL advance written notice of the Change of Control Event and, following consummation of the Change of Control Event, within thirty (30) days of the later of receipt of notice of the Change of Control Event or consummation of the Change of Control Event, UFL may terminate this Agreement by giving ninety (90) days prior written notice to Liberty without payment of any Termination Fee.
(b) In the event of a Change of Control Event that occurs after eighteen (18) months following the Effective Date, Liberty shall give UFL advance written notice of the Change of Control Event, and UFL may terminate this Agreement within thirty (30) days of the later of notice of the Change of Control Event or the consummation of the Change of Control Event by giving ninety (90) days prior written notice to Liberty, and UFL shall pay fifty percent (50%) of the otherwise applicable Termination Fee as set forth in Section 13.08, payable together with the notice of termination.
(c) If Liberty receives a bona fide written offer from a prospective purchaser of substantially all of the assets of Liberty or sufficient stock of Liberty to effect a change in Control, and Liberty desires to accept such offer, then Liberty, in its discretion, may first deliver to UFL a notice (the "First Refusal Notice") in writing of its intention to effect such Change of Control Event upon the terms proposed by the prospective purchaser. The First Refusal Notice shall specify the name of the prospective purchaser, the assets or the number of shares of stock to be sold, the purchase price of the assets or per share price of the stock, as applicable, and the other material terms of the proposed Change of Control Event. The First Refusal Notice shall be considered an offer by Liberty to sell the assets or the stock to UFL at the price and on the terms proposed by the prospective purchaser. Within thirty (30) days after the date of its receipt of such First Refusal Notice, UFL shall, by written notice to Liberty, accept the offer as to all, but not less than all, of the assets or the stock, as the case may be, or reject such offer. If UFL does not exercise its right to purchase the assets or the stock, as the case may be, then Liberty shall be free to sell the assets or the stock, as the case may be, to the prospective purchaser named in the First Refusal Notice, at the price and on the terms and conditions set forth in the First Refusal Notice.
13.03 Termination for Cause. If either party fails to perform any of its material obligations under this Agreement (except as provided in Section 13.04), and such failure is not cured within thirty (30) days after notice is given to the defaulting party specifying the nature of the default, the non-defaulting party may, upon further notice to the defaulting party, terminate this Agreement as of the date specified in such notice of termination; provided, however, that if the defaulting party is using its best efforts to cure such failure at the end of such thirty (30) day period and diligently pursues such efforts thereafter, the non-defaulting party may not terminate this Agreement unless such failure continues for an additional thirty (30) days.
13.04 Termination for Failure to Provide Services. If Liberty fails to provide the Base Services or the Additional Services in such a fashion as to render UFL substantially unable to do one or more of the following: premium accounting, issue policies, process new business, policyholder services, claims, customer service, process commissions and administer the Canadian business, all as set forth in Exhibit E, and Liberty does not, within ten (10) business days after notice and an explanation of such failure from UFL, cure such failure or, if such failure cannot be cured within such ten (10) business day period, provide UFL with a timely workaround that allows UFL to perform its normal business operations, then UFL may, upon notice to Liberty, terminate this Agreement as of the date specified in the notice of termination.
13.05 Termination for Insolvency. In the event that either party becomes or is declared insolvent or bankrupt, is the subject of any proceedings relating to its liquidation, its insolvency or for the appointment of a receiver or similar officer for it, makes an assignment for the benefit of all or substantially all of its creditors or enters into an agreement for the composition, extension, or readjustment of all or substantially all of its obligations, then, unless the insolvent or bankrupt party (or the party obligated to guaranty the obligations of such insolvent or bankrupt party under Article 17 of this Agreement) immediately gives adequate assurance of the future performance of this Agreement, the other may, by giving written notice thereof to such party, terminate this Agreement as of a date specified in such notice of termination.
13.06 Other Terminations. This Agreement may terminate pursuant to
Section 3.01, Section 3.02, Article 7, and as set forth in the attached
Exhibits.
13.07 Effect of Expiration or Termination. Upon the expiration of this Agreement or termination of this Agreement for any reason:
(1) Liberty shall provide to UFL those Base Services or Additional Services requested by UFL for up to 365 days from the date of such expiration or termination. UFL shall pay Liberty for such Base Services or Additional Services at the then current rates in effect pursuant to Section 8.01, and Section 8.02 with respect to all such services performed during the period ending on that date which is five years following the date of the earlier to occur of: (i) the Closing or (ii) the date on which Liberty assumes responsibility for servicing the UFL operations, and at the Renewal Term Prices for all such services performed after such period (adjusted as necessary pursuant to Section 8.07).
(2) UFL shall pay Liberty for all Base Services and Additional Services performed, and systems or equipment purchased at UFL's request and delivered to UFL, through the date of such expiration or termination;
(3) Each party shall have the rights specified in Article 4 in respect of the UFL Software, the Liberty Software, the Third Party Software and the Modified Software;
(4) UFL shall not be (a) obligated to pay any termination fee to Liberty in the event of a termination of this Agreement except as provided for in Section 13.01 and 13.02; and (b) required to make any further payments under Article 8 except as provided for in Section 13.07(2).
(5) Following the expiration or termination of this Agreement, UFL may seek a license to some or all of the Third Party Software used to provide the Base Services or Additional Services as of the date of such expiration or termination. Upon UFL's request, Liberty shall provide reasonable cooperation and assistance to UFL in obtaining a license to such Third Party Software sufficient to permit UFL, or a third party designated by UFL, to provide services equivalent to the Base Services and Additional Services as then being provided by Liberty. Such cooperation and assistance shall be provided by Liberty at the Standard Rates.
(6) Following the expiration or termination of this Agreement, UFL may seek contracts applicable to services provided to UFL for maintenance, disaster recovery services, and other necessary third party services being used by Liberty to provide the Base Services or Additional Services as of the date of such expiration or termination. Upon UFL's request, Liberty shall provide reasonable cooperation and assistance to UFL in connection with UFL's obtaining contracts with such vendors for comparable third party services. Such assistance shall be provided by Liberty at the Standard Rates.
(7) Upon termination or expiration of this Agreement for any reason, Liberty agrees that, in order to provide for uninterrupted service to UFL and its customers, Liberty, at UFL's request, shall provide, at the Standard Rates, all reasonable assistance requested by UFL in promptly and orderly moving all Data Processing Services and Customer Services to UFL or a third party selected by UFL.
13.08 Termination Fee. The termination fee (the "Termination Fee") payable under Sections 13.01 and 13.02 hereunder shall be: XXX
ARTICLE 14
INDEMNITIES.
14.01 Indemnity by UFL.
(a) UFL shall indemnify Liberty from, and defend Liberty against, any liability, loss or expense (including attorneys' fees) arising out of or relating to (i) any claim that the UFL Software owned by UFL infringes upon the proprietary rights of any third party (except as may have been caused by a modification to the UFL Software by Liberty), and (ii) any claim against Liberty arising after the termination or expiration of this Agreement based upon the modifications of the Liberty Software by UFL pursuant to the license rights granted UFL in Section 4.02.
(b) UFL will defend, indemnify and hold harmless Liberty, its shareholders and agents from and against any claim, suit, demand, loss, damage, expense or liability arising out of the employment, agency or subcontracting relationship of one (1) or more of UFL's past or present employees, agents or subcontractors with UFL, including but not limited to claims relating to salaries payable by UFL, UFL termination liabilities and claims arising under the occupational health and safety or other applicable federal, state or local laws or regulations, including plant closing or mass layoff laws, the Employee Retirement Income Security Act of 1974, as amended, or the related provisions of the Internal Revenue Code of 1986, as amended.
14.02 Indemnity by Liberty.
(a) Liberty shall indemnify UFL from, and defend UFL against, any liability, loss or expense (including attorneys' fees) arising out of or relating to (1) any claim that the Base Services, the Additional Services, the Liberty Software, the Third Party Software or the Modified Software infringe upon the proprietary rights of any third party, and (2) Liberty's failure to obtain the Consents.
(b) Liberty will defend, indemnify and hold harmless UFL, its shareholders, employees and agents from and against any claim, suit, demand, loss, damage, expense or liability arising out of the employment, agency or subcontracting relationship of one (1) or more of Liberty's past or present employees, agents or subcontractors with Liberty, including, but not limited to claims relating to salaries payable by Liberty, Liberty termination liabilities and claims arising under the occupational health and safety or other applicable federal, state or local laws or regulations, including plant closing or mass layoff laws, the Employee Retirement Income Security Act of 1974, as amended, or the related provisions of the Internal Revenue Code of 1986, as amended.
14.03 Indemnification Procedures Involving Third Party Claims. If any third party makes a claim covered by Section 14.01 or Section 14.02 against any indemnitee (an
"Indemnitee") with respect to which such Indemnitee intends to seek indemnification under Section 14.01 or Section 14.02, such Indemnitee shall promptly deliver to the indemnifying party (an "Indemnifying Party") a written notice (a "Claims Notice"), including a brief description of the amount and basis thereof, if known. Upon giving such Claims Notice, the Indemnifying Party shall be obligated to defend such Indemnitee against such claim, and the Indemnitee (except as provided below) shall cooperate fully with, and assist, the Indemnifying Party in its defense against such claim at the Indemnifying Party's expense. The Indemnifying Party shall keep the Indemnitee fully apprised at all times as to the status of the defense. The Indemnitee shall have the right to employ its own separate counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such Indemnitee; provided, however, (1) if the parties agree that it is advantageous to the defense for the Indemnitee to employ its own counsel or (2) if the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Indemnifying Party and the Indemnitee in the conduct of the defense of such claim (in which case, the Indemnifying Party shall not have the right to direct or participate in the defense of such claim on behalf of the Indemnitee), then, in each such instance, the reasonable fees and expenses of counsel for such Indemnitees shall be borne by the Indemnifying Party. Neither the Indemnifying Party nor any indemnitee shall be liable for any settlement of any action or claim effected without its consent, except as set forth below.
Notwithstanding the foregoing, the Indemnitee shall retain, assume or reassume sole control over, and all expenses relating to, every aspect of the defense that it believes is not the subject of the indemnification provided for in Section 14.01, and 14.02.
Until both (a) the Indemnitee receives notice from the Indemnifying Party that it will defend and (b) the Indemnifying Party assumes such defense, the Indemnitee may, at any time after 10 days from notifying the Indemnifying Party of the claim, resist the claim or, after consultation with and the consent of the Indemnifying Party, settle or otherwise compromise or pay the claim. The Indemnifying Party shall pay all costs of the Indemnitee arising out of or relating to that defense and any such settlement, compromise or payment. The Indemnitee shall keep the Indemnifying Party fully apprised at all times as to the status of the defense.
Following indemnification as provided in Section 14.01 and 14.02, the Indemnifying Party shall be subrogated to all rights of the Indemnitee with respect to the matters for which indemnification has been made.
ARTICLE 15
DAMAGES.
15.01 Limitation of Liberty Liability. The liability of Liberty under this Agreement shall be limited to the lesser of (a) all amounts paid by UFL to Liberty under this Agreement, through and including the time at which such liability is finally adjudicated, or (b) (i) $XXX if, on or before March 31, 2000 UFL delivers a written notice of such claim to Liberty, or (ii) $XXX if, on or after April 1, 2000 UFL delivers a written notice of such claim to Liberty.
15.02 Exclusion. The limitations set forth in Sections 15.01 and 15.03 are not applicable to (1) any breach of Article 5 or Article 10, (2) the failure of UFL to make payments
due under the Agreement, (3) indemnification claims as set forth in Article 14 or (4) the gross negligence or willful misconduct of either party.
15.03 Consequential and Incidental Damages. Neither party shall be liable for any indirect, special, incidental or consequential damages.
ARTICLE 16
MISCELLANEOUS.
16.01 Assignment. Neither party may assign this Agreement, without
the consent of the other party; provided, however, that either party may, upon
notice to the other party, assign this Agreement, without the other party's
consent, to any Affiliate or to a successor entity pursuant to a merger,
corporate reorganization or, (i) in the case of UFL, sale of all or
substantially all of the assets of UFL related to its pre-need insurance
business, and (ii) in the case of Liberty, sale of all or substantially all of
the assets of Liberty, subject, however, to the rights of UFL granted upon a
change of Control of Liberty pursuant to Section 13.02. The guarantees of Fortis
and The Liberty Corporation of the obligations of UFL and Liberty, respectively,
shall survive any such assignment. Any assignment in contravention of this
Section 16.01 shall be void.
16.02 Notices. All notices, requests, approvals and consents and other communications required or permitted under this Agreement shall be in writing and shall be sent by telecopy to the telecopy number specified below. A copy of any such notice shall also be sent by certified mail, return receipt requested on the date such notice is transmitted by telecopy to the address specified below:
In the case of Liberty:
Liberty Insurance Services Corporation
2000 Wade Hampton Boulevard
Greenville, South Carolina 29615
Attention: Robert E. Evans, President & CEO
Telecopy number: (864) 609-8084
with a copy to:
Liberty Insurance Services Corporation
2000 Wade Hampton Boulevard
Greenville, South Carolina 29615
Attention: Doug Donivan
Telecopy number: (864) 609-4390
In the case of UFL:
United Family Life Insurance Company
230 John Wesley Dobbs Avenue
Atlanta, Georgia 30303-2427
Attention: Colin Braybrooks
Telecopy number: (404) 524-4945
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: B. Harvey Hill, Jr.
Telecopy number: (404) 881-7777
In the case of The Liberty Corporation:
The Liberty Corporation
2000 Wade Hampton Boulevard
Greenville, South Carolina 29615
Attention: Martha G. Williams
Telecopy number: (864) 609-3176
In the case of Fortis:
Fortis, Inc.
One Chase Manhattan Plaza 41st Floor
New York, New York 10005
Attention: Jerome Atkinson
Telecopy number: (212) 859-7034
with a copy to:
Alston & Bird, LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: B. Harvey Hill, Jr.
Telecopy number: 404-881-7777
Any party may change its address or telecopy number for notification purposes by giving all other parties notice of the new address or telecopy number and the date upon which it will become effective.
16.03 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one single agreement between the parties.
16.04 Headings: Cross References. The Article and Section headings and the table of contents are for reference and convenience only and shall not be considered in the interpretation of this Agreement. All cross-references in this Agreement to Sections, Articles or Exhibits shall be deemed to be references to the corresponding Section or Article in, or Exhibit to, this Agreement, unless the context otherwise clearly indicates.
16.05 Relationship. The performance by Liberty of its duties and obligations under this Agreement shall be that of an independent contractor and nothing contained in this Agreement shall create or imply an agency relationship between Liberty and UFL or after Closing, Liberty and PNL, nor shall this Agreement be deemed to constitute a joint venture or partnership between the parties.
16.06 Consents, Approvals and Requests. All consents and approvals be given by either party under this Agreement shall not be unreasonably withheld and each party shall make only reasonable requests under this Agreement. No approval shall be valid or acceptable unless given by an authorized representative of the appropriate party.
16.07 Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to law, then the remaining provisions of this Agreement will remain in full force and effect.
16.08 Waiver. No delay or omission by either party to exercise any right or power it has under this Agreement shall impair or be construed as a waiver of such right or power. A waiver by any party of any breach or covenant shall not be construed to be a waiver of any succeeding breach or any other covenant. All waivers must be in writing and signed by the party waiving its rights.
16.09 Publicity. Neither Liberty nor UFL shall use the other party's name or refer to it directly or indirectly in any media release, public announcement or public disclosure relating to this Agreement or its subject matter, including in any promotional or marketing materials, lists or business presentations without approval from the other party for each such use or release.
16.10 Entire Agreement. This Agreement and each of the Exhibits, which are hereby incorporated by reference into this Agreement, is the entire agreement between the parties with respect to its subject matter, and there are no other representations, understandings or agreements between the parties relative to such subject matter.
16.11 Amendments. No amendment to, or change, waiver or discharge of, any provision of this Agreement shall be valid unless in writing and signed by an authorized representative of the party against which such amendment, change, waiver or discharge is sought to be enforced.
16.12 Governing Law and Forum. This Agreement shall be governed by the laws of the State of Georgia, without reference to conflict of laws principles. Any claim, controversy or dispute arising out of or relating to this Agreement shall be resolved by a proceeding in a federal or state court in Fulton County, Georgia, as appropriate, and Liberty and UFL irrevocably accept the jurisdiction of the federal and state courts of the State of Georgia for such claims, controversies or disputes.
16.13 Survival. In addition to those provisions expressly surviving
termination or expiration, the terms of Article 4, Article 5, Section 6.02,
Article 9, Article 10, Article 11, Section 13.07, Article 14, Article 15,
Section 16.10, Section 16.12, this Section 16.14 and
Section 16.18 shall survive the expiration of this Agreement or termination of this Agreement for any reason.
16.14 Third-Party Beneficiaries. Each party intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person or entity other than UFL and Liberty.
16.15 Insurance. During the Term, Liberty shall maintain insurance of the following types and in the following amounts, in each case effective in the United States and Canada: (1) statutory workmen's compensation in accordance with all federal, state and local requirements, (2) comprehensive general public liability (including contractual liability insurance) in an amount not less than $XXX with umbrella coverage of not less than $XXX and (3) professional liability coverage in an amount not less than $XXX with umbrella coverage of not less than $XXX. No insurance shall have greater than a $XXX deductible unless approved in writing in advance by UFL. All insurance polices obtained or maintained by Liberty pursuant to this Agreement shall name UFL as an additional insured. Liberty shall not cancel (or permit any lapse) under any such insurance policy. Each insurance policy shall contain the agreement of the insurer that the insurer shall not cancel such policy without 30 days' notice to UFL. Liberty shall deliver to UFL a certificate of insurance evidencing the above insurance coverage upon UFL's request. Should Liberty fail or refuse to procure the required insurance coverage from an insurance carrier acceptable to UFL, or to maintain such coverage throughout the term of this Agreement, UFL may, but shall not be obligated to, procure such coverage for Liberty, in which event Liberty agrees to pay the required premiums and/or to fully reimburse UFL for them. Liberty also shall carry such workers' compensation insurance for itself as may be required by applicable law.
16.16 Hiring of Employees. Except as provided in Section 3A.06, during the Term or the Renewal Term and for a period of one (1) year following the expiration of this Agreement or termination of this Agreement for any reason, neither party shall offer employment to or employ any person then employed by the other party who is materially involved in providing or administering the Base Services or the Additional Services; provided, however, that UFL may offer employment to and employ any Liberty employees involved in performing services under this Agreement upon any termination of this Agreement by UFL due to Liberty's material breach of this Agreement. UFL may at any time directly or indirectly solicit and hire any employee of Liberty after such employee is terminated by Liberty.
16.17 Subcontracting. Liberty shall not subcontract any material portion of the work to be performed under this Agreement without UFL's prior written consent. In the event Liberty subcontracts any work to be performed under this Agreement, Liberty shall retain responsibility for the work.
16.18 Remedies. By virtue of each party's duties, responsibilities and special knowledge of the affairs and operations of the other party that will result from the relationship of the parties under this Agreement, irreparable damage may be suffered by the non-breaching party should a party breach or violate any of its covenants and obligations set forth in this Agreement. The parties agree that each such covenant and obligations set forth in this Agreement are reasonably necessary to protect and preserve the interests of the parties, and that, therefore, in
addition to all of the remedies provided at law or in equity, the non-breaching party will be entitled to a temporary restraining order and a permanent injunction to prevent a breach of any of such covenants or obligations of the other party.
16.19 Right of Set-Off. UFL will have the right to set-off against any sums due from UFL to Liberty for damages incurred or suffered by UFL as a result of any breach of this Agreement, and any application as a set-off of any such sums will not be considered in full satisfaction of or as liquidated damages for any such breach. The existence of any claim, demand, or cause of action of Liberty against UFL, whether predicated upon this Agreement or otherwise, will not constitute a defense to the enforcement by UFL of any of the covenants or obligations herein.
16.20 Terms of Agreement. UFL and Liberty agree that the terms and conditions of this Agreement are Confidential Information of each party and shall be held pursuant to Article 10 as Confidential Information of the other party.
16.21 Transfer of Policies. Nothing in this Agreement shall limit the right of UFL or, after Closing, UFL or PNL, to sell or otherwise transfer any of the Policies subject to this Agreement and any Policies which are transferred shall no longer be subject to the terms of this Agreement.
ARTICLE 17
GUARANTY.
(a) In consideration of, and as an inducement to, the execution of this Agreement, The Liberty Corporation unconditionally (1) guarantees to UFL and its successors and assigns, for the Term or the Renewal Term of the Agreement and afterward as provided in the Agreement, that Liberty shall punctually pay and perform each and every undertaking, agreement and covenant set forth in this Agreement and (2) agrees to be bound by, and liable for the breach of, each and every provision in the Agreement, both monetary obligations and obligations to take or refrain from taking specific actions or to engage or refrain from engaging in specific activities. The guaranty under this Section 17(a) shall continue in full force and effect, and the obligations of The Liberty Corporation shall remain absolute and unconditional irrespective of any and all circumstances, including, without limitation, any assignment, modification, amendment, extension, renewal, waiver of any terms or conditions of or termination of this Agreement. UFL agrees to provide to The Liberty Corporation copies of all notices of default given by UFL to Liberty simultaneously with such notices (if any) being given to Liberty.
(b) The Liberty Corporation consents and agrees: (1) that The Liberty Corporation shall render any payment or performance required under this Agreement upon demand if Liberty fails or refuses punctually to do so; (2) such liability shall not be contingent or conditioned upon pursuit by UFL of any remedies against Liberty or any other person or entity, (3) to waive any demand, protest, notice of protest, right to direct the application of any security or the right to direct UFL to proceed against Liberty, any
security, insurance or other guarantor; and (4) such liability shall not be diminished, relieved or otherwise affected by any extension of time, credit or other indulgence which UFL may from time to time grant to Liberty or to any other person, including, without limitation, the acceptance of any partial payment or performance or the compromise or release of any claims, none of which shall in any way modify or amend this guaranty, which shall be continuing and irrevocable during the term of this Agreement.
(c) In consideration of, and as an inducement to, the execution of
this Agreement, Fortis unconditionally (1) guarantees to Liberty and its
successors and assigns, for the Term of the Agreement and afterward as
provided in the Agreement, that UFL shall punctually pay and perform each
and every undertaking, agreement and covenant set forth in this Agreement
and (2) agrees to be bound by, and liable for the breach of, each and
every provision in the Agreement, both monetary obligations and
obligations to take or refrain from taking specific actions or to engage
or refrain from engaging in specific activities. The guaranty under this
Section 17(c) shall continue in full force and effect, and the obligations
of Fortis shall remain absolute and unconditional irrespective of any and
all circumstances, including, without limitation, any assignment,
modification, amendment, extension, renewal, waiver of any terms or
conditions of or termination of this Agreement. Liberty agrees to provide
to Fortis copies of all notices of default given by Liberty to UFL
simultaneously with such notices (if any) being given to UFL.
(d) Fortis consents and agrees: (1) that Fortis shall render any payment or performance required under this Agreement upon demand if UFL fails or refuses punctually to do so; (2) such liability shall not be contingent or conditioned upon pursuit by Liberty of any remedies against UFL or any other person or entity; (3) to waive any demand, protest, notice of protest, right to direct the application of any security or the right to direct Liberty to proceed against UFL, any security, insurance or other guarantor; and (4) such liability shall not be diminished, relieved or otherwise affected by any extension of time, credit or other indulgence which Liberty may from time to time grant to UFL or to any other person, including, without limitation, the acceptance of any partial payment or performance or the compromise or release of any claims, none of which shall in any way modify or amend this guaranty, which shall be continuing and irrevocable during the Term or any Renewal Term.
IN WITNESS WHEREOF, Liberty, The Liberty Corporation, UFL and Fortis have each caused this Agreement to be signed and delivered by their duly authorized representatives.
UNITED FAMILY LIFE INSURANCE COMPANY
By: /s/ Alan W. Feagin ---------------------------------------- Printed Name: Alan W. Feagin ----------------------------- Title: President and CEO ------------------------------------ |
LIBERTY INSURANCE SERVICES CORPORATION
By: /s/ Jennie M. Johnson ---------------------------------------- Printed Name: Jennie M. Johnson ----------------------------- Title: President ------------------------------------ |
THE LIBERTY CORPORATION
By: /s/ W. Hayne Hipp ---------------------------------------- Printed Name: W. Hayne Hipp ----------------------------- Title: President ------------------------------------ |
FORTIS, INC.
By: /s/ J. Grover Thomas, Jr. ---------------------------------------- Printed Name: J. Grover Thomas, Jr. ----------------------------- Title: Executive Vice President ------------------------------------ |
The undersigned, Pierce National Life Insurance Company, a California domiciled insurer with administrative offices located at 2000 Wade Hampton Boulevard, Greenville, South Carolina 29615, hereby executes the foregoing Administrative Services Agreement for purposes of being bound by the covenants of the undersigned contained in Section 3.16 and Article 3A of such agreement. From and after the Closing, the undersigned agrees to be bound by the provisions of the foregoing Agreement.
PIERCE NATIONAL LIFE INSURANCE COMPANY
By: /s/ Jennie M. Johnson ---------------------------------------- Printed Name: Jennie M. Johnson. ----------------------------- Title: President ------------------------------------ |
Exhibit 10.20
CREDIT AGREEMENT
DATED AS OF DECEMBER 19, 2003
AMONG
FORTIS, INC.,
AS BORROWER,
THE BANKS AND FINANCIAL INSTITUTIONS LISTED HEREIN,
AS LENDERS,
MORGAN STANLEY SENIOR FUNDING, INC.,
AS BOOKRUNNER AND LEAD ARRANGER,
MERRILL LYNCH CAPITAL CORP.,
AS SYNDICATION AGENT,
CREDIT SUISSE FIRST BOSTON
(ACTING THROUGH ITS CAYMAN ISLANDS BRANCH),
AS DOCUMENTATION AGENT,
AND
MORGAN STANLEY SENIOR FUNDING, INC.
AS ADMINISTRATIVE AGENT
$650,000,000 CREDIT AGREEMENT
CREDIT AGREEMENT
TABLE OF CONTENTS
PAGE ---- SECTION 1. DEFINITIONS.................................................................... 7 1.1 Certain Defined Terms............................................................... 7 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement.. 30 1.3 Other Definitional Provisions and Rules of Construction............................. 30 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS AND LOANS...................................... 31 2.1 Commitment; Making of Loan; Notes.................................................... 31 2.2 Interest on the Loans................................................................ 33 2.3 Fees................................................................................. 36 2.4 Repayments and Prepayments; General Provisions Regarding Payments.................... 36 2.5 Increased Costs; Taxes............................................................... 38 2.6 Special Provisions Governing LIBOR Rate Loans........................................ 43 2.7 Removal or Replacement of a Lender................................................... 45 2.8 Mitigation........................................................................... 45 SECTION 3. CONDITIONS PRECEDENT........................................................... 46 3.1 Conditions to Closing Date.......................................................... 46 3.2 Conditions to each Loan............................................................. 49 SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES...................................... 50 4.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries....... 50 4.2 Authorization of Borrowing, etc..................................................... 51 4.3 Valid Issuance of Securities........................................................ 52 4.4 Financial Condition................................................................. 52 4.5 No Material Adverse Change.......................................................... 53 4.6 Title to Properties; Liens.......................................................... 53 4.7 No Litigation; Compliance with Laws................................................. 54 4.8 Payment of Taxes.................................................................... 54 4.9 No Default.......................................................................... 54 4.10 Governmental Regulation............................................................. 55 4.11 Securities Activities............................................................... 55 4.12 Employee Benefit Plans.............................................................. 55 4.13 Certain Fees........................................................................ 56 4.14 Environmental Protection............................................................ 56 4.15 Solvency............................................................................ 57 |
$650,000,000 CREDIT AGREEMENT
4.16 Restrictions........................................................................ 57 4.17 Related Agreements.................................................................. 57 4.18 Insurance Licenses.................................................................. 57 4.19 Disclosure.......................................................................... 58 SECTION 5. BORROWER'S AFFIRMATIVE COVENANTS............................................... 58 5.1 Financial Statements and Other Reports.............................................. 58 5.2 Books and Records................................................................... 62 5.3 Existence........................................................................... 62 5.4 Insurance........................................................................... 62 5.5 Payment of Taxes and Claims......................................................... 63 5.6 Maintenance of Properties........................................................... 63 5.7 Compliance with Laws................................................................ 63 5.8 Use of Proceeds..................................................................... 63 5.9 Assurant IPO; Other Financings...................................................... 64 5.10 Claims Pari Passu................................................................... 64 SECTION 6. BORROWER'S NEGATIVE COVENANTS.................................................. 64 6.1 Liens............................................................................... 65 6.2 Indebtedness........................................................................ 67 6.3 Investments......................................................................... 69 6.4 Restrictions on Subsidiary Distributions............................................ 70 6.5 Restricted Payments................................................................. 71 6.6 Restriction on Fundamental Changes; Asset Sales and Acquisitions.................... 72 6.7 Disposal of Subsidiary Interests.................................................... 73 6.8 Conduct of Business................................................................. 73 6.9 Transactions with Shareholders and Affiliates....................................... 74 6.10 Amendments or Waivers of Related Agreement.......................................... 74 6.11 Financial Covenants................................................................. 75 SECTION 7. EVENTS OF DEFAULT.............................................................. 76 7.1 Failure to Make Payments When Due................................................... 76 7.2 Default in Other Agreements......................................................... 76 7.3 Breach of Certain Covenants......................................................... 76 7.4 Breach of Warranty.................................................................. 77 7.5 Other Defaults Under Loan Documents, Related Agreements and Guaranty................ 77 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc................................ 78 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc.................................. 78 7.8 Judgments and Attachments........................................................... 79 7.9 Dissolution......................................................................... 79 7.10 Employee Benefit Plans.............................................................. 79 7.11 Change in Control................................................................... 79 7.12 Repudiation of Obligations.......................................................... 79 |
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7.13 Insurance Licenses.................................................................. 79 SECTION 8. MISCELLANEOUS.................................................................. 80 8.1 Assignments and Participations in Loans and Notes................................... 80 8.2 Expenses............................................................................ 83 8.3 Indemnity........................................................................... 84 8.4 Set-Off............................................................................. 85 8.5 Amendments and Waivers.............................................................. 85 8.6 Independence of Covenants........................................................... 86 8.7 Notices............................................................................. 86 8.8 Survival of Representations, Warranties and Agreements.............................. 87 8.9 Failure or Indulgence Not Waiver; Remedies Cumulative............................... 87 8.10 Marshalling; Payments Set Aside..................................................... 87 8.11 Severability........................................................................ 88 8.12 Headings............................................................................ 88 8.13 Applicable Law...................................................................... 88 8.14 Successors and Assigns.............................................................. 88 8.15 Consent to Jurisdiction and Service of Process...................................... 88 8.16 Waiver of Jury Trial................................................................ 89 8.17 Confidentiality..................................................................... 90 8.18 Ratable Sharing..................................................................... 91 8.19 Counterparts; Effectiveness......................................................... 91 8.20 Obligations Several; Independent Nature of Lenders' Rights.......................... 92 8.21 Usury Savings Clause................................................................ 92 SECTION 9. AGENTS......................................................................... 93 9.1 Appointment......................................................................... 93 9.2 Powers and Duties; General Immunity................................................. 93 9.3 Representations and Warranties; No Responsibility For Appraisal of Creditworthiness. 95 9.4 Right to Indemnity.................................................................. 95 9.5 Successor Administrative Agent...................................................... 96 9.6 Guaranty............................................................................ 96 9.7 Acknowledgment of Potential Related Transactions.................................... 97 |
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EXHIBITS
I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III FORM OF NOTE IV-A FORM OF OPINION OF BORROWER'S IN-HOUSE COUNSEL IV-B FORM OF OPINION OF BORROWER'S NEW YORK COUNSEL IV-C FORM OF OPINION OF BORROWER'S NEVADA COUNSEL IV-D FORM OF OPINION OF FORTIS N.V.'S IN-HOUSE COUNSEL IV-E FORM OF OPINION OF LENDERS' NETHERLANDS COUNSEL IV-F FORM OF OPINION OF FORTIS SA/NV'S IN-HOUSE COUNSEL IV-G FORM OF OPINION OF GUARANTORS' BELGIAN COUNSEL IV-H FORM OF OPINION OF GUARANTORS' NEW YORK COUNSEL V FORM OF CERTIFICATE RE NON-BANK STATUS VI FORM OF GUARANTY VII FORM OF FINANCIAL CONDITION CERTIFICATE VIII FORM OF ASSIGNMENT AGREEMENT IX FORM OF JOINDER AGREEMENT |
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SCHEDULES
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 3.1F EXISTING INTERCOMPANY OBLIGATIONS 4.1C SUBSIDIARIES 4.7 LITIGATION 4.12 ERISA 6.2 INDEBTEDNESS 6.3A EXISTING INVESTMENTS 6.3B INVESTMENT GUIDELINES 6.4 APPLICABLE ORDERS AND AGREEMENTS 6.9 TRANSACTIONS WITH AFFILIATES |
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CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of December 19, 2003 and entered into by and among Fortis, Inc., a Nevada corporation ("FORTIS" or the "BORROWER"), the banks and financial institutions listed on the signature pages hereof (together with their respective successors and assigns, each individually referred to herein as a "LENDER" and collectively as "LENDERS"), Morgan Stanley Senior Funding, Inc. ("MSSF") as bookrunner and lead arranger (the "BOOKRUNNER" and the "ARRANGER", respectively), Merrill Lynch Capital Corp. as syndication agent (the "SYNDICATION AGENT"), Credit Suisse First Boston (acting through its Cayman Islands branch) as documentation agent (the "DOCUMENTATION AGENT") and MSSF as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT").
PRELIMINARY STATEMENTS
The Borrower has requested, and the Lenders have agreed to extend, the credit facility hereinafter described in the amount and on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders, the Bookrunner, the Arranger, the Syndication Agent, the Documentation Agent and the Administrative Agent agree as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
The following terms used in this Agreement shall have the following meanings:
"ADDITIONAL PARENT DEBT" means short-term Indebtedness owing by the Borrower to either of the Guarantors or any of their Affiliates and incurred in the ordinary course of business of the Borrower and consistent with past business practice.
"ADMINISTRATIVE AGENT" has the meaning assigned to that term in the introduction to this Agreement.
"AFFECTED LENDER" has the meaning assigned to that term in
Section 2.6B.
"AFFECTED LOANS" has the meaning assigned to that term in
Section 2.6B.
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"AFFILIATE" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 10% or more of the Securities having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.
"AGENTS" means the Administrative Agent, the Syndication Agent and the Documentation Agent, collectively, and also means and includes any successor Administrative Agent appointed pursuant to Section 9.5.
"AGREEMENT" means this Credit Agreement as it may be amended, supplemented or otherwise modified from time to time.
"APPLICABLE INSURANCE REGULATORY AUTHORITY" means, when used with respect to any Insurance Subsidiary, the insurance department or similar administrative authority or agency located in (x) the state or other jurisdiction in which such Insurance Subsidiary is domiciled or (y) to the extent asserting regulatory jurisdiction over such Insurance Subsidiary, each state or other jurisdiction in which such Insurance Subsidiary is licensed or conducts business, and shall include any Federal insurance regulatory department, authority or agency that may be created and that asserts regulatory jurisdiction over such Insurance Subsidiary.
"APPLICABLE MARGIN (GUARANTOR RATE)" means, as of any date, a percentage per annum determined by reference to the applicable Performance Level with respect to the Guarantors in effect on such date, as set forth below:
PERFORMANCE LEVEL (GUARANTOR) LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI LEVEL VII -------------------- ------- -------- --------- -------- ------- -------- --------- BASE RATE APPLICABLE MARGIN 0% 0% 0% 0% 0.05% 0.30% 1.25% ------------------------------------------------------------------------------------------------- LIBOR APPLICABLE MARGIN 0.275% 0.43% 0.60% 0.80% 1.05% 1.30% 2.25% |
; provided, that the definition of Applicable Margin (Guarantor Rate) hereunder shall be deemed modified (without the consent of any Person) to the extent necessary to incorporate by reference any amendments, modifications or supplements to the interest rate provisions of the Existing Parent Facility, to the extent that any such amendment,
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modification or supplement results in an increase in such interest rates under the Existing Parent Facility.
"APPLICABLE RESERVE REQUIREMENT" means, at any time, for any LIBOR Rate Loan, the maximum rate, expressed as a decimal, at which reserves (including, without limitation, any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against "Eurocurrency liabilities" (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator. Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the applicable LIBOR or any other interest rate of a Loan is to be determined, or (ii) any category of extensions of credit or other assets which include LIBOR Rate Loans. A LIBOR Rate Loan shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credit for proration, exceptions or offsets that may be available from time to time to the applicable Lender. The rate of interest on LIBOR Rate Loans shall be adjusted automatically on and as of the effective date of any change in the Applicable Reserve Requirement.
"ARRANGER" has the meaning assigned to that term in the introduction to this Agreement.
"ASSET SALE" means a sale, lease or sub-lease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer or other disposition to, or any exchange of property with, any Person (other than the Borrower or its wholly-owned Subsidiaries), in one transaction or a series of transactions, of all or any part of the Borrower's or any of its Subsidiaries' businesses, properties or assets of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, including, without limitation, the Capital Stock of any Subsidiary of the Borrower, other than (A) such businesses, properties or assets sold in the ordinary course of business and consistent with past business practice of the Borrower and its Subsidiaries, (B) any transaction or series of related transactions in which the Borrower or any of its Subsidiaries receives aggregate consideration of $500,000 or less (up to a maximum amount of $10,000,000 in the aggregate for all such transactions), (C) the Ohio Sale/leaseback Transaction (up to a maximum amount of $25,000,000) and (D) other transactions or series of related transactions for which the fair market value of the assets subject thereto (as determined in good faith by the board of directors of the Borrower or such Subsidiary (or similar governing body) engaging in such transactions) does not, together with all such transactions, exceed $20,000,000 in the aggregate.
"ASSIGNMENT AGREEMENT" means an Assignment Agreement substantially in the form of Exhibit VIII, with such amendments or modifications as may be approved by the Administrative Agent.
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"ASSURANT" means Assurant, Inc., a Delaware corporation and, on the Closing Date, a wholly-owned Subsidiary of the Borrower.
"ASSURANT IPO" means the initial public offering by Fortis Insurance, N.V. of the Borrower Common Stock.
"ASSURANT REINCORPORATION" means the merger of Fortis with and into Assurant, for the purpose of reincorporating Fortis in the State of Delaware, after which Assurant will be domiciled in the State of Delaware and will be the successor to the business, operations and obligations of Fortis.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute.
"BASE RATE" means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"BASE RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Base Rate.
"BOOKRUNNER" has the meaning assigned to that term in the introduction to this Agreement.
"BORROWER" has the meaning assigned to that term in the introduction to this Agreement; provided, that, upon consummation of the Assurant Reincorporation and compliance with Section 5.9(ii), the Borrower shall mean Assurant, as the successor to Fortis.
"BORROWER COMMON STOCK" means the common Capital Stock of the Borrower.
"BUSINESS DAY" means (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close and any day on which commercial banks and foreign exchange markets do not settle payments in Dollars, and (ii) with respect to all notices, determinations, fundings and payments in connection with the LIBOR Rate or any LIBOR Rate Loans, any day that is a Business Day described in clause (i) above and that is also a day for trading by and between banks in Dollar deposits in the London interbank market.
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"CAPITAL LEASE", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person.
"CAPITAL SECURITIES" means (i) the $150,000,000 liquidation amount of 8.40% Capital Securities, Series A due 2027 issued by Fortis Capital Trust and/or (ii) the $50,000,000 liquidation amount of 7.94% Capital Securities, Series B due 2027 issued by Fortis Capital Trust II.
"CAPITAL STOCK" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.
"CASH" means money, currency or a credit balance in any demand or deposit account.
"CASH EQUIVALENTS" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; and (v) shares of any money market mutual fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's.
"CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in the form of Exhibit V annexed hereto delivered by a Lender to the Administrative Agent pursuant to Section 2.5B(iii)(b).
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"CHANGE OF CONTROL" means at any time prior to the consummation of the Assurant IPO, (i) the Guarantors, collectively, shall cease to beneficially own and control at least 51% on a fully diluted basis of the economic and voting interests in the Capital Stock of the Borrower or (ii) the majority of the seats (other than vacant seats) on the board of directors (or similar governing body) of the Borrower cease to be occupied by Persons who either (A) were members of the board of directors of the Borrower on the Closing Date or (B) were nominated for election by the board of directors of the Borrower, a majority of whom were directors on the Closing Date or whose election or nomination for election was previously approved by a majority of such directors.
"CLOSING DATE" means the date on or after December 1, 2003 but before December 31, 2003, on which the Loan is made.
"COMMITMENT" means the commitment of a Lender to make a Loan to the Borrower pursuant to Section 2.1A, and "Commitments" means such commitments of all Lenders in the aggregate.
"COMPLIANCE CERTIFICATE" means a certificate of the chief financial officer, treasurer or controller of the Borrower setting forth computations in reasonable detail satisfactory to the Administrative Agent (i) demonstrating compliance with the covenants set forth in Section 6.11, as at the end of the period covered by the financial statements being delivered with such certificate and (ii) certifying that such officer has obtained no knowledge of any Potential Event of Default or Event of Default except as specified in such certificate.
"CONSOLIDATED ADJUSTED EBIT" means, in respect of the Borrower
and its Subsidiaries on a consolidated basis, for any period, an amount equal to
the sum, without duplication, of the amounts for such period of (a) Consolidated
Net Income, (b) Consolidated Financing Expense and (c) provisions for taxes
based on income but excluding (i) deferred gains and losses on business asset
sales and divestitures, (ii) any after-tax prepayment penalties incurred with
respect to the Capital Securities and the Existing Intercompany Obligations and
(iii) non-recurring costs associated with the consummation of the Assurant IPO.
"CONSOLIDATED ADJUSTED NET WORTH" means, as at any date of determination, the sum of the amounts that would, in accordance with GAAP, be included on the consolidated balance sheet of the Borrower and its Subsidiaries as of such date as (a) "common shareholders' equity" and (b) "preferred stock", but excluding (i) treasury stock, (ii) Disqualified Capital Stock and (iii) the effects of Financial Accounting Statement No. 115.
"CONSOLIDATED CAPITALIZATION" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, as at any date of determination, the sum of Consolidated Total Debt plus Consolidated Adjusted Net Worth.
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"CONSOLIDATED FINANCING EXPENSE" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, for any period, total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) with respect to all outstanding Indebtedness during such period of the Borrower and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to any letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements and Currency Agreements.
"CONSOLIDATED NET INCOME" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, for any period, (i) the net income (or loss) for the Borrower and its Subsidiaries for such period taken as a single accounting period determined in conformity with GAAP, minus (ii) (a) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries or that Person's assets are acquired by the Borrower or any of its Subsidiaries, (b) any after-tax gains or losses attributable to returned surplus assets of any Pension Plan, and (c) (to the extent not included in clauses (a) and (b) above) any net extraordinary gains or net extraordinary losses.
"CONSOLIDATED TOTAL DEBT" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness, determined on a consolidated basis in accordance with GAAP, but excluding (i) Indebtedness constituting letters of credit issued for insurance regulatory purposes and for which adequate insurance reserves or other appropriate provisions consistent with Borrower's past practice have been made therefor and (ii) for the Fiscal Quarter ending December 31, 2003 only, Indebtedness with respect to the Capital Securities.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of any securities issued by that Person or of any indenture, mortgage, deed of trust, or other material contract, undertaking, agreement or other material instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.
"CONVERSION/CONTINUATION DATE" means the effective date of a continuation or conversion, as the case may be, as set forth in the applicable Conversion/Continuation Notice.
"CONVERSION/CONTINUATION NOTICE" means a
Conversion/Continuation Notice substantially in the form of Exhibit II.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement.
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"DEMAND NOTE" means that certain Demand Note, dated December 16, 2003, executed by the Borrower in favor of MSSF, which evidences a $650,000,000 loan made by MSSF to the Borrower, as the same may be amended, modified or otherwise supplemented from time to time.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock (other than Capital Stock that is solely redeemable, or at the election of the Borrower (not subject to any condition), may be redeemed, with Capital Stock that is not Disqualified Capital Stock) which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof, on or prior to May 31, 2005.
"DOCUMENTATION AGENT" has the meaning assigned to that term in the introduction to this Agreement.
"DOLLARS" and the sign "$" mean the lawful money of the United States of America.
"ELIGIBLE ASSIGNEE" means (A) any Lender and any Affiliate of any Lender; and (B) any commercial bank, savings and loan association, savings bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses; provided that no Affiliate of the Borrower or any of its Subsidiaries or any Guarantor or any of its Subsidiaries shall be an Eligible Assignee.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was maintained or contributed to by the Borrower or any of its Subsidiaries or, in the case of any such plan subject to Title IV of ERISA, by any of their respective ERISA Affiliates.
"ENVIRONMENTAL CLAIM" means any investigation, notice, notice
of violation, claim, action, suit, proceeding, demand, abatement order or other
order or directive (conditional or otherwise), by any Governmental Authority or
any other Person, arising (i) pursuant to or in connection with any actual or
alleged violation of any Environmental Law, (ii) in connection with any
Hazardous Materials or any actual or alleged Hazardous Materials Activity or
(iii) in connection with any actual or alleged damage, injury, threat or harm to
health, safety, natural resources or the environment.
"ENVIRONMENTAL LAWS" means any and all current or future federal, state, local and foreign laws and regulations, statutes, ordinances, orders, rules, guidance documents, judgments, Governmental Authorizations, or any other requirements of
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Governmental Authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human health or the environment, in any manner applicable to the Borrower or any of its Subsidiaries or any Facilities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto.
"ERISA Affiliate" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member.
"ERISA Event" means (i) a "reportable event" within the
meaning of Section 4043 of ERISA and the regulations issued thereunder with
respect to any Pension Plan (excluding those for which the provision for 30-day
notice to the PBGC has been waived by regulation); (ii) the failure to meet the
minimum funding requirements of Section 412 of the Internal Revenue Code with
respect to any Pension Plan (whether or not waived in accordance with Section
412(d) of the Internal Revenue Code) or the failure to make by its due date a
required installment under Section 412(m) of the Internal Revenue Code with
respect to any Pension Plan; (iii) the provision by the administrator of any
Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to
terminate such plan in a distress termination described in Section 4041(c) of
ERISA or the commencement of proceedings by the PBGC to terminate a pension plan
or the appointment of a trustee to administer a pension plan; (iv) the
withdrawal by the Borrower, any of its Subsidiaries or any of their respective
ERISA Affiliates from any Pension Plan with two or more contributing sponsors or
the termination of any such Pension Plan resulting in liability pursuant to
Section 4063 or 4064 of ERISA; (v) the occurrence of an event or condition that
could reasonably be expected to give rise to the imposition of liability on the
Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates
pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of
Section 4212(c) of ERISA; (vi) the filing of a material claim (other than
routine claims for benefits) against any Employee Benefit Plan other than a
Multiemployer Plan or the assets thereof, or against the Borrower, any of its
Subsidiaries or any of their respective ERISA Affiliates in connection with any
Employee Benefit Plan; or (vii) the imposition of a Lien pursuant to Section
401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with
respect to any Pension Plan.
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"EVENT OF DEFAULT" means each of the events set forth in
Section 7.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.
"EXISTING INTERCOMPANY OBLIGATIONS" means the Indebtedness of the Borrower to the Guarantors and their Affiliates as of the Closing Date; provided, that, for the avoidance of doubt, any Indebtedness repaid with the proceeds of the loan evidenced by the Demand Note shall not constitute Existing Intercompany Obligations.
"EXISTING PARENT FACILITY" means that certain EUR2,000,000,000 Multicurrency Revolving Credit Agreement, dated June 28, 1999, by and among Fortis Finance N.V., as borrower thereunder, the Guarantors, as guarantors thereunder, and the other institutions party thereto, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms of the Guaranty.
"FACILITIES" means any and all real property (including, without limitation, all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by the Borrower or any of its Subsidiaries or any of their respective predecessors or Affiliates.
"FEDERAL FUNDS EFFECTIVE RATE" means for any day, the rate per annum (expressed, as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Administrative Agent, in its capacity as a Lender, on such day on such transactions as determined by the Administrative Agent.
"FEE LETTER" means the fee letter, dated on or prior to the Closing Date, among the Borrower and the Lenders party thereto, as the same may be amended, supplemented or otherwise modified from time to time.
"FINANCIAL CONDITION CERTIFICATE" means an officer's certificate in the form of Exhibit VII hereto.
"FISCAL QUARTER" means a fiscal quarter of any Fiscal Year.
"FISCAL YEAR" means the fiscal year of the Borrower and its Subsidiaries ending on December 31 of each calendar year. For purposes of this Agreement, any
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particular Fiscal Year shall be designated by reference to the calendar year in which such Fiscal Year ends.
"FORTIS" has the meaning assigned to that term in the introduction to this Agreement.
"FUNDING AND PAYMENT OFFICE" means the office of the Administrative Agent as set forth under the Administrative Agent's name on the signature pages hereof, or such other office designated in a written notice delivered by the Administrative Agent to the Borrower and each Lender.
"GAAP" means, subject to the limitations on the application thereof set forth in Section 1.2, (i) with respect to the Borrower and its Subsidiaries, generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of determination, and (ii) with respect to the Guarantors and their Subsidiaries, "GAAP" as defined in the Guaranty.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government, and shall include any Applicable Insurance Regulatory Authority.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority.
"GUARANTOR" means each of (i) Fortis N.V., a public company with limited liability (naamloze vennootschap) incorporated under the laws of The Netherlands having its statutory seat (statutaire zetel) at Utrecht, The Netherlands and registered with the Chamber of Commerce in Utrecht under number 30072145 and (ii) Fortis SA/NV, a public company with limited liability (societe anonyme/naamloze vennootschap) incorporated in Belgium and registered with the register of legal persons (rechtspersonenregister), Brussels, under company number 0451406524 (formerly registered with the Brussels Trade Register under No. 577.615), and their respective successors and assigns.
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"GUARANTOR CHANGE OF CONTROL" means any time that either Guarantor consummates any merger or consolidation or sells, transfers or leases all or substantially all of such Guarantor's assets, except to another Person that (x) assumes the rights and obligations of such Guarantor under the Guaranty pursuant to an agreement in form and substance satisfactory to the Administrative Agent and the Lenders and (y) at the time of such assignment or transfer, such Person assuming the rights or obligations of such Guarantor under the Guaranty has a credit rating equal to or higher than such Guarantor, as measured by both S&P and Moody's.
"GUARANTOR CONTRIBUTION" means the contribution in Cash to the capital of the Borrower, directly or indirectly, by the Guarantors (in exchange for equity of the Borrower) in an aggregate amount equal to the sum of (i) $650,000,000, plus (ii) certain additional amounts as may be deemed to be necessary by the Borrower and the Guarantors in connection with certain items, including, without limitation, the repayment of the Existing Intercompany Obligations, the repayment or redemption of the Capital Securities, and the Assurant IPO, in each case, including, without limitation, amounts required to enable the Borrower to pay penalties, accrued interest, fees and premiums and to redeem preferred stock, plus (iii) the principal amount of, and any accrued interest on, any Additional Parent Debt.
"GUARANTY" means that certain Guaranty made by each of the Guarantors substantially in the form attached hereto as Exhibit VI, as such agreement may be amended, supplemented or otherwise modified from time to time.
"GUARANTY OBLIGATIONS" means all obligations of every nature of the Guarantors under the Guaranty.
"HAZARDOUS MATERIALS" means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Environmental Law or which poses a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing.
"HYBRID SECURITIES" means any preferred Securities which have
the following characteristics (and which shall include the Capital Securities):
(i) a wholly-owned Subsidiary of the Borrower which is a Delaware business trust
(or similar entity) lends substantially all of the proceeds from the issuance of
such preferred Securities to
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the Borrower or another wholly-owned Subsidiary of the Borrower in exchange for junior subordinated debt Securities issued by the Borrower or such other wholly-owned Subsidiary (as the case may be), (ii) such preferred Securities contain terms providing for the deferral of interest payments corresponding to provisions providing for the deferral of interest payments on such junior subordinated debt Securities and (iii) the Borrower or such wholly-owned Subsidiary of the Borrower (as the case may be) makes periodic interest payments on such junior subordinated debt Securities, which interest payments are in turn used to make corresponding payments to the holders of the preferred Securities.
"INDEBTEDNESS", as applied to any Person, means (i) all
indebtedness for borrowed money, (ii) that portion of obligations with respect
to Capital Leases that is properly classified as a liability on a balance sheet
in conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation owed for all or any part of the deferred purchase price of
property or services (excluding any such obligations incurred under ERISA),
which purchase price is (a) due more than six months from the date of incurrence
of the obligation in respect thereof or (b) evidenced by a note or similar
written instrument, (v) all indebtedness secured by any Lien on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person, (vi) the face amount of any letter of credit issued for
the account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings; (vii) the direct or indirect guaranty, endorsement
(otherwise than for collection or deposit in the ordinary course of business),
co-making, discounting with recourse or sale with recourse by such Person of the
obligation of another of the type described in clauses (i) through (vi) above
and clauses (x) and (xi) below; (viii) any obligation of such Person the primary
purpose or intent of which is to provide assurance to an obligee that the
obligation of the obligor thereof will be paid or discharged, or any agreement
relating thereto will be complied with, or the holders thereof will be protected
(in whole or in part) against loss in respect thereof (other than customary and
reasonable, unmatured and unpaid indemnity obligations with respect to the
Contractual Obligations of the Borrower or a wholly-owned Subsidiary of the
Borrower); (ix) any liability of such Person for an obligation of another
through any agreement (contingent or otherwise) (a) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise) or (b) to
maintain the solvency or any balance sheet item, level of income or financial
condition of another if, in the case of any agreement described under subclause
(a) or (b) of this clause (ix), the primary purpose or intent thereof is as
described in clause (viii) above; (x) all obligations of such Person in respect
of any Interest Rate Agreement and Currency Agreement; and (xi) all obligations
of such Person in respect of any Hybrid Securities.
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"INDEBTEDNESS TO CAPITALIZATION RATIO" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, the ratio of (i) Consolidated Total Debt as of the last day of any Fiscal Quarter to (ii) Consolidated Capitalization as of such date.
"INDEMNITEE" has the meaning assigned to that term in Section 8.3.
"INDEMNIFIED LIABILITIES" has the meaning assigned to that term in Section 8.3.
"INSURANCE BUSINESS" means one or more aspects of the business of selling, issuing or underwriting insurance or reinsurance.
"INSURANCE CONTRACT" means any insurance binder, contract or policy issued by an Insurance Subsidiary but shall not include any Reinsurance Agreement or Retrocession Agreement.
"INSURANCE LICENSES" means, with respect to each Insurance Subsidiary, licenses (including, without limitation, licenses or certificates of authority from Applicable Insurance Regulatory Authorities), permits or authorizations to transact Insurance Business held, or required to be held, by such Insurance Subsidiary.
"INSURANCE SUBSIDIARY" means any Subsidiary of the Borrower that is licensed to conduct, or conducts or is engaged in, an Insurance Business.
"INTEREST COVERAGE RATIO" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Adjusted EBIT for the four Fiscal Quarter period then ended, to (ii) Consolidated Financing Expense for such four Fiscal Quarter period.
"INTEREST PAYMENT DATE" means with respect to: (i) any Base Rate Loan, the last day of each Fiscal Quarter of each year, commencing on the first such date to occur after the Closing Date, and the Maturity Date; and (ii) any LIBOR Rate Loan, the last day of the Interest Period applicable to such Loan and, if such Interest Period is longer than three months, each day during such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period.
"INTEREST PERIOD" has the meaning assigned to that term in
Section 2.2B.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest Period, the second Business Day prior to the first day of such Interest Period.
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"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute.
"INVESTMENT" means (i) any direct or indirect purchase or
other acquisition by the Borrower or any of its Subsidiaries of, or of a
beneficial interest in, any Securities of any other Person, (ii) any direct or
indirect redemption, retirement, purchase or other acquisition for value, by any
Subsidiary of the Borrower from any Person of any Capital Stock of such Person,
(iii) any direct or indirect loan, advance (other than advances to employees for
moving, entertainment and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution by the
Borrower or any of its Subsidiaries to any other Person, including all
indebtedness and accounts receivable from that other Person that are not current
assets or did not arise from sales to that other Person in the ordinary course
of business, and (iv) any other asset classified as an "investment" in
accordance with GAAP or included in Total Invested Assets in accordance with
SAP. The amount of any Investment shall be the original cost of such Investment
plus the cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment.
"JOINDER AGREEMENT" means a Joinder Agreement substantially in the form of Exhibit IX, with such amendments or modifications as may be approved by the Administrative Agent.
"JOINT VENTURE" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that in no event shall any Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party.
"LENDER" and "LENDERS" have the meanings assigned to that term in the introduction to this Agreement, and shall include any other Person that shall become a party hereto pursuant to an Assignment Agreement, and shall not include any Person that ceases to be a party hereto pursuant to an Assignment Agreement.
"LIBOR" means, for any Interest Rate Determination Date, the
rate per annum obtained by dividing (i) the offered rate in the London interbank
market for deposits in Dollars of amounts equal or comparable to the Loans
offered for a term comparable to such Interest Period, that appears on Telerate
Page 3750 as of approximately 11:00 a.m., London time (or such other page as may
replace such page on such service for the purpose of displaying the rates at
which Dollar deposits are offered by leading banks in the London interbank
deposit market) or if no quotation appears on Telerate Page 3750, the average
rate per annum which the offices of four leading banks selected by the
Administrative Agent and located in London offer for deposits in Dollars in the
London interbank deposit market at approximately 11:00 a.m. (London time) by
(ii) a percentage equal to (x) one (1) minus (y) the Applicable Reserve
Requirement.
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"LIBOR RATE LOAN" means any Loan bearing interest at a rate calculated on the basis of LIBOR.
"LIEN" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Guaranty, the Fee Letter and (when delivered in accordance with Section 5.9(ii)) the Joinder Agreement, in each case as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and Section 8.5 herein.
"LOANS" means the loans made by the Lenders to the Borrower pursuant to Section 2.1.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon
(i) the business, operations, properties, assets, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole,
(ii) the ability of the Borrower or either of the Guarantors to perform,
respectively, any of the Obligations of the Borrower or the obligations of
either of the Guarantors under the Guaranty or (iii) the legality, validity,
binding effect or enforceability against the Borrower or either of the
Guarantors of a Loan Document to which it is a party.
"MATERIAL SUBSIDIARY" means, at any time, a Subsidiary of the Borrower that as of the end of the most recently completed Fiscal Year had total assets exceeding $5,000,000 or for such Fiscal Year had total revenues exceeding $25,000,000, in each case as determined by reference to the most recent audited consolidated financial statements for the Borrower and its Subsidiaries and of such Subsidiary.
"MATURITY DATE" means the earliest to occur of (i) May 14, 2004 or (ii) such date that the Commitments are reduced in whole or terminated and/or the Obligations become due and payable pursuant to Section 2.4 or Section 7.
"MOODY'S" means Moody's Investor Services, Inc.
"MSSF" has the meaning assigned to that term in the introduction to this Agreement.
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA.
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"NAIC" means the National Association of Insurance Commissioners and any successor thereto.
"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, an amount equal to the difference of (i) Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received from such Asset Sale, minus (ii) any actual and reasonable documented costs incurred in connection with such Asset Sale, including (a) income, gains or other taxes or governmental charges reasonably estimated to be actually payable in connection with such Asset Sale related to the year of sale and (b) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale.
"NON-US LENDER" has the meaning assigned to that term in
Section 2.5B(iii)(a).
"NOTES" means (i) the promissory notes of the Borrower issued pursuant to Section 2.1D on the Closing Date with respect to the Loans and (ii) any promissory notes issued by the Borrower pursuant to Section 8.1E in connection with assignments of the Loans, in each case substantially in the form of Exhibit III annexed hereto, as they may be amended, supplemented or otherwise modified from time to time.
"NOTICE OF BORROWING" means a notice substantially in the form of Exhibit I annexed hereto delivered by the Borrower to the Administrative Agent pursuant to Section 2.1B with respect to a proposed borrowing of the Loans.
"OBLIGATIONS" means all obligations of every nature of the Borrower from time to time owed to the Agents, the Lenders or any of them under any of the Loan Documents.
"OFFICERS' CERTIFICATE" means, as applied to any corporation, a certificate executed on behalf of such corporation by its chairman of the board (if an officer) or its president or one of its vice presidents and by its chief financial officer or its treasurer or, as applied to any limited partnership, a certificate executed on behalf of such limited partnership by the chairman of the board (if an officer) or the president or one of the vice presidents and by the chief financial officer or treasurer of the general partner of such limited partnership, or, if the general partner of such limited partnership is an individual, executed by such individual; provided that every Officers' Certificate with respect to the compliance with a condition precedent to the making of any Loans hereunder shall include: (i) a statement that the officer or officers making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signers, they
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have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with, and (iii) a statement as to whether, in the opinion of the signers, such condition has been complied with.
"OHIO SALE/LEASEBACK TRANSACTION" means the arrangement with any Person providing for the leasing by the Borrower or one of its Subsidiaries of the property of such Borrower or such Subsidiary located in Springfield, Ohio, which property has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person.
"ORGANIZATIONAL DOCUMENTS" means (i) with respect to any corporation, its certificate or articles of incorporation or organization, as amended, and its by-laws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended. In the event any term or condition of this Agreement or any other Loan Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such "Organizational Document" shall only be to a document of a type customarily certified by such governmental official.
"OTHER BRIDGE FACILITY" means that certain $1,100,000,000 Credit Agreement, dated as of the date hereof, among the Borrower, the banks and financial institutions party thereto, Citigroup Global Markets Inc. ("CGMI") and MSSF as Joint Bookrunners, CGMI, MSSF and Banc One Capital Markets, Inc. as Joint Lead Arrangers, MSSF as Syndication Agent, Citigroup North America Inc. as Documentation Agent, and Bank One, NA as Administrative Agent.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto.
"PERMITTED ACQUISITIONS" means any acquisition by the Borrower or any of its wholly-owned Subsidiaries, whether by purchase, merger or otherwise, of all or substantially all of the assets of, all of the Capital Stock of, or a business line or unit or a division of, any Person; provided, (i) immediately prior to, and after giving effect thereto, no Potential Event of Default or Event of Default shall have occurred and be continuing or would result therefrom; (ii) all transactions in connection therewith shall be consummated, in all material respects, in accordance with all applicable laws and in conformity with all applicable Governmental Authorization; (iii) in the case of the acquisition of Capital Stock, all of the Capital Stock (except for any such Securities in the nature of directors' qualifying shares required pursuant to applicable law) acquired or otherwise issued by such Person or any newly formed wholly-owned Subsidiary of the Borrower in connection with such acquisition shall be owned 100% by the Borrower or
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such Subsidiary thereof, as applicable; (iv) the Borrower shall be in compliance with the financial covenants set forth in Section 6.11 on a pro forma basis after giving effect to such acquisition as of the last day of the Fiscal Quarter most recently ended, (as determined in accordance with Section 6.11(v)); (v) the Borrower shall have delivered to Administrative Agent (A) reasonably in advance of such acquisition, a Compliance Certificate evidencing compliance with Section 6.11 as required under clause (iv) above, together with all relevant financial information with respect to such acquired assets, including, without limitation, the aggregate consideration for such acquisition and any other information required to demonstrate compliance with Section 6.11; and (vi) any Person or assets or division as acquired in accordance herewith shall be in same business or lines of business in which the Borrower and/or its Subsidiaries are engaged as of the Closing Date.
"PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA.
"PERFORMANCE LEVEL" means, with respect to a Guarantor, Performance Level I, Performance Level II, Performance Level III, Performance Level IV, Performance Level V or Performance Level VI, as identified by reference to the public debt rating of the Guarantors in effect on such date as set forth below:
PERFORMANCE LEVEL PUBLIC DEBT RATING ---------------------------------------------------------------------------- Long Term Senior Unsecured Debt rated greater than Level I or equal to A+ by S&P or A1 by Moody's ---------------------------------------------------------------------------- Long Term Senior Unsecured Debt rated greater than Level II or equal to A by S&P or A2 by Moody's ---------------------------------------------------------------------------- Long Term Senior Unsecured Debt rated greater than Level III or equal to A- by S&P or A3 by Moody's ---------------------------------------------------------------------------- Long Term Senior Unsecured Debt rated greater than Level IV or equal to BBB+ by S&P or Baa1 by Moody's ---------------------------------------------------------------------------- Long Term Senior Unsecured Debt rated greater than Level V or equal to BBB by S&P or Baa2 by Moody's ---------------------------------------------------------------------------- Long Term Senior Unsecured Debt rated greater than Level VI or equal to BBB- by S&P or Baa3 by Moody's ---------------------------------------------------------------------------- Long Term Senior Unsecured Debt rated less than or equal to BB+ by S&P or Ba1 by Moody's, and at all other times (including if such ratings are not available Level VII from both S&P and Moody's) |
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For purposes of this definition, the Performance Level shall
be determined by the applicable public debt rating for the Guarantors as
follows: (i) the public debt ratings shall be determined by the then-current
rating announced by either S&P or Moody's, as the case may be, for any class of
non-credit-enhanced long-term senior unsecured debt issued by a Guarantor, as
applicable; (ii) if only one of S&P and Moody's shall have in effect such a
public debt rating, the Performance Level will be Level VII (except as a result
of either S&P or Moody's, as the case may be, ceasing to be in the business of
issuing public debt ratings, in which case the Performance Level shall be
determined by reference to the available rating); (iii) if neither S&P nor
Moody's shall have in effect such a public debt rating, the applicable
Performance Level will be Level VII; (iv) if such public debt ratings
established by S&P and Moody's shall fall within different levels, or shall fall
within different levels with respect to each Guarantor, in each case the public
debt rating will be determined by the higher of the two ratings, provided, that
in the event that the lower of such public debt ratings is more than one level
below the higher of such public debt ratings, the public debt rating will be
determined based upon the level that is one level above the lower of such public
debt ratings; (v) if any such public debt rating established by S&P or Moody's
shall be changed, such change shall be effective as of the date on which such
change is first announced publicly by the rating agency making such change; and
(vi) if S&P or Moody's shall change the basis on which such public debt ratings
are established, or shall change its respective rating system, each reference to
the public debt rating announced by S&P or Moody's, as the case may be, shall
refer to the then-equivalent rating by S&P or Moody's, as the case may be.
"PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities.
"PHCS" means Private Health Care Systems, Inc., a Delaware corporation and an Affiliate of the Borrower.
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.
"PRIME RATE" means the rate of interest as announced by JPMorgan Chase Bank from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Administrative Agent or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate.
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"PRO RATA SHARE" means, (A) prior to the making of the Loans with respect to each Lender the percentage obtained by dividing (i) the aggregate principal amount of such Lender's Commitment by (ii) the aggregate principal amount of all Commitments, and (B) after the making of the Loans with respect to each Lender the percentage obtained by dividing (i) the principal amount of such Lender's Loans by (ii) the aggregate principal amount of all Loans, in each case as such percentage may be adjusted by assignments permitted pursuant to Section 8.1.
"REINSURANCE AGREEMENT" means any agreement, contract, treaty or other arrangement whereby one or more insurers, as reinsurers, assume liabilities under insurance policies or agreements issued by another insurance or reinsurance company or companies.
"REGISTER" has the meaning assigned to that term in Section 2.1E.
"REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"RELATED AGREEMENTS" means the Other Bridge Facility and all other "Loan Documents" as defined therein.
"RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Material), including the movement of any Hazardous Material through the air, soil, surface water or groundwater.
"REPLACEMENT LENDER" has the meaning assigned to that term in
Section 2.7.
"REQUISITE LENDERS" means the Lenders holding more than 66-2/3% of the aggregate outstanding principal amount of the Loans.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in shares of that class of Capital Stock to the holders of that class; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding; (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding; (iv) management or similar fees payable to any Guarantor or any of its
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Affiliates (other than the Borrower or any of its wholly-owned Subsidiaries); and (v) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, (A) the Capital Securities and (B) Additional Parent Debt permitted by Section 6.2(iv).
"RETROCESSION AGREEMENT" means any agreement, contract, treaty or other arrangement whereby one or more insurers or reinsurers, as retrocessionaries, assume liabilities of reinsurers under a Reinsurance Agreement or other retrocessionaries under another Retrocession Agreement.
"REVOLVING CREDIT FACILITY" means a multi-year revolving credit facility, dated after the Closing Date, among the Borrower and one or more banks or financial institutions, providing an unsecured revolving credit commitment no greater than $500,000,000 for the Borrower with a maturity date later than the maturity date under the Other Bridge Facility.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill Corporation.
"SAP" means, with respect to any Insurance Subsidiary, the accounting procedures and practices prescribed or permitted by the Applicable Insurance Regulatory Authority, applied in accordance with Section 1.2 hereof.
"SECURITIES" means any stock, share, partnership interest, membership interest in a limited liability company, voting trust certificate, certificate of interest or participation in any profit-sharing agreement or arrangement, option, warrant, bond, debenture, note, or other evidence of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute.
"SOLVENT" means, with respect to any Person, that as of the date of determination both (A) (i) the then fair saleable value of the property of such Person is (y) greater than the total amount of liabilities (including contingent liabilities) of such Person and (z) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person has not incurred and does
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not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise); and (B) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
"STATUTORY STATEMENT" means, as to any Insurance Subsidiary, a statement of the condition and affairs of such Insurance Subsidiary, prepared in accordance with SAP, and filed with the Applicable Insurance Regulatory Authority.
"STATUTORY SURPLUS" means, for any Insurance Subsidiary and its Subsidiaries, the "Total Adjusted Capital" (as defined by the NAIC) of such Insurance Subsidiary or Insurance Subsidiaries (as the case may be).
"SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided, that, notwithstanding the foregoing, it is understood and agreed that (i) Fortis Brussels SA/NV and Fortis Utrecht N.V. are each Subsidiaries of the Guarantors and (ii) no real estate Joint Venture of the Borrower or its Subsidiaries shall be considered a Subsidiary of the Borrower or its Subsidiaries unless such Joint Venture is consolidated on the balance sheet of the Borrower.
"SYNDICATION AGENT" has the meaning assigned to that term in the introduction to this Agreement.
"TAX" means any present or future tax, levy, impost, duty, assessment, charge, deduction or withholding imposed, levied, collected, withheld or assessed by any Governmental Authority.
"TERMINATED LENDER" has the meaning assigned to that term in
Section 2.7.
"TOTAL INVESTED ASSETS" means at any date, for any Insurance Subsidiary and its Subsidiaries (determined on a consolidated basis, without duplication, in accordance with SAP), the amount shown on the most recent available Statutory
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Statement of such Insurance Subsidiary at p. 2, line 11 (or, if the form of Statutory Statement of such Insurance Subsidiary shall be amended, such other page and line of such amended form as shall reflect the same information).
"TYPE OF LOAN" means a Base Rate Loan or a LIBOR Rate Loan.
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER AGREEMENT.
Except as otherwise expressly provided in this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP or SAP, as applicable. Calculations in connection with the definitions, covenants and other provisions of this Agreement shall utilize accounting principles and policies in effect on the date hereof which are in conformity with those used to prepare the financial statements referred to in Section 4.4. Financial statements and other information required to be delivered by the Borrower to the Administrative Agent pursuant to clauses (i) and (ii) of Section 5.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation. In the event that a change in GAAP, SAP or other accounting principles and policies after the date hereof affects in any material respect the calculations of the covenants contained herein, the Lenders and the Borrower agree to negotiate in good faith to amend the affected covenants (and related definitions) to compensate for the effect of such changes so that the restrictions, limitations and performance standards effectively imposed by such covenants, as so amended, are substantially identical to the restrictions, limitations and performance standards imposed by such covenants as in effect on the date hereof; provided that, if the Requisite Lenders and the Borrower fail to reach agreement with respect to such amendment within a reasonable period of time following the date of effectiveness of any such change, calculation of compliance by the Borrower and its Subsidiaries with the covenants contained herein shall be determined in accordance with GAAP or SAP, as applicable, as in effect immediately prior to such change.
1.3 OTHER DEFINITIONAL PROVISIONS AND RULES OF CONSTRUCTION.
A. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference.
B. References to "Sections" and subsections shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided.
C. The use in any of the Loan Documents of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with
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reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS AND LOANS
2.1 COMMITMENT; MAKING OF LOAN; NOTES.
A. COMMITMENTS. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, each Lender severally agrees to lend to the Borrower on the Closing Date an amount not exceeding its Pro Rata Share of the aggregate amount of the Commitments to be used for the purposes identified in Section 5.8A. The amount of each Lender's Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate amount of the Commitments is $650,000,000; provided that the Commitments of the Lenders shall be adjusted to give effect to any assignments of the Commitments pursuant to Section 8.1. Each Lender's Commitment shall expire immediately and without further action on December 31, 2003 to the extent Loans are not made by such Lender on or before that date. The Borrower may make only one borrowing under the Commitments. Amounts borrowed under this Section 2.1A and subsequently repaid or prepaid may not be reborrowed.
B. BORROWING MECHANICS. When the Borrower desires that the Lenders make
Loans it shall deliver to the Administrative Agent on behalf of the Lenders a
Notice of Borrowing no later than 11:00 a.m. (New York City time) at least three
(3) Business Days in advance of a proposed Loan in the case of a LIBOR Rate
Loan, and no later than 11:00 a.m. (New York City time) at least one Business
Day in advance of a proposed Loan in the case of a Base Rate Loan (or, with
respect to a proposed Base Rate Loan to be made on the Closing Date, no later
than 10:00 a.m. (New York City time) on the Closing Date). Promptly upon receipt
by the Administrative Agent of such Notice of Borrowing, the Administrative
Agent shall notify each Lender of the proposed borrowing.
C. DISBURSEMENT OF FUNDS. Each Lender shall make its Loan available to the Administrative Agent not later than 12:00 p.m. (New York City time) on the date of each proposed Loan, by wire transfer of same day funds in Dollars, at the Funding and Payment Office. Upon satisfaction or waiver of the conditions precedent specified in Section 3, the Administrative Agent shall make the proceeds of the Loans available to the Borrower on the date of such proposed Loans by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by the Administrative Agent from the Lenders to be credited to the account of the Borrower as may be designated in writing to the Administrative Agent by the Borrower.
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D. NOTES. Upon request by any Lender, the Borrower shall promptly execute and deliver to such Lender (or to the Administrative Agent for that Lender) a Note to evidence that Lender's Loans, in the principal amount of that Lender's Commitment and with other appropriate insertions.
The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by the Administrative Agent as provided in Section 8.1C. Any request, authority or consent of any person or entity who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, assignee or transferee of that Note or of any Note or Notes issued in exchange therefor.
E. THE REGISTER.
(i) The Administrative Agent shall, on behalf of Borrower, maintain at its Funding and Payment Office a register for the recordation of the names and addresses of the Lenders and the Commitment and Loans of each Lender from time to time (the "Register"). The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.
(ii) The Administrative Agent shall record in the Register the Commitment and the Loans of each Lender, and each repayment or prepayment in respect of the principal amount of such Loans. Any such recordation shall be conclusive and binding on the Borrower and each Lender, absent manifest error; provided that failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Commitment or the Obligations in respect of any applicable Loans.
(iii) Each Lender shall record on its internal records (including the Note held by such Lender) the amount of each Loan made by it and each payment in respect thereof. Any such recordation shall be conclusive and binding on the Borrower, absent manifest error; provided that failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Commitment or the Obligations in respect of any applicable Loans; and provided, further, that in the event of any inconsistency between the Register and any Lender's records, the recordations in the Register shall govern.
(iv) The Borrower, the Administrative Agent and the Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by the Administrative Agent and recorded in the Register as
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provided in Section 8.1C. Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans.
2.2 INTEREST ON THE LOANS.
A. RATE OF INTEREST; TYPE OF LOAN.
(i) Subject to the provisions of Sections 2.2E, 2.5 and 2.6, each Loan shall bear interest on the unpaid principal amount thereof from the date made through the Maturity Date (whether by acceleration or otherwise) at a rate equal to (a) if a Base Rate Loan, the Base Rate plus the Applicable Margin (Guarantor Rate) or (b) if a LIBOR Rate Loan, the sum of LIBOR plus the Applicable Margin (Guarantor Rate).
(ii) The basis for determining the rate of interest with respect to any Loan, and the Interest Period with respect to any LIBOR Rate Loan, shall be selected by the Borrower and notified to the Administrative Agent and the Lenders pursuant to the applicable Notice of Borrowing or Conversion/Continuation Notice, as the case may be. If on any day a Loan is outstanding with respect to which a Notice of Borrowing or Conversion/Continuation Notice has not been delivered to the Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such Loan shall be a Base Rate Loan.
(iii) In the event the Borrower fails to specify between a Base Rate Loan or a LIBOR Rate Loan in the applicable Notice of Borrowing or Conversion/Continuation Notice, such Loan (if outstanding as a LIBOR Rate Loan) will be automatically converted into a Base Rate Loan on the last day of the then-current Interest Period for such Loan (or if outstanding as a Base Rate Loan will remain as, or (if not then outstanding) will be made as, a Base Rate Loan). As soon as practicable after 11:00 a.m. (New York City time) on each Interest Rate Determination Date, the Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower and each Lender.
B. INTEREST PERIODS. In connection with each LIBOR Rate Loan, the applicable interest period (each an "INTEREST PERIOD") to be applicable to such Loan shall be a one, two, three or six month period, as selected by the Borrower in the applicable Notice of Borrowing or Conversion/Continuation Notice; provided that
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(i) in the case of immediately successive Interest Periods applicable to a Loan, each successive Interest Period shall commence on the day on which the immediately preceding Interest Period expires;
(ii) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the immediately preceding Business Day;
(iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iv) of this Section 2.2B, end on the last Business Day of a calendar month;
(iv) no Interest Period with respect to any portion of the Loans shall extend beyond the scheduled Maturity Date;
(v) there shall be no more than three (3) Interest
Periods outstanding at any time; and
(vi) in the event the Borrower fails to specify an Interest Period for any LIBOR Rate Loan in the applicable Notice of Borrowing or Conversion/Continuation Notice, the Borrower shall be deemed to have selected an Interest Period of one month.
C. INTEREST PAYMENTS. On each Interest Payment Date applicable to any portion of the Loans, the Borrower shall pay an amount equal to the aggregate amount of interest that has accrued since the Closing Date or the last Interest Payment Date, as applicable in respect of such portion of the Loans. In addition, interest on each Loan shall be payable in arrears upon any scheduled payment or prepayment of such Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity).
D. DEFAULT RATE. Upon the occurrence and during the continuation of any Event of Default, the outstanding principal amounts of the Loans not paid when due and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable hereunder, shall thereafter bear interest (including post-petition interest in any case or proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is 2% per annum in excess of the rate otherwise payable with respect to the applicable Loans (including, without limitation, in the case of any such fees and other amounts payable under this Agreement). Payment or acceptance of the increased rates of interest provided for in this Section 2.2D is not a permitted alternative to timely payment and shall not constitute a
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waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Agents or the Lenders.
E. COMPUTATION OF INTEREST. Interest payable pursuant to Section 2.2A shall be computed (i) in the case of Base Rate Loans at times when the Base Rate is based on the Prime Rate on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of LIBOR Rate Loans, and Base Rate Loans at times when the Base Rate is based on the Federal Funds Effective Rate, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a LIBOR Rate Loan, the date of conversion of such LIBOR Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a LIBOR Rate Loan, the date of conversion of such Base Rate Loan to such LIBOR Rate Loan, as the case may be, shall be excluded; provided, if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan.
F. CONVERSION/CONTINUATION.
(i) Subject to Section 2.6 and so long as no Potential Event of Default or Event of Default shall have occurred and then be continuing, the Borrower shall have the option:
(a) to convert at any time all or any part of any Loan equal to $200,000,000 and integral multiples of $25,000,000 in excess of that amount from one Type of Loan to another Type of Loan; provided, a LIBOR Rate Loan may only be converted on the expiration of the Interest Period applicable to such LIBOR Rate Loan unless the Borrower shall pay all amounts due under Section 2.6 in connection with any such conversion; or
(b) upon the expiration of any Interest Period applicable to any LIBOR Rate Loan, to continue all or any portion of such Loan equal to $200,000,000 and integral multiples of $25,000,000 in excess of that amount as a LIBOR Rate Loan.
(ii) The Borrower shall deliver a Conversion/Continuation Notice to the Administrative Agent no later than 11:00 a.m. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a LIBOR Rate Loan). Except as otherwise provided herein, a Conversion/Continuation Notice for conversion to, or continuation of, any LIBOR Rate Loans (or telephonic notice
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in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and the Borrower shall be bound to effect a conversion or continuation in accordance therewith.
2.3 FEES.
(i) The Borrower agrees to pay to the Administrative
Agent, for the account of each Lender, a commitment fee equal to the average of
the daily difference between (a) the outstanding Commitment of such Lender and
(b) the aggregate outstanding principal amount of the Loans made by such Lender,
multiplied by 0.12%. Accrued commitment fees will be payable in arrears on
December 31, 2003 or, if earlier, on the Maturity Date. All commitment fees will
be computed on the basis of a year of 360 days and will be payable for the
actual number of days elapsed.
(ii) The Borrower agrees to pay to the Arranger and the Agents such fees in the amounts and at the times separately agreed to by the Borrower, the Arranger and the Agents.
2.4 REPAYMENTS AND PREPAYMENTS; GENERAL PROVISIONS REGARDING PAYMENTS.
A. PAYMENTS OF LOANS.
The Borrower shall immediately prepay Loans at any time the outstanding amount of such Loans shall exceed the Commitments. The Loans and all other amounts owed hereunder with respect to the Loans shall be paid in full no later than the Maturity Date.
B. PREPAYMENTS; COMMITMENT REDUCTIONS.
(i) Voluntary Prepayments; Commitment Reductions. The Borrower may (x) at any time and from time to time upon not less than three (3) Business Day's prior irrevocable written notice given to the Administrative Agent, terminate or permanently reduce the unused portion of the Commitments on any Business Day or (y) at any time and from time to time prepay the Loans on any Business Day, in whole or in part, in each case in an aggregate minimum amount of $200,000,000 and integral multiples of $25,000,000 in excess of that amount or such lesser amount that may then be outstanding. Such notice of termination or reduction of the Commitment or prepayment of the Loans having been given as aforesaid shall be irrevocable and effective upon receipt by the Administrative Agent. The principal amount of the Loans specified in any notice of prepayment shall become due and payable on the prepayment date specified therein.
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(ii) Mandatory Prepayments; Commitment Reductions.
(a) No later than the third Business Day following the date of receipt by the Borrower or any of its Subsidiaries of any Cash proceeds from (x) a capital contribution to, or (y) the issuance of any Capital Stock of, the Borrower or such Subsidiary (but excluding any issuance by a Subsidiary of the Borrower to the Borrower or to a wholly-owned Subsidiary of the Borrower, and any capital contribution by the Borrower or a Subsidiary of the Borrower to a wholly-owned Subsidiary of the Borrower), the Borrower shall prepay the Loans and/or the Commitments shall be permanently reduced as set forth in Section 2.4B(iii) in an aggregate amount equal to 100% of such proceeds, net of commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses.
(b) Concurrently with any prepayment of the Loans and/or reduction of the Commitments pursuant to Sections 2.4B(ii)(a), the Borrower shall deliver to the Administrative Agent an Officers' Certificate demonstrating the calculation of the amount of the applicable net proceeds. In the event that the Borrower shall subsequently determine that the actual amount of net proceeds exceeded the amount set forth in such certificate, the Borrower shall promptly make an additional prepayment of the Loans and/or the Commitments shall be permanently reduced in an amount equal to such excess, and the Borrower shall concurrently therewith deliver to the Administrative Agent an Officers' Certificate demonstrating the derivation of such excess.
(iii) Application of Prepayments/Commitment Reductions. The amount of any net proceeds received by the Borrower as described in Section 2.4B(ii)(a) (including, without limitation, the proceeds of the Guarantor Contribution) shall be applied as follows: (1) first, to automatically and permanently reduce any unused Commitments and (2) second, to the prepayment of the Loans.
(iv) Application of Prepayments of Loans to Base Rate Loans and LIBOR Rate Loans. Any prepayment of Loans shall be applied first to Base Rate Loans to the full extent thereof before application to LIBOR Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by the Borrower pursuant to Section 2.6C.
(v) Guarantor Change of Control. Immediately upon the occurrence of a Guarantor Change of Control, the Commitments shall terminate and the Borrower shall repay the Loans.
C. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) Manner and Time of Payment. All payments by the Borrower of principal, interest, fees and other Obligations hereunder and under the Notes shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any
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restriction or condition, and delivered to the Administrative Agent not later than 2:00 P.M. (New York City time) on the date due at the Funding and Payment Office for the account of the Administrative Agent; funds received by the Administrative Agent after that time on such due date shall be deemed to have been paid by the Borrower on the next succeeding Business Day.
(ii) Payments on Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder, provided that if such next succeeding Business Day occurs in the next calendar month, such payment shall be due and payable on the immediately preceding Business Day.
(iii) Application of Payments to Principal and Interest. All payments in respect of the principal amount of the Loans shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments shall be applied to the payment of interest before application to principal.
(iv) Distribution to Lenders. The Administrative Agent shall promptly distribute to each Lender, at such address as such Lender shall indicate in writing, such Lender's applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, together with all other amounts due thereto, including, without limitation, all fees payable with respect thereto, to the extent received by the Administrative Agent.
(v) Interest on Costs and Expenses. If any Lender incurs
any cost or expense that this Agreement entitles it to collect from the
Borrower, such cost or expense shall be payable together with interest thereon
at a rate per annum equal to the rate applicable to Base Rate Loans as then in
effect, from the date such cost or expense is incurred until such payment date.
Such Lender shall notify the Borrower, through the Administrative Agent, of the
cost or expense to be paid plus the amount of interest thereon. This provision
shall not apply to payments or prepayments of principal, amounts to be applied
against principal, interest or any cost or expense to be collected pursuant to
Section 2.6C hereof.
2.5 INCREASED COSTS; TAXES.
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the provisions of Section 2.5B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a Governmental
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Authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Lender (or its applicable lending
office) to any additional Tax (other than any Non-Excluded Tax covered by
Section 2.5B or any Tax on the overall net income of such Lender) with respect
to this Agreement or any of the other Loan Documents or any of its obligations
hereunder or thereunder or any payments to such Lender (or its applicable
lending office) of principal, interest, fees or any other amount payable
hereunder;
(ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirement with respect to LIBOR Rate Loans that is reflected in the definition of LIBOR); or
(iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market;
and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, the Borrower shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, subject to Section 2.4C(v), such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.5A, which statement shall be conclusive and binding upon all parties hereto absent manifest error.
B. WITHHOLDING OF TAXES.
(i) Payments to Be Free and Clear. All sums payable by the Borrower under this Agreement and the other Loan Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax imposed on or measured by the net income of any Lender
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(including franchise taxes imposed in lieu thereof) or any branch profits taxes)
imposed, levied, collected, withheld or assessed by or within the United States
of America or any political subdivision in or of the United States of America or
any other jurisdiction from or to which a payment is made by or on behalf of the
Borrower (a "Non-Excluded Tax").
(ii) Grossing-up of Payments. If the Borrower or any other Person is required by law to make any deduction or withholding on account of any Non-Excluded Tax from any sum paid or payable by the Borrower to the Administrative Agent or any Lender under any of the Loan Documents:
(a) the Borrower shall promptly notify the Administrative Agent of any such requirement or any change in any such requirement;
(b) the Borrower shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on the Borrower) for its own account or (if that liability is imposed on the Administrative Agent or such Lender, as the case may be) on behalf of and in the name of the Administrative Agent or such Lender;
(c) the sum payable by the Borrower in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, the Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made;
(d) the Borrower shall indemnify each such Lender, within thirty (30) days after demand by such Lender therefor, for the full amount of any Non-Excluded Tax paid or incurred by such Lender with respect to any payment by or obligation of the Borrower under the Loan Documents (including any Non-Excluded Tax imposed or asserted on or attributable to amounts payable under this Section 2.5) and any expenses arising therefrom or with respect thereto, whether or not such Non-Excluded Tax were correctly or legally imposed or asserted by the relevant Governmental Authority; and
(e) within thirty (30) days after paying any sum from which it is required by law to make any deduction or withholding, and within thirty (30) days after the due date of payment of any Tax which it is required by clause (b) above to pay, the Borrower shall deliver to the Administrative Agent evidence reasonably satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority;
provided, that no such additional amount shall be required to be paid to any Lender under clause (c) above except to the extent that any change after the date hereof (in the case of
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each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender.
(iii) Evidence of Exemption from U.S. Withholding Tax.
(a) Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code for U.S. federal income tax purposes) (a "NON-US LENDER") shall deliver to the Administrative Agent for transmission to the Borrower, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of the Borrower or the Administrative Agent (each in the reasonable exercise of its discretion), two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or any successor forms) or, in the case of a Non-US Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest" a Certificate re Non-Bank Status and two original copies of Form W-8BEN, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Lender, and/or such other documentation required under the Internal Revenue Code and reasonably requested by the Borrower to establish that such Lender is exempt from or entitled to a reduced rate of withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Loan Documents.
(b) Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to Section 2.5B(iii)(a) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly (1) deliver to the Administrative Agent for transmission to the Borrower two new original copies of Internal Revenue Service Form W-8BEN or W-8ECI, or a Certificate re Non-Bank Status and two (2) original copies of Internal Revenue Service Form W-8BEN, as the case may be, properly completed and duly executed by such Lender, and/or such other documentation required under the Internal Revenue Code and reasonably requested by the Borrower to confirm or establish that such Lender is exempt from or entitled to a reduced rate of withholding of United States federal income tax with respect to payments to such Lender under the Loan Documents or (2) notify the Administrative Agent and the Borrower of its inability to deliver any such forms, certificates or other evidence.
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(c) The Borrower shall not be required to pay
any additional amount to any Non-US Lender under clause (c) of Section 2.5B(ii)
if such Lender shall have failed to satisfy the requirements of clause (a) or
(b)(1) of this Section 2.5B(iii); provided that if such Lender shall have
satisfied the requirements of Section 2.5B(iii)(a) on the Closing Date or on the
date of the Assignment Agreement pursuant to which it became a Lender, as
applicable, nothing in this Section 2.5B(iii)(c) shall relieve the Borrower of
its obligation to pay any additional amounts pursuant to clause (c) of Section
2.5B(ii) in the event that, as a result of any change in any applicable law,
treaty or governmental rule, regulation or order, or any change in the
interpretation, administration or application thereof, such Lender is no longer
properly entitled to deliver forms, certificates or other evidence at a
subsequent date establishing the fact that such Lender is exempt from or
entitled to a reduced rate of withholding.
(iv) Refunds. In the event that an additional payment is made under this Section 2.5B for the account of any Lender and such Lender, in its sole discretion, determines that it has finally and irrevocably received or been granted a credit against or release or remission for, or repayment of, any Tax paid or payable by it in respect of or calculated with reference to the deduction or withholding giving rise to such payment, such Lender shall, to the extent that it determines that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to the Borrower such amount as such Lender shall, in its sole discretion, have determined to be attributable to such deduction or withholding and which will leave such Lender (after such payment) in no worse position than it would have been in if the Borrower had not been required to make such deduction or withholding. Nothing herein contained shall interfere with the right of a Lender to arrange its tax affairs in whatever manner it thinks fit nor oblige any Lender to claim any tax credit or to disclose any information relating to its tax affairs or any computations in respect thereof or require any Lender to do anything that would prejudice its ability to benefit from any other credits, reliefs, remissions or repayments to which it may be entitled.
C. CAPITAL ADEQUACY ADJUSTMENT. In the event that any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Commitments, or participations therein or other obligations hereunder with respect to the Loans to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the
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policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, subject to Section 2.4C(v), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error.
2.6 SPECIAL PROVISIONS GOVERNING LIBOR RATE LOANS.
Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to LIBOR Rate Loans as to the matters covered:
A. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that the Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any LIBOR Rate Loans, that by reason of circumstances affecting the interbank LIBOR market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of LIBOR Rate, the Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, LIBOR Rate Loans until such time as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, and (ii) any Notice of Borrowing or Conversion/Continuation Notice given by the Borrower with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by the Borrower.
B. ILLEGALITY OR IMPRACTICABILITY OF LIBOR RATE LOANS. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with the Borrower and the Administrative Agent) that the making, maintaining or continuation of its LIBOR Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful) or (ii) has become impracticable, or would cause such Lender material hardship, as a result of contingencies occurring after the date of this Agreement which materially and adversely affect the interbank LIBOR market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each
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other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, LIBOR Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (b) to the extent such determination by the Affected Lender relates to a LIBOR Rate Loan then being requested by the Borrower pursuant to a Notice of Borrowing or a Conversion/Continuation Notice, the Affected Lender shall make such Loan as (or continue such Loan as or convert such Loan to, as the case may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding LIBOR Rate Loans (the "AFFECTED LOANS") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a LIBOR Rate Loan then being requested by the Borrower pursuant to a Notice of Borrowing or a Conversion/Continuation Notice, the Borrower shall have the option, subject to the provisions of Section 2.6C, to rescind such Notice of Borrowing or Conversion/Continuation Notice as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to the Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission the Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this Section 2.6B shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, LIBOR Rate Loans in accordance with the terms hereof.
C. COMPENSATION FOR BREAKAGE. The Borrower shall compensate each Lender upon written request by such Lender (which request shall set forth the basis for requesting such amounts) for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to lenders of funds borrowed by it to make or carry its LIBOR Rate Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds) which that Lender may sustain: (i) if for any reason (other than a default by such Lender) a borrowing of any LIBOR Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, or a conversion to or continuation of any LIBOR Rate Loan does not occur on a date specified therefor in a Conversion/Continuation Notice or a telephonic request for conversion or continuation, (ii) if any prepayment or other principal payment of, or any conversion of, any LIBOR Rate Loan made by such Lender occurs on a date other than the last day of an Interest Period applicable to such Loan or (iii) if any prepayment of any LIBOR Rate Loan made by such Lender is not made on any date specified in a notice of prepayment given by the Borrower.
D. BOOKING OF LIBOR RATE LOANS. Any Lender may make, carry or transfer LIBOR Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender.
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E. ASSUMPTIONS CONCERNING FUNDING OF LIBOR RATE LOANS. Calculation of all amounts payable to a Lender under this Section 2.6 and under Section 2.5A and 2.5C shall be made as though that Lender had actually funded each of its relevant LIBOR Rate Loans through the purchase of a LIBOR deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of LIBOR in an amount equal to the amount of such LIBOR Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such LIBOR deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that each Lender may fund each of its LIBOR Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.6 and under Section 2.5A and 2.5C.
2.7 REMOVAL OR REPLACEMENT OF A LENDER.
Anything contained herein to the contrary notwithstanding, in the event
that: any Lender shall give notice to the Borrower that such Lender is an
Affected Lender or that such Lender is entitled to receive payments under
Section 2.5 or Section 2.6A or 2.6B, the circumstances which have caused such
Lender to be an Affected Lender or which entitle such Lender to receive such
payments shall remain in effect, and such Lender shall fail to withdraw such
notice within five (5) Business Days after the Borrower's request for such
withdrawal; then, with respect to each such Lender (a "TERMINATED LENDER"), the
Borrower may, by giving written notice to the Administrative Agent and any
Terminated Lender of its election to do so, elect to cause such Terminated
Lender (and such Terminated Lender hereby irrevocably agrees) to assign its
outstanding Loans in full to one or more Eligible Assignees (each a "REPLACEMENT
LENDER") in accordance with the provisions of Section 8.1 for a purchase price
equal to the outstanding principal amount of the Loans assigned and accrued
interest thereon and accrued and theretofore unpaid fees owing to such
Terminated Lender under Section 2.3 through the date of assignment, to be paid
by the Replacement Lender on the date of such assignment; provided, that on the
last day of the next successive Interest Period, the Borrower shall pay any
amounts payable to such Terminated Lender to the date of such assignment
pursuant to Sections 2.5 or 2.6 or otherwise as if it were a prepayment. Upon
the completion of such assignment and the prepayment of all amounts owing to any
Terminated Lender, such Terminated Lender shall no longer constitute a "Lender"
for purposes hereof; provided, that any rights of such Terminated Lender to
indemnification hereunder shall survive as to such Terminated Lender.
2.8 MITIGATION.
Each Lender agrees that, as promptly as practicable after the officer of such Lender responsible for administering the Loans of such Lender becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under Section 2.5 or 2.6, it will, to the extent not inconsistent with the internal policies of such
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Lender and any applicable legal or regulatory restrictions, use reasonable efforts (i) to make, issue, fund or maintain the Commitment of such Lender or the Affected Loans of such Lender through another lending office of such Lender, or (ii) take such other measures as such Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender pursuant to Section 2.5 or 2.6 would be materially reduced and if, as determined by such Lender in its sole discretion, the making, issuing, funding or maintaining of such Commitment or Loans through such other lending office or in accordance with such other measures, as the case may be, would not otherwise adversely affect such Commitment or Loans or the interests of such Lender; provided that such Lender will not be obligated to utilize such other lending office pursuant to this Section 2.8 unless the Borrower agrees to pay all incremental expenses incurred by such Lender as a result of utilizing such other lending office as described in clause (i) above. A certificate as to the amount of any such expenses payable by the Borrower pursuant to this Section 2.8 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive absent manifest error.
SECTION 3. CONDITIONS PRECEDENT
3.1 CONDITIONS TO CLOSING DATE.
The obligations of the Lenders to make the Loans hereunder on the Closing Date are subject to the satisfaction of the following conditions prior to or on the Closing Date:
A. BORROWER DOCUMENTS. The Borrower shall deliver or cause to be delivered to the Administrative Agent on behalf of each Lender the following with respect to the Borrower and each Guarantor:
(i) Certified copies of the Organizational Documents of such Person, each dated a recent date prior to the Closing Date, certified as of a recent date prior to the Closing Date by the appropriate governmental official or an officer of such Person, as applicable;
(ii) Resolutions of the board of directors (or similar governing body) of such Person approving and authorizing the execution, delivery and performance of the Loan Documents and Related Agreements to which it is a party and certified as of the Closing Date by an officer of such Person as being in full force and effect without modification or amendment;
(iii) Signature and incumbency certificates of (or, with respect to the Guarantors only, powers of attorney from) the officers of such Person executing on
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behalf of such Person the Loan Documents and Related Agreements to which it is a party;
(iv) Executed originals of the Loan Documents to which such Person is a party;
(v) With respect to the Borrower, a good standing certificate or certificate of existence, as applicable, from the Secretary of State (or similar official) from the jurisdiction of formation of the Borrower certified as of a recent date prior to the Closing Date; and
(vi) Such other documents as the Administrative Agent on behalf of the Lenders may reasonably request.
B. OPINIONS OF COUNSEL. The Administrative Agent shall have received originally executed copies of one or more favorable written opinions of (i) Katherine Greenzang, Esq., Senior Vice President, General Counsel and Secretary for the Borrower; (ii) Simpson Thacher & Bartlett LLP, special New York counsel for the Borrower, (iii) Lionel Sawyer & Collins, Nevada counsel for the Borrower, (iv) Philip Povel, Esq., in-house legal counsel in The Netherlands to Fortis N.V., (v) De Brauw Blackstone Westbroek P.C., Netherlands counsel for the Lenders, (vi) Betty Keutgen, Esq., Director Legal Group of Fortis SA/NV, (vii) Linklaters De Bandt, Belgian counsel for each of the Guarantors, and (viii) Davis Polk & Wardwell, special New York counsel for each of the Guarantors, each in form and substance reasonably satisfactory to the Administrative Agent and its counsel, dated as of the Closing Date and setting forth substantially the matters in the opinions designated in Exhibit IV-A, Exhibit IV-B, Exhibit IV-C, Exhibit IV-D, Exhibit IV-E, Exhibit IV-F, Exhibit IV-G and Exhibit IV-H respectively annexed hereto and as to such other matters as the Administrative Agent may reasonably request.
C. RELATED AGREEMENTS. The Administrative Agent shall have received a fully executed or conformed copy of each Related Agreement and any documents executed in connection therewith, and each Related Agreement shall be satisfactory in form and substance to the Administrative Agent and shall be in full force and effect and no provision thereof shall have been modified or waived in any respect determined by any of the Lenders or the Administrative Agent to be material, in each case without the consent of the Lenders and the Administrative Agent.
D. STATUTORY RESERVES CERTIFICATE. The Administrative Agent shall have received a certificate of the chief financial officer or chief actuarial officer of the Borrower, dated the Closing Date, confirming the information in Section 4.4C.
E. PAYMENT OF AMOUNTS DUE. The Borrower shall have paid to the Arranger and the Agents, all reasonable out-of-pocket costs, fees (including, without limitation, those fees due on the Closing Date referred to in Section 2.3), expenses (including,
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without limitation, legal fees and expenses) and other compensation payable on the Closing Date.
F. EXISTING INTERCOMPANY OBLIGATIONS; OTHER INDEBTEDNESS. The
Administrative Agent shall have received from the Borrower evidence satisfactory
to it that, on the Closing Date (immediately prior to the funding of the Loan
hereunder), the Borrower and its Subsidiaries have no Indebtedness other than
(i) the Existing Intercompany Obligations (as described on Schedule 3.1F hereto)
and the Demand Note which, collectively, do not exceed $1,275,002,000 in
aggregate principal amount, (ii) under the Related Agreements and (iii) as
permitted by Section 6.2.
G. GOVERNMENTAL AUTHORIZATIONS AND CONSENTS.
(i) The Borrower and each of the Guarantors shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the transactions contemplated by the Loan Documents and the Related Agreements, and each of the foregoing shall be in full force and effect and in form and substance satisfactory to the Administrative Agent and the Lenders. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Loan Documents or the Related Agreements or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired.
(ii) Each of the Lenders shall have received, at least two
(2) Business Days in advance of the Closing Date, all documentation and other
information required by Governmental Authorities under applicable
"know-your-customer" and anti-money laundering rules and regulations, including,
without limitation, as required by the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA
PATRIOT ACT) Act of 2001.
H. MATERIAL ADVERSE EFFECT. Since December 31, 2002, there shall not have occurred a material adverse effect upon (i) the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole, or (ii) the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Guarantors and their Subsidiaries, taken as a whole.
I. NO LITIGATION. There shall not exist any action, suit, proceeding (whether administrative, judicial or otherwise), arbitration or governmental investigation at law or in equity, or before or by any Governmental Authority, domestic or foreign, pending or threatened, that, singly or in the aggregate, could reasonably be expected to materially impair the transactions contemplated by the Loan Documents or the transactions
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contemplated by the Related Agreements, or that could reasonably be expected to have a Material Adverse Effect.
J. SOLVENCY ASSURANCES. The Administrative Agent shall have received a Financial Condition Certificate from the chief financial officer of the Borrower, dated the Closing Date, satisfactory to the Administrative Agent, and with appropriate attachments demonstrating that, before and after giving effect to the Assurant Reincorporation, the Assurant IPO and the other transactions contemplated by the Loan Documents and the Related Agreements, the Borrower, individually, and together with each of its Subsidiaries (on a consolidated basis), will be, Solvent.
K. FINANCIAL STATEMENTS. The Lenders shall have received from the Borrower (i) the historical financial statements and (ii) the pro forma consolidated balance sheets, prepared in accordance with GAAP and reflecting the consummation of the related financing and the other transactions contemplated by the Loan Documents and the Related Agreements (which pro forma financial statements shall be in form and substance satisfactory to the Lenders), in each case as provided in Section 4.4A of this Agreement.
L. MARKET CONDITIONS. There shall have not occurred or become known to the Arranger, any of the Agents or any of the Lenders any circumstance, change or condition in the financial or capital markets generally that, in the judgment of the Arranger, could materially and adversely impair the consummation of the Assurant IPO.
3.2 CONDITIONS TO EACH LOAN.
A. CONDITIONS PRECEDENT. The obligations of the Lenders to make any Loans hereunder, including any Loans made on the Closing Date, are subject to the satisfaction of the following conditions:
(i) the Administrative Agent shall have received, in accordance with the provisions of Section 2.1B, an originally executed Notice of Borrowing signed by the Borrower;
(ii) after giving effect to the making of such Loans, the aggregate amount of all Loans outstanding shall not exceed the Commitments then in effect;
(iii) the representations and warranties contained herein and in the other Loan Documents and in the Related Agreements shall be true, correct and complete in all material respects on and as of the date of the Loan to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date;
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(iv) no event shall have occurred and be continuing or would result from the consummation of the borrowing of the Loans hereunder, or the transactions contemplated by the Related Agreements, that would constitute an Event of Default or a Potential Event of Default; and
(v) the Administrative Agent shall have received evidence satisfactory to it that (A) the proceeds of the Loan shall be used, on the Closing Date, together with the proceeds of loans made under the Other Bridge Facility (borrowed under the Other Bridge Facility for the same purpose), to repay (in full) the Demand Note and the Existing Intercompany Obligations, and all accrued fees, costs, expenses, premiums or penalties in connection therewith and (B) to the extent that the proceeds of the Loan are to be used to repay or otherwise redeem the Capital Securities, or to pay accrued fees, costs, expenses, premiums or penalties in connection therewith, (x) the Borrower shall be in compliance with Section 5.8A and (y) such proceeds shall be used, together with the proceeds of loans made under the Other Bridge Facility (borrowed under the Other Bridge Facility for the same purpose), to repay or otherwise redeem all Capital Securities and to pay all such fees, costs, expenses, premiums or penalties.
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce the Agents and the Lenders to enter into this Agreement and to induce the Lenders to make the Loans hereunder, the Borrower represents and warrants to each Agent and each Lender that the following statements are true, correct and complete:
4.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND SUBSIDIARIES.
A. ORGANIZATION AND POWERS. The Borrower is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each Subsidiary of the Borrower is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, except where the failure to be duly organized, validly existing or in good standing has not had and could not reasonably be expected to have a Material Adverse Effect. The Borrower and each of its Subsidiaries has all requisite power and authority to own, lease and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents and Related Agreements to which it is a party and to carry out the transactions contemplated thereby.
B. QUALIFICATION AND GOOD STANDING. The Borrower and each of its Subsidiaries is duly qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had and could not reasonably be expected to have a Material Adverse Effect.
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C. SUBSIDIARIES. Schedule 4.1C sets forth the ownership interest of the Borrower and each of its Subsidiaries in their respective Subsidiaries as of the Closing Date, and identifies each Subsidiary that is an Insurance Subsidiary.
4.2 AUTHORIZATION OF BORROWING, ETC.
A. AUTHORIZATION OF BORROWING, ETC. The execution, delivery and performance of each Loan Document and each Related Agreement to which it is a party have been duly authorized by all necessary action on the part of the Borrower.
B. NO CONFLICT. The execution, delivery and performance by the Borrower
of each Loan Document and each Related Agreement to which it is a party and the
consummation of the transactions contemplated by each Loan Document and each
Related Agreement to which it is a party do not and will not (i) violate any
provision of any law or any governmental rule or regulation applicable to the
Borrower or any of its Subsidiaries, or any of the Organizational Documents of
the Borrower or any of its Subsidiaries, (ii) violate any order, judgment or
decree of any court or other agency of government binding on the Borrower or any
of its Subsidiaries, except to the extent such violation could not reasonably be
expected to have a Material Adverse Effect, (iii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any Contractual Obligation of the Borrower or any of its Subsidiaries,
(iv) result in or require the creation or imposition of any Lien upon any of the
properties or assets of the Borrower or any of its Subsidiaries, or (v) require
any approval of stockholders, partners or members or any approval or consent of
any Person under any Contractual Obligation of the Borrower or any of its
Subsidiaries, except for such approvals or consents which will be obtained on or
before the Closing Date and disclosed in writing to the Administrative Agent.
C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by the Borrower of each Loan Document and each Related Agreement to which it is a party and the consummation of the transactions contemplated by each Loan Document and each Related Agreement to which it is a party do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority.
D. BINDING OBLIGATION. Each of the Loan Documents and each of the Related Agreements to which it is a party has been duly executed and delivered by the Borrower and is the legally valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability.
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4.3 VALID ISSUANCE OF SECURITIES.
The Capital Stock of the Borrower and each of its Material Subsidiaries has been duly authorized and validly issued, and is fully paid and nonassessable. No stockholder of the Borrower has or will have any preemptive rights to subscribe for any additional Capital Stock of the Borrower.
4.4 FINANCIAL CONDITION.
A. GAAP FINANCIAL STATEMENTS. The Borrower has heretofore delivered to the Administrative Agent (a) the audited consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 2002 and the audited consolidated balance sheet of the Guarantors and their Subsidiaries as at December 31, 2002, and the related audited consolidated statements of income, stockholders' equity and cash flows of each of such companies for the Fiscal Year then ended, together with all related notes and schedules thereto and (b) the unaudited pro forma consolidated balance sheet of the Borrower and its Subsidiaries as at September 30, 2003, and the related unaudited statements of income, stockholders' equity and cash flows of each of such companies for the portion of the Fiscal Year then ended. All such statements of the Borrower and its Subsidiaries were prepared in conformity with GAAP and fairly present, in all material respects, the financial position of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments. Neither the Borrower nor any of its Subsidiaries has any contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the foregoing financial statements or the notes thereto and which in any such case could reasonably be expected to have a Material Adverse Effect.
B. STATUTORY FINANCIAL STATEMENTS. All annual convention statements ("ANNUAL CONVENTION STATEMENTS") and the quarterly convention statements ("QUARTERLY CONVENTION STATEMENTS") and supplements thereto, in each case required to be filed since January 1, 2000 with any Applicable Insurance Regulatory Authority by the Insurance Subsidiaries have been duly filed and, except where the failure to file in a timely fashion, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect, all such filings have been timely. Such Annual Convention Statements for the Fiscal Years ended December 31, 2000, 2001 and 2002 and such Quarterly Convention Statements for the fiscal quarters ended March 31, 2003, June 30, 2003 and September 30, 2003 (including the financial statements on a statutory basis and the accompanying exhibits and schedules) and supplements thereto, were prepared in accordance with SAP applied on a consistent basis throughout such periods except as otherwise stated therein or required by the rules and regulations of the Applicable Insurance Regulatory Authorities and in accordance with the books and records of the Insurance Subsidiaries and present fairly, in accordance with such practices, the statutory
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financial position as at the date of, and the statutory results of its operations for the periods covered by, such Annual Convention Statements. Each Insurance Subsidiary owns assets that qualify as legal reserve assets under applicable insurance laws in an amount at least equal to all such required reserves and other similar amounts of such Insurance Subsidiary, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
C. STATUTORY RESERVES. The statutory reserves of each of the Insurance
Subsidiaries (the "STATUTORY RESERVES") as set forth in the Annual Convention
Statements and the Quarterly Convention Statements (i) were determined in
accordance with generally accepted actuarial standards consistently applied,
(ii) were fairly stated in all material respects in accordance with sound
actuarial principles, (iii) were based on actuarial assumptions that are in
accordance with those specified in the related policy provisions, (iv) make
adequate provision for all matured and unmatured liabilities of the Insurance
Subsidiaries under the terms of its Insurance Contracts, Reinsurance Agreements
and Retrocession Agreements at such date, (v) are computed and are fairly stated
in all material respects in accordance with SAP, and (vi) are in compliance in
all material respects with the requirements of all Applicable Insurance
Regulatory Authorities. Since December 31, 2002, there has been no change in the
Statutory Reserves of any of the Insurance Subsidiaries, except for changes that
could not reasonably be expected to have a Material Adverse Effect.
4.5 NO MATERIAL ADVERSE CHANGE.
Since December 31, 2002, no event or change has occurred that has caused or evidences, or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.
4.6 TITLE TO PROPERTIES; LIENS.
The Borrower and each of its Subsidiaries has (i) good and marketable title in fee simple in (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), or (iii) good and marketable title to (in the case of all other personal property), all of its material properties and assets reflected in the financial statements referred to in Section 4.4A or in the most recent financial statements delivered pursuant to Section 5.1, in each case except for assets disposed of since the date of such financial statements and prior to the Closing Date or as otherwise permitted under Section 6.6. Except as permitted by this Agreement or as contemplated by the Loan Documents and Related Agreements, all such properties and assets are free and clear of Liens.
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4.7 NO LITIGATION; COMPLIANCE WITH LAWS.
Except as otherwise disclosed on Schedule 4.7 hereto, there are no actions, suits, proceedings (whether administrative, judicial or otherwise), arbitrations or governmental investigations (whether or not purportedly on behalf of the Borrower or any of it Subsidiaries) at law or in equity, or before or by any Governmental Authority, domestic or foreign (including any Environmental Claims), that are pending or, to the knowledge of the Borrower or any of its Subsidiaries, threatened against or affecting the Borrower or any of its Subsidiaries or any property of the Borrower or any of its Subsidiaries and that (x) individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or (y) involve any of the Loan Documents or the Related Agreements or the transactions contemplated thereby. Neither the Borrower nor any of its Subsidiaries (i) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or (ii) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any Governmental Authority, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.
4.8 PAYMENT OF TAXES.
Except as otherwise permitted under Section 5.5, all tax returns and reports of the Borrower and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges imposed upon the Borrower and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable, except to the extent the failure to do so could not reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries knows of any proposed tax assessment against Borrower or any of its Subsidiaries which is not adequately reserved in accordance with GAAP and being contested by the Borrower or such Subsidiary in good faith and by appropriate proceedings.
4.9 NO DEFAULT.
Neither the Borrower nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect.
$650,000,000 CREDIT AGREEMENT 4.10 GOVERNMENTAL REGULATION. Neither the Borrower nor any of its Subsidiaries is subject to |
regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or under any federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. Neither the Borrower nor any of its Subsidiaries is a "registered investment company" or a company "controlled" by a "registered investment company" or a "principal underwriter" of a "registered investment company" as such terms are defined in the Investment Company Act of 1940.
4.11 SECURITIES ACTIVITIES.
Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.
4.12 EMPLOYEE BENEFIT PLANS.
A. Each of the Borrower and its Subsidiaries are in all material respects in compliance with all applicable provisions and requirements of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their obligations under each Employee Benefit Plan, except where the failure to do so could not reasonably be expected to result in a material liability to the Borrower or any of its Subsidiaries. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service, and the Borrower is not aware of any circumstances likely to result in revocation of such favorable determination letter.
B. No liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Employee Benefit Plan or any trust established under Title IV of ERISA (other than required contributions which have been timely made when due) has been or is expected to be incurred by the Borrower or any of its Subsidiaries or any of their ERISA Affiliates, and no ERISA Event has occurred or is reasonably expected to occur, in each case that would reasonably be expected to result in a material liability to the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates.
C. Except as disclosed on Schedule 4.12 hereto and to the extent required under Section 4980B of the Internal Revenue Code, no Employee Benefit Plan provides health
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or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of the Borrower and its Subsidiaries. The Borrower has retained the right to amend or terminate its retiree medical arrangements at any time.
D. The present value of the aggregate benefit liabilities under each Pension Plan sponsored, maintained or contributed to by the Borrower or any of its Subsidiaries or any of their ERISA Affiliates (determined as of the beginning of the most recent plan year on the basis of the actuarial assumptions specified for funding purposes in the most recent actuarial valuation for such Pension Plan), did not exceed the actuarial value of the assets of each such Pension Plan, in each case by an amount which could reasonably be expected to have a Material Adverse Effect.
E. None of the Borrower, any Subsidiary of the Borrower or any of their respective ERISA Affiliates contributes to or is required to contribute to a Multiemployer Plan. No Subsidiary or ERISA Affiliate of the Borrower or any Subsidiary of the Borrower maintains an Employee Benefit Plan subject to Title IV of ERISA.
4.13 CERTAIN FEES.
No broker's or finder's fee or commission will be payable with respect to this Agreement or any of the transactions contemplated hereby except for such fees payable under Section 2.3 or as otherwise disclosed to the Arranger and the Agents, and the Borrower hereby indemnifies the Arranger and each of the Agents and each Lender against, and agrees that it will hold the Arranger and each of the Agents and each Lender harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability.
4.14 ENVIRONMENTAL PROTECTION.
A. Neither the Borrower nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to any Environmental Law, any Environmental Claim, or any Hazardous Materials Activity that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
B. Neither the Borrower nor any of its Subsidiaries has received any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss. 9604) or any comparable state law.
C. There are and, to the Borrower's and each of its Subsidiaries' knowledge, have been no conditions, occurrences, or Hazardous Materials Activities which could
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reasonably be expected to form the basis of an Environmental Claim against the Borrower or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
D. Compliance with all current or reasonably anticipated future requirements pursuant to or under Environmental Laws is not reasonably expected to have a Material Adverse Effect.
4.15 SOLVENCY.
The Borrower, individually, and together with each of its Subsidiaries (on a consolidated basis), is, and on each date on which the Borrower incurs any Obligations will be, Solvent.
4.16 RESTRICTIONS.
There are no contractual restrictions on the Borrower or any of its Subsidiaries which prohibit or otherwise restrict the transfer of cash or other assets from any Subsidiary of the Borrower to the Borrower, other than prohibitions or restrictions permitted under Section 6.4.
4.17 RELATED AGREEMENTS.
A. The Borrower has delivered to the Administrative Agent complete and correct copies of each Related Agreement and of all exhibits and schedules thereto. Each of the representations and warranties given by the Borrower in the Related Agreements is true and correct in all material respects as of the Closing Date (or as of any earlier date to which such representation and warranty specifically relates).
B. All Governmental Authorizations and all other authorizations, approvals and consents of any other Person required by the Related Agreements or to consummate the borrowings contemplated by the Related Agreements have been obtained and are in full force and effect.
C. On the Closing Date, (i) all of the conditions to effecting or consummating the borrowings contemplated by the Related Agreements as set forth in the Related Agreements have been duly satisfied or, with the consent of the Administrative Agent, waived, and (ii) the borrowings contemplated by the Related Agreements have been consummated in accordance with the Related Agreements and all applicable laws.
4.18 INSURANCE LICENSES.
No Insurance License, the suspension, revocation, termination, non-renewal or limitation of which could reasonably be expected to have a Material Adverse Effect, is the subject of a proceeding for suspension, revocation, termination, non-renewal or
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limitation and, to the knowledge of the Borrower and its Subsidiaries, no such suspension, revocation, termination, non-renewal or limitation has been threatened by any Governmental Authority. No Insurance Subsidiary transacts any Insurance Business, directly or indirectly, in any jurisdiction where such business requires any Insurance License that is not validly maintained by such Insurance Subsidiary, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
4.19 DISCLOSURE.
No representation or warranty of the Borrower contained in any of the Loan Documents or in any other document, certificate or written statement furnished to any of the Agents or any of the Lenders by or on behalf of the Borrower or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement (including, without limitation, the Form S-1 of Assurant as filed with the Securities and Exchange Commission (together with filed amendments)) contains any untrue statement of a material fact or omits to state a material fact (known to the Borrower or any of its Subsidiaries, in the case of any document not furnished by any of them) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by the Borrower to be reasonable at the time made, it being recognized by the Agents and the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known to the Borrower or any of its Subsidiaries (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to each of the Agents for use in connection with the transactions contemplated hereby.
SECTION 5. BORROWER'S AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as the Commitments
hereunder shall remain in effect and until payment in full of the Loans and all
other Obligations, unless the provisions of this Section 5 are waived or amended
in accordance with Section 8.5, the Borrower shall perform all covenants in this
Section 5.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
The Borrower will deliver to the Administrative Agent:
(i) Quarterly Financial Statements: within 45 days after the end of each Fiscal Quarter ending after the Closing Date, the unaudited consolidated balance
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sheet of the Borrower and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then-current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year, all in reasonable detail and certified by the chief financial officer of the Borrower as fairly presenting, in all material respects, the financial condition of the Borrower and its Subsidiaries as at the date indicated and the results of their operations and cash flows for the periods indicated in conformity with GAAP, subject to changes resulting from audit and normal year-end adjustments;
(ii) Annual Financial Statements: within 90 days after the end of each Fiscal Year, (a) the consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year, in reasonable detail and certified by the chief financial officer of the Borrower as fairly presenting, in all material respects, the financial condition of the Borrower and its Subsidiaries as at the date indicated and the results of their operations and cash flows for the periods indicated; and (b) with respect to such consolidated financial statements a report thereon of PricewaterhouseCoopers LLP or other independent certified public accountants of recognized national standing selected by the Borrower, and reasonably satisfactory to the Administrative Agent (which report shall be unqualified as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards) together with a written statement by such independent certified public accountants stating (1) that their audit examination has included a review of the terms of the Loan Documents, (2) whether, in connection therewith, any condition or event that constitutes a Potential Event of Default or an Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof, and (3) that nothing has come to their attention that causes them to believe that the information contained in any Compliance Certificate is not correct or that the matters set forth in such Compliance Certificate are not stated in accordance with the terms hereof (it being understood that such statement shall be limited to the items that independent certified public accountants are permitted to cover in such statements pursuant to the professional standards and customs of the accounting profession);
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(iii) Compliance Certificate: together with each delivery of financial statements of the Borrower and its Subsidiaries pursuant to Sections 5.1(i) and 5.1(ii), a duly executed and completed Compliance Certificate;
(iv) Filings: (a) promptly upon their becoming available, copies of all financial statements, periodic reports and proxy statements filed with, or furnished to, the Securities and Exchange Commission, or, after the closing of the Assurant IPO, sent by the Borrower to its shareholders or other security holders, and (b) promptly following the request of the Administrative Agent or any Lender, a copy of all material information filed by the Borrower with any Governmental Authority to the Administrative Agent or such Lender;
(v) Notice of Default, etc.: promptly (with a copy to each Lender) upon (a) the occurrence of any condition or event that constitutes an Event of Default or Potential Event of Default or notice being given to the Borrower or any of its Subsidiaries with respect thereto, (b) any Person giving any notice to the Borrower or any of its Subsidiaries or taking any other action with respect to a claimed default or event or condition of the type referred to in Section 7.2, or (c) the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officers' Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Potential Event of Default, default, event or condition, and what action the Borrower has taken, is taking and proposes to take with respect thereto;
(vi) Notice of Litigation: promptly after the Borrower becomes aware or has knowledge of (x) the institution of any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration against or affecting the Borrower or any of its Subsidiaries or any of their respective property (collectively, "PROCEEDINGS") or (y) any material development in any such Proceeding, in either case that (A) the Borrower believes has a reasonable possibility of an adverse determination that could reasonably be expected to have a Material Adverse Effect or (B) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby or by the Related Agreements, written notice thereof together with such other information as may be reasonably available to the Borrower or such Subsidiary to enable the Lenders and their counsel to evaluate such matters;
(vii) Change in Rating: prompt written notice of any and all changes in the rating given the Borrower or either of the Guarantors by Moody's or S&P;
(viii) Insurance Reports and Filings:
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(a) (1) prompt written notice to the Administrative Agent and each Lender of the failure by any Insurance Subsidiary to file its Statutory Statements and any statements referred to in Section 4.4B or in Section 4.4C, and (2) promptly following the request of the Administrative Agent or any Lender, a complete copy of any Statutory Statement and any statements referred to in Section 4.4B or in Section 4.4C to the Administrative Agent or such Lender;
(b) promptly following the delivery or receipt, as the case may be, by any Insurance Subsidiary or any of their respective Subsidiaries, copies of (1) each material examination and/or audit report or other similar report submitted to any Insurance Subsidiary by any Applicable Insurance Regulatory Authority, (2) all material information which the Lenders may from time to time request with respect to the nature or status of any material deficiencies or violations reflected in any such examination, report or other similar report and (3) each registration, filing, submission, report, order, direction, instruction, approval, authorization, license or other notice which the Borrower or any Insurance Subsidiary may at any time make with, or receive from, any Applicable Insurance Regulatory Authority except with respect to matters arising in the ordinary course of business of the Borrower or such Insurance Subsidiary;
(c) promptly following the preparation thereof, any material report by an independent actuarial consulting firm reviewing the adequacy of loss reserves (net of reinsurance) of any Insurance Subsidiary, together with such firm's opinion affirming the adequacy of such loss reserves; and
(d) promptly following notification thereof from a Governmental Authority, and in any event not later than five (5) Business Days after receipt of such notice, written notice of the revocation, suspension, termination, non-renewal or limitation of, or the taking of any other action in respect of, any material Insurance License;
(ix) Related Agreements: copies of all notices given or received by the Borrower in connection with the Related Agreements on the day that such notice is given by the Borrower or within three (3) Business Days after such notice is received by it, as the case may be (except that for notices of potential and actual defaults or events of default given or received by the Borrower, the Borrower will deliver copies of such notices to the Administrative Agent on the day that such notice is given by the Borrower or within one (1) Business Day after any such notice is received by the Borrower); provided, however, that so long as no Event of Default or Potential Event of Default has occurred and is continuing, notices of borrowing or extensions of credit given or received in the ordinary course by the Borrower in connection with the Related Agreements need not be delivered; and
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(x) Other Information: with reasonable promptness, such other information and data with respect to the Borrower or any of its Subsidiaries as from time to time may be reasonably requested by the Administrative Agent or any Lender.
5.2 BOOKS AND RECORDS.
The Borrower will, and will cause each of its Subsidiaries to, keep proper books of records and accounts in which full, true and correct entries in all material respects in conformity with GAAP and SAP, as applicable, consistently applied shall be made of all material dealings and transactions in relation to its business and activities; and (b) permit representatives or agents of the Administrative Agent (or during the continuance of a Event of Default hereunder, any Lender) to visit and inspect any of its properties or assets and examine and make abstracts from any of its books and records upon reasonable prior notice during normal business hours and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries so long as the Borrower is provided the opportunity to participate.
5.3 EXISTENCE.
Except as otherwise permitted by Section 6.6, the Borrower will, and will cause each of its Material Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights, privileges, licenses (including Insurance Licenses) and franchises material to its business; provided, that neither the Borrower nor any of its Subsidiaries shall be required to preserve the existence of any such Subsidiary, or any such right, privilege, license or franchise of the Borrower or such Subsidiary if the Borrower's or such Subsidiary's board of directors (or similar governing body) shall determine that the preservation of such existence, right, privilege, license or franchise is no longer desirable in the conduct of the business of such Person, and that the loss thereof or dissolution (as the case may be) is not disadvantageous in any material respect to the Borrower or such Subsidiary or the Lenders.
5.4 INSURANCE.
The Borrower will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of the Borrower and its Subsidiaries as may customarily be carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for such Persons.
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5.5 PAYMENT OF TAXES AND CLAIMS.
The Borrower will, and will cause each of its Subsidiaries to, pay all Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings and adequate reserve or other appropriate provision, as shall be required in conformity with GAAP, shall have been made therefor.
5.6 MAINTENANCE OF PROPERTIES.
The Borrower will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of the Borrower and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof.
5.7 COMPLIANCE WITH LAWS.
The Borrower will, and will cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws), noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
5.8 USE OF PROCEEDS.
A. PROCEEDS OF LOANS. The proceeds of the Loans made pursuant to 2.1A shall be used (i) on the Closing Date, together with the proceeds of loans made under the Other Bridge Facility (borrowed under the Other Bridge Facility for the same purpose) to repay (in full) the Demand Note and the Existing Intercompany Obligations, and all accrued fees, costs, expenses, premiums or penalties in connection therewith, (ii) to repay or otherwise redeem the Capital Securities, and to pay accrued fees, costs, expenses, premiums or penalties in connection therewith, or (iii) for general corporate purposes; provided, that not more than $125,000,000 of proceeds from Loans hereunder and under the Other Bridge Facility (borrowed under the Other Bridge Facility for the same purpose), in the aggregate, may be used for general corporate purposes; provided, further, that to the extent that the proceeds of any of the Loans are to be used to repay or otherwise redeem the Capital Securities, or to pay accrued fees, costs, expenses, premiums or penalties in connection therewith, such proceeds shall be used, together with the proceeds of loans made under the Other
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Bridge Facility (borrowed under the Other Bridge Facility for the same purpose), to repay or otherwise redeem all Capital Securities and to pay all such fees, costs, expenses, premiums or penalties.
B. MARGIN REGULATIONS. No part of the proceeds of the Loans made to the Borrower will be used, directly or indirectly, to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.
5.9 ASSURANT IPO; OTHER FINANCINGS.
(i) The Borrower will use its best efforts to, as soon as practicable following the Closing Date, to (a) consummate the Assurant IPO, (b) enter into the Revolving Credit Facility in form and substance reasonably satisfactory to the Agents and (c) repay or otherwise redeem (in full) the Capital Securities.
(ii) The Borrower will, on or before the closing date of the Assurant IPO, (a) consummate the Assurant Reincorporation and (b) in connection therewith, deliver or cause to be delivered to the Administrative Agent (A) a Joinder Agreement duly executed by Assurant (and the other parties thereto) and (B) favorable legal opinions covering such matters with respect to Assurant, the Loan Documents and such Joinder Agreement consistent with opinions delivered with respect to the Borrower and the Loan Documents on the Closing Date and addressed to the Administrative Agent and the Lenders in form and substance reasonably satisfactory thereto.
(iii) The Borrower will provide written notice to the Administrative Agent reasonably in advance of the consummation of the Assurant Reincorporation and the entering into of the Revolving Credit Facility.
5.10 CLAIMS PARI PASSU.
The Borrower shall ensure that at all times the Obligations and any
other claims of the Arranger, the Agents and the Lenders arising hereunder or
under any of the Loan Documents rank at least pari passu with the claims of all
of the Borrower's or its Subsidiaries' other senior unsecured creditors, except
(i) those creditors whose claims are preferred by any bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally and (ii) those claims which are permitted to be secured under
Section 6.1.
SECTION 6. BORROWER'S NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations,
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unless the provisions of this Section are waived or amended in accordance with
Section 8.5, the Borrower shall perform, and shall cause each of its
Subsidiaries to perform, all covenants in this Section 6.
6.1 LIENS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind of the Borrower, whether now owned or hereafter acquired, or any income or profits therefrom, except:
(i) Liens existing on the Closing Date securing Indebtedness in an aggregate principal amount not to exceed $20,000,000;
(ii) Liens imposed by law for Taxes that are not yet required to be paid pursuant to Section 5.5;
(iii) statutory Liens of landlords, banks (and rights of set-off), of carriers, warehousemen, mechanics, repairmen, workmen and material men, and other Liens imposed by law, in each case incurred in the ordinary course of business for amounts not yet overdue or for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of five days) are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts;
(iv) deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds, Reinsurance Agreements, Retrocession Agreements and other similar obligations (exclusive of obligations for the payment of borrowed money) incurred in the ordinary course of business;
(v) Liens on pledges or deposits of cash or securities made by any Insurance Subsidiary as a condition to obtaining or maintaining any licenses issued to it by any Applicable Insurance Regulatory Authority;
(vi) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title to real property, in each case which do not and will not, individually or in the aggregate, interfere in any material respect with the use or value thereof;
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(vii) any interest or title of a lessor or sublessor under any operating or true lease of real estate entered into by the Borrower or one of its Subsidiaries in the ordinary course of its business covering only the assets so leased;
(viii) Liens created pursuant to Capital Leases permitted pursuant to Section 6.2(ix); provided, that such Liens are only in respect of the property or assets subject to, and secure only, such Capital Leases;
(ix) purchase money Liens in real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed) by the Borrower or one of its Subsidiaries; provided, that (a) such Lien secures Indebtedness permitted by Section 6.2(ix)), (b) such Lien is incurred, and the Indebtedness secured thereby is created, within ninety (90) days after such acquisition (or construction), (c) the Indebtedness secured thereby does not exceed 100% of the lesser of the cost or the fair market value of such real property, improvements or equipment at the time of such acquisition (or construction) and (d) such Lien does not apply to any other property or assets of the Borrower or any of its Subsidiaries;
(x) Liens given to secure the obligations of an Insurance Subsidiary under Reinsurance Agreements, Retrocession Agreements and other similar obligations (other than obligations for the payment of borrowed money), incurred by such Insurance Subsidiary in the ordinary course of business;
(xi) Liens securing judgments that do not constitute an Event of Default under Section 7.8;
(xii) Liens that are contractual rights of set-off (a) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness or (b) relating to pooled deposit or sweep accounts of the Borrower or any of its Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower and its Subsidiaries;
(xiii) licenses of intellectual property granted in a manner consistent with past practice; and
(xiv) other Liens securing Indebtedness in an aggregate principal amount not to exceed $10,000,000 at any time outstanding.
Notwithstanding any of the foregoing exceptions, the Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon the Capital Stock of any of its Subsidiaries owned by the Borrower or any such Subsidiary or upon any Indebtedness owed to such Subsidiary by the Borrower or any of its Subsidiaries.
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6.2 INDEBTEDNESS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except:
(i) the Obligations;
(ii) Indebtedness arising under the Related Agreements;
(iii) Indebtedness in respect of the Capital Securities;
(iv) Additional Parent Debt in an aggregate principal amount not to exceed $200,000,000 at any time outstanding; provided, that all such Indebtedness (a) shall be unsecured, (b) shall be incurred after the Closing Date and (c) shall be extinguished on or prior to the consummation of the Assurant IPO;
(v) Indebtedness existing on the Closing Date and set forth on Schedule 6.2, but, in each case, not any extensions, renewals or replacements of such Indebtedness except (a) renewals and extensions expressly provided for in the agreements evidencing any such Indebtedness as the same are in effect on the date of this Agreement and (b) refinancings and extensions of any such Indebtedness if the terms and conditions thereof are not less favorable to the obligor thereon or to the Lenders than the Indebtedness being refinanced or extended, and the average life to maturity thereof is greater than or equal to that of the Indebtedness being refinanced or extended; provided, such Indebtedness permitted under the immediately preceding clause (a) or (b) above shall not (A) include Indebtedness of an obligor that was not an obligor with respect to the Indebtedness being extended, renewed or refinanced, (B) exceed in a principal amount the Indebtedness being renewed, extended or refinanced or (C) be incurred, created or assumed if any Potential Event of Default or Event of Default has occurred and is continuing or would result therefrom;
(vi) Indebtedness owing by the Borrower to any Subsidiary; provided, that all such Indebtedness shall be unsecured and subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement that in any such case is satisfactory to the Administrative Agent;
(vii) Indebtedness owing by any wholly-owned Subsidiary of the Borrower to the Borrower or to another wholly-owned Subsidiary of the Borrower;
(viii) Indebtedness owing by any non-wholly-owned Subsidiary of the Borrower to the Borrower or to a wholly-owned Subsidiary of the Borrower; provided,
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that the aggregate principal amount of all such Indebtedness under this clause
(ix) shall not exceed $10,000,000 at any time outstanding;
(ix) purchase money Indebtedness and Capital Leases, in
each case incurred in the ordinary course of business after the Closing Date,
(a) in an aggregate principal amount (including the capitalized portion of any
Capital Leases) not to exceed $3,000,000 at any time outstanding and (b) any
Capital Lease in connection with the Ohio Sale/leaseback Transaction;
(x) Indebtedness of any Insurance Subsidiary in respect of letters of credit issued under letter of credit facilities and (a) securing obligations under Reinsurance Agreements or Retrocession Agreements entered into in the ordinary course of business of such Subsidiary or (b) issued in lieu of deposits to satisfy any requirements imposed by any Applicable Insurance Regulatory Authority, in any case to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed not later than ten (10) days following receipt by such Subsidiary of notice of payment on such letter of credit;
(xi) Indebtedness of the Borrower under Interest Rate Agreements entered into (a) in respect of the Obligations and the obligations under the Related Agreements and (b) in the ordinary course of business and consistent with past business practice of the Borrower and its Subsidiaries (and not for speculative purposes);
(xii) Indebtedness owed to (including obligations in respect of letters of credit or bank guarantees or similar instruments for the benefit of) any Person providing workers' compensation, health, disability or other employee benefits or property, casualty or liability insurance to the Borrower or any of its Subsidiaries, pursuant to reimbursement or indemnification obligations to such Person, provided that upon the incurrence of Indebtedness with respect to reimbursement obligations regarding workers' compensation claims, such obligations are reimbursed not later than 30 days following such incurrence;
(xiii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is extinguished within three Business Days of its incurrence; and
(xiv) other Indebtedness in an aggregate principal amount not to exceed $10,000,000 at any time outstanding.
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6.3 INVESTMENTS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including without limitation any Joint Venture, except:
(i) Investments by the Borrower and its Subsidiaries in Cash Equivalents;
(ii) (a) the Borrower and its Subsidiaries may continue to own each Investment owned by it on September 30, 2003 (and other Investments owned as of the Closing Date) and identified in reasonable detail on Schedule 6.3A and (b) may continue to own and make Investments which comply with the Borrower's investment guidelines (including Investments in real estate as described therein in the form of Joint Ventures) attached hereto as Schedule 6.3B (with such amendments, supplements or other modifications to such investment guidelines as the Business Unit Investment Committees and/or the Risk Management Committee of the Borrower and its Subsidiaries may from time to time approve in the ordinary course of business and consistent with past business practice of the Borrower and its Subsidiaries, provided that copies of any such amendment, supplement or other modification shall be delivered to the Administrative Agent promptly following such approval);
(iii) (a) Investments constituting intercompany Indebtedness permitted by Section 6.2, (b) Investments in wholly-owned Subsidiaries of the Borrower that are in existence on the Closing Date and (c) Investments in wholly-owned Insurance Subsidiaries and wholly-owned Subsidiaries that engage in a business reasonably related to an Insurance Business;
(iv) (a) loans and advances to employees of the Borrower and its Subsidiaries for relocation and travel expenses made in the ordinary course of business and consistent with past practice, and (b) other loans and advances to employees of the Borrower and its Subsidiaries made in the ordinary course of business in an aggregate principal amount not to exceed $2,000,000 at any time outstanding (the amounts under this clause (b) to be inclusive of the amount of such loans and advances listed on Schedule 6.3A);
(v) any non-Cash consideration in connection with any Asset Sale permitted pursuant to Section 6.6(iii);
(vi) Investments received by the Borrower or any of its Subsidiaries in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers, suppliers or other Persons, in each case in the ordinary course of business;
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(vii) accounts receivable arising and trade credit granted in the ordinary course of business and any securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss and any prepayments and other credits to suppliers made in the ordinary course of business;
(viii) the Borrower may repurchase or otherwise acquire shares of its Capital Stock in connection with employee compensation in the ordinary course of business in accordance with plans approved by the board of directors of the Borrower;
(ix) Investments by the Borrower in PHCS not to exceed $25,000,000 in the aggregate;
(x) Investments by the Borrower or any of its Subsidiaries in customers or related ventures of the Borrower or such Subsidiaries; provided that (i) such customers or ventures are engaged, and continue to engage, in an Insurance Business or a business reasonably related to an Insurance Business, (ii) such Investments are made in the ordinary course of business and consistent with past practice of the Borrower or such Subsidiary and (iii) with respect to such Investments (A) existing on the Closing Date, the amount of such Investments (and renewals thereof with the same customer or venture) shall not exceed $38,000,000 and (B) made after the Closing Date, such Investments shall not exceed $25,000,000 in the aggregate for any Fiscal Year; and
(xi) Investments made in connection with Permitted Acquisitions permitted pursuant to Section 6.6.
6.4 RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS
The Borrower shall not, and shall not permit any of its Subsidiaries
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Subsidiary of the Borrower to (a) pay dividends or make any other distributions
on any of such Subsidiary's Capital Stock owned by the Borrower or any other
Subsidiary of the Borrower, (b) repay or prepay any Indebtedness owed by such
Subsidiary to the Borrower or any other Subsidiary of the Borrower, (c) make
loans or advances to the Borrower or any other Subsidiary of the Borrower, or
(d) transfer any of its property or assets to the Borrower or any other
Subsidiary of the Borrower, other than restrictions existing (i) under this
Agreement or any Related Agreement, (ii) under agreements evidencing
Indebtedness permitted by Section 6.2(ix) that impose restrictions on the
property so acquired, (iii) under any applicable law, rule or regulation which
applies generally to all insurance companies regulated thereunder, (iv) under
any order from or agreement with an Applicable Insurance Regulatory Authority
existing on the Closing Date as described on Schedule 6.4 hereto, (v) under any
order from or agreement with an Applicable Insurance Regulatory Authority
arising after the Closing Date which could not reasonably be
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expected to result in a Material Adverse Effect and (vi) by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses, Joint Venture agreements and similar agreements entered into in the ordinary course of business.
6.5 RESTRICTED PAYMENTS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Payment, except that:
(i) so long as no Potential Event of Default or Event of Default shall have occurred and be continuing, or would result after giving effect thereto, the Borrower, in accordance with its dividend policy as in effect at the closing of the Assurant IPO, may declare and pay regularly scheduled dividends: (a) with respect to the Borrower Common Stock; provided, that with respect to the Class B Common Stock of the Borrower and the Class C Common Stock of the Borrower, such dividends shall not exceed $45,000,000 in the aggregate and (b) with respect to the Class B Preferred Stock of the Borrower and the Class C Preferred Stock of the Borrower; provided, that with respect to such Class B Preferred Stock, such dividends shall not exceed 4.0% per $1000 liquidation price per share per annum, and with respect to such Class C Preferred Stock, such dividends shall not exceed 4.0% per $1000 liquidation price per share per annum (in each case under the foregoing clauses (a) and (b), taking into account all such dividends made prior to the Closing Date, and with such share amount to be adjusted ratably in respect of stock distributions, recapitalizations, stock splits or any similar event);
(ii) any Subsidiary of the Borrower may make Restricted Payments to its parent if such parent is the Borrower or a wholly-owned Subsidiary of the Borrower; provided, that, notwithstanding anything to the contrary contained herein, the Borrower shall cause its Subsidiaries to make Restricted Payments in a timely manner to the Borrower necessary to enable the Borrower to pay interest on the Obligations in accordance with this Agreement; provided, further, in the event that such Restricted Payments are not sufficient to enable the Borrower to pay interest on the Obligations in accordance with this Agreement, the Borrower will use its best efforts to obtain the approvals of any Governmental Authority to permit its Insurance Subsidiaries to make Restricted Payments to the Borrower in an amount sufficient for the Borrower to repay such Obligations;
(iii) the Borrower may make Restricted Payments to repay or otherwise redeem the Capital Securities;
(iv) so long as no Potential Event of Default or Event of Default shall have occurred and be continuing, or would result after giving effect thereto, the Borrower may make regularly scheduled payments of interest in respect of the Additional Parent
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Debt permitted by Section 6.2(iv) and the Capital Securities, in each case in accordance with the terms of, and only to the extent required by, the indentures or other agreements pursuant to which such Capital Securities and Additional Parent Debt were issued, respectively, and may prepay or repay such Additional Parent Debt; and
(v) Restricted Payments in connection with Investments described under Section 6.3(viii).
6.6 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sub-lessor), exchange, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any portion of its business, assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, or acquire by purchase or otherwise the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business of any Person, in each case except:
(i) (A) any Subsidiary of the Borrower may be merged with or into the Borrower or any wholly-owned Subsidiary of the Borrower, (B) any non-wholly-owned Subsidiary of the Borrower may be merged with or into any other non-wholly-owned Subsidiary of the Borrower, (C) any Subsidiary of the Borrower may be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the Borrower or any wholly-owned Subsidiary of the Borrower or (D) any non-wholly-owned Subsidiary of the Borrower may be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to any other non-wholly-owned Subsidiary of the Borrower; provided, in the case of (x) a merger with the Borrower, the Borrower shall be the continuing or surviving Person (except following consummation of the Assurant Reincorporation and upon compliance with Section 5.9(ii), pursuant to which Assurant shall be the continuing and surviving Person), (y) a merger not involving the Borrower and involving a wholly-owned Subsidiary of the Borrower, such wholly-owned Subsidiary shall be the continuing or surviving Person and (z) any such transaction involving non-wholly-owned Subsidiaries in which the Borrower and its Subsidiaries have different ownership percentages, the transferee, or the continuing or surviving Subsidiary, shall be the non-wholly-owned Subsidiary in which the Borrower and its Subsidiaries have the greater ownership percentage (which percentage shall be unchanged as a result of such transaction);
(ii) sales or other dispositions of assets that do not constitute Asset Sales;
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(iii) Asset Sales (the proceeds of which shall be valued at the principal amount thereof in the case of non-Cash proceeds consisting of notes or other debt Securities and valued at fair market value in the case of other non-Cash proceeds); provided (1) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of the Borrower or such Subsidiary (or similar governing body) engaging in such Asset Sale), (2) no less than 90% of such consideration shall be paid in Cash, (3) in the case of a Subsidiary engaging in such Asset Sale, there shall exist no restriction on the ability of such Subsidiary to dividend or otherwise distribute the Net Asset Sale Proceeds thereof to the Borrower and (4) the Net Asset Sale Proceeds thereof shall be applied as required by Section 2.4B(ii)(a) of the Other Bridge Facility;
(iv) sales, transfers or dispositions of Investments permitted to exist in accordance with Section 6.3(i) and (ii), and Investments permitted by Section 6.3(iii);
(v) any Insurance Subsidiary may enter into any Insurance Contract, Reinsurance Agreement or Retrocession Agreement in the ordinary course of its existing Insurance Business in accordance with its normal underwriting, indemnity and retention policies; and
(vi) Permitted Acquisitions, the consideration for which does not exceed $5,000,000 in the aggregate.
6.7 DISPOSAL OF SUBSIDIARY INTERESTS.
Except for any sale of all of its interests in the Capital Stock of any of its Subsidiaries in compliance with the provisions of Section 6.6, the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to (i) the Borrower or a wholly-owned Subsidiary of the Borrower (subject to the restrictions on such disposition otherwise imposed hereunder) or (ii) qualify directors if required by applicable law.
6.8 CONDUCT OF BUSINESS.
From and after the Closing Date, the Borrower shall not, and shall not permit any of its Subsidiaries to, engage in any business or conduct any activities other than engaging in the business as now conducted by the Borrower and its Subsidiaries and businesses reasonably related thereto, and in the case of Insurance Subsidiaries, to engage in only those lines of insurance business for which the Insurance Subsidiaries are licensed by Applicable Insurance Regulatory Authority from time to time. The Borrower shall solely be a holding company, and shall not enter into Insurance Contracts, Reinsurance Agreements or Retrocession Agreements.
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6.9 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.
The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service or the making of any intercompany loan) with any Affiliate of the Borrower or any of its Subsidiaries, any holder of Capital Stock or other interests in the Borrower or any of its Subsidiaries, or any such Affiliate of any such holder, except on fair and reasonable terms that are no less favorable to the Borrower or that Subsidiary, as the case may be, than those that might be obtained at the time in a comparable arm's length transaction from a Person who is not such a holder or Affiliate; provided, that the foregoing restriction shall not apply to (a) any transaction between the Borrower and its Subsidiaries or between such Subsidiaries, or between the Borrower or its Subsidiaries and the Guarantors, in each case to the extent otherwise permitted under the other provisions of Section 6 herein; (b) reasonable and customary fees paid to members of the board of directors (or similar governing body) of the Borrower and its Subsidiaries; (c) compensation arrangements for officers and other employees of the Borrower and its Subsidiaries entered into in the ordinary course of business; and (d) transactions described in Schedule 6.9.
6.10 AMENDMENTS OR WAIVERS OF RELATED AGREEMENT.
(i) The Borrower will not agree to any amendment, restatement, supplement or other modification to, or waive any of its rights under, any Related Agreement or any agreement relating to the Assurant Reincorporation, in each case to the extent any such amendment, restatement, supplement or modification could be materially adverse to the Lenders, without obtaining the prior written consent of the Requisite Lenders.
(ii) The Borrower will not, and will not permit any of its Subsidiaries to, amend or otherwise change the terms of any Indebtedness described in clause (v) of the definition of Restricted Payments (other than the Additional Parent Debt) or the certificate of designations or other document governing the rights or obligations with respect to the Class B and Class C Common Stock of the Borrower and the Class B and Class C Preferred Stock of the Borrower, or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on such Indebtedness or the rate or frequency of dividends payable on such Capital Stock, change (to earlier dates) any dates upon which payments of principal or interest are due thereon or the date for redemptions thereof, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions thereof (or of any guaranty thereof), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of
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such Indebtedness or Capital Stock (or a trustee or other representative on their behalf) which could be materially adverse to the Lenders.
6.11 FINANCIAL COVENANTS.
(i) Minimum Statutory Capital. The Borrower shall not permit the Statutory Surplus of the Insurance Subsidiaries (on a consolidated basis) at any time to be less than $1,500,000,000.
(ii) Minimum Interest Coverage Ratio. The Borrower shall not permit the Interest Coverage Ratio as of the last day of any Fiscal Quarter to be less than 4.00:1.00.
(iii) Maximum Indebtedness to Capitalization Ratio. The Borrower shall not permit the Indebtedness to Capitalization Ratio as of the last day of any Fiscal Quarter to exceed 0.5:1.00.
(iv) Minimum Consolidated Adjusted Net Worth. The Borrower shall not permit its Consolidated Adjusted Net Worth at any time to be less than the sum of (x) $1,800,000,000 (minus any after-tax prepayment penalties incurred with respect to the Capital Securities and the Existing Intercompany Obligations), plus (y) 50% of Consolidated Net Income for each Fiscal Quarter (beginning with the first Fiscal Quarter ending after the Closing Date) for which Consolidated Net Income (measured at the end of each such Fiscal Quarter) is a positive amount plus (z) 100% of the proceeds from any capital contribution to, or issuance of any Capital Stock of, the Borrower or any Subsidiary of the Borrower (but excluding any issuance by a Subsidiary of the Borrower to the Borrower or to a wholly-owned Subsidiary of the Borrower, and any capital contribution by the Borrower or a Subsidiary of the Borrower to a wholly-owned Subsidiary of the Borrower).
(v) Certain Calculations. With respect to any period during which a Permitted Acquisition or an Asset Sale has occurred (each, a "SUBJECT TRANSACTION"), for purposes of determining compliance with the financial covenants set forth in this Section 6.11, Consolidated Adjusted EBIT shall be calculated with respect to such period on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S-X promulgated under the Securities Act and as interpreted by the staff of the Securities and Exchange Commission, which would include cost savings resulting from head count reduction, closure of facilities and similar restructuring charges, which pro forma adjustments shall be certified by the chief financial officer of the Borrower) using the historical audited financial statements of any business so acquired or to be acquired or sold or to be sold and the consolidated financial statements of the Borrower and its Subsidiaries which shall be reformulated as if such Subject Transaction, and any
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Indebtedness incurred or repaid in connection therewith, had been consummated or incurred or repaid at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans incurred during such period).
SECTION 7. EVENTS OF DEFAULT
If any of the following conditions or events ("EVENTS OF DEFAULT") shall occur:
7.1 FAILURE TO MAKE PAYMENTS WHEN DUE.
Failure by the Borrower to pay any installment of principal of the Loan when due, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; or failure by the Borrower to pay any interest on the Loan or any fee or any other amount due under this Agreement within three (3) Business Days after the date due; or
7.2 DEFAULT IN OTHER AGREEMENTS.
(i) Failure of the Borrower or any of its Subsidiaries to pay when due
any principal of or interest on or any other amount payable in respect of one or
more items of Indebtedness (other than Indebtedness referred to in Section 7.1
above) in excess of $20,000,000 individually or $50,000,000 in the aggregate and
in each case beyond the end of any grace period provided therefor, if any; or
(ii) breach or default by the Borrower or any of its Subsidiaries with respect
to any other material term of (a) one or more items of such Indebtedness or (b)
any loan agreement, mortgage, indenture or other agreement relating to such
item(s) of Indebtedness, in each case beyond the end of any grace period
provided therefor, if any, if the effect of such breach or default is to cause,
or to permit the holder or holders of that Indebtedness (or a trustee on behalf
of such holder or holders) to cause, that Indebtedness to become or be declared
due and payable (or redeemable) prior to its stated maturity or the stated
maturity of any underlying obligation, as the case may be; or
7.3 BREACH OF CERTAIN COVENANTS.
(i) Failure of the Borrower to perform or comply with any term or
condition contained in Sections 2.4B(ii), 2.4B(v), 5.1(v), 5.3 (with respect to
the existence of the Borrower only), 5.8, 5.10 or Section 6 of this Agreement;
(ii) failure of the Borrower to perform or comply with Section 5.1(vi) and such
failure shall not have been remedied or waived within five (5) days after an
officer of the Borrower or any of its Subsidiaries becoming aware of such
failure; or (iii) failure of any Guarantor to perform or comply
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with any term or condition contained in Sections 2.7(a) (with respect to the existence of any Guarantor or any Guarantor Material Subsidiary (as such term is defined in the Guaranty) only), 2.7(d), 2.7(e) or 2.7(f) of the Guaranty; or
7.4 BREACH OF WARRANTY.
(i) Any representation, warranty, certification or other statement made by the Borrower in any Loan Document or Related Agreement, or by the Borrower or any of its Subsidiaries in any statement or certificate at any time given by the Borrower or any such Subsidiary in writing pursuant hereto or thereto, or in connection herewith or therewith shall be false in any material respect on the date as of which made, or (ii) any representation, warranty, certification or other statement made by any Guarantor in the Guaranty, or by any Guarantor or any of its Subsidiaries in any statement or certificate at any time given by any Guarantor or any such Subsidiary in writing pursuant hereto or thereto, or in connection herewith or therewith shall be false in any material respect on the date as of which made; or
7.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS, RELATED AGREEMENTS AND GUARANTY.
(i) The Borrower shall default in the performance of or compliance with any term contained in this Agreement, any of the other Loan Documents or the Related Agreements to which it is a party, or any Guarantor shall default in the performance of or compliance with any term contained in the Guaranty or the Related Agreements to which it is a party, in each case other than any such term referred to in any other subsection of this Section 7, and such default shall not have been remedied or waived within thirty (30) days after receipt by the Borrower of notice from the Administrative Agent of such default; or
(ii) the occurrence of any event that would otherwise constitute an "Event of Default" (as that term is defined in the Existing Parent Facility) under Clause 17.4 through Clause 17.8, inclusive, and Clause 17.11 through 17.13, inclusive, of the Existing Parent Facility, which such Clauses, together with all definitions in the Existing Parent Facility applicable to such Clauses (as amended by the Guaranty, as applicable), are hereby incorporated by reference as if set forth herein in their entirety; provided, that all references to "Obligor" therein shall mean and be a reference to each "Guarantor" herein, all references to "Material Adverse Effect" therein shall mean and be a reference to "Material Adverse Effect" as defined in the Guaranty, all references to "Material Subsidiary" therein shall mean and be a reference to "Guarantor Material Subsidiary" as defined in the Guaranty, all references to "subsidiary" therein shall mean and be a reference to "Subsidiary" as defined herein, all references to "Instructing Group" therein shall mean and be a reference to "Requisite Lenders" as defined herein, and all references to "Agreement" shall mean and be a reference to the Guaranty; provided, further, that no amendment, modification or supplement to such provisions or definitions made to the Existing Parent Facility, or the termination, refinancing or replacement of the Existing
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Parent Facility, shall be effective to amend such provisions or definitions as incorporated by reference herein; provided, however, that this Section 7.5(ii) will be deemed modified (without the consent of any Person) to the extent necessary to incorporate by reference any such respective amendment, modification or supplement to the Existing Parent Facility which contains provisions more favorable to the Lenders; or
7.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) A court of competent jurisdiction shall enter a decree or order for relief in respect of the Borrower or any of its Material Subsidiaries in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against the Borrower or any of its Material Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower or any of its Material Subsidiaries, or over all or a substantial part of their respective property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of the Borrower or any of its Material Subsidiaries for all or a substantial part of their respective property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of the Borrower or any of its Material Subsidiaries, and any such event described in this clause (ii) shall continue for sixty (60) days unless dismissed, bonded or discharged; or
7.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) The Borrower or any of its Material Subsidiaries shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or the Borrower or any of its Material Subsidiaries shall make any assignment for the benefit of creditors; or (ii) the Borrower or any of its Material Subsidiaries shall be unable, or shall fail generally, or shall admit in writing their respective inability, to pay its debts as such debts become due; or the board of directors (or similar governing body) of the Borrower or any of its Material Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in this Section 7.7 or in Section 7.6 above; or
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7.8 JUDGMENTS AND ATTACHMENTS.
Any money judgment, writ or warrant of attachment or similar process involving in excess of $20,000,000 individually or $50,000,000 in the aggregate (in each case not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against the Borrower or any of its Subsidiaries, or any of their respective assets, and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days (or in any event later than five (5) days prior to the date of any proposed sale thereunder); or
7.9 DISSOLUTION.
Any order, judgment or decree shall be entered against the Borrower or any of its Material Subsidiaries decreeing the dissolution or split up of such Person; or
7.10 EMPLOYEE BENEFIT PLANS.
There shall occur one or more ERISA Events which individually or in the aggregate results in or is reasonably be expected to result in liability of the Borrower or any of its Subsidiaries or any of their respective ERISA Affiliates in excess of $25,000,000 during the term of this Agreement; or the occurrence of an event or condition that could reasonably be expected to result in the imposition of a Lien or security interest under Section 412(n) of the Internal Revenue Code or under ERISA; or
7.11 CHANGE IN CONTROL. A Change of Control shall occur; or 7.12 REPUDIATION OF OBLIGATIONS. At any time after the execution and delivery thereof, (i) the Guaranty |
for any reason shall cease to be in full force and effect (other than by reason of the satisfaction in full of the Obligations or the Guaranty Obligations, or any other termination of the Guaranty in accordance with the terms thereof) or shall be declared null and void, or any Guarantor shall repudiate in writing its obligations thereunder, (ii) this Agreement for any reason shall cease to be in full force and effect (other than by reason of the satisfaction in full of the Obligations) or shall be declared null and void, or (iii) the Borrower or any Guarantor shall contest the validity or enforceability of any Loan Document or the Guaranty, or any Related Document, or deny in writing that it has any further liability under any Loan Document to which it is a party; or
7.13 INSURANCE LICENSES.
Any one or more Insurance Licenses shall be suspended, revoked, terminated, not renewed or limited, or any other action shall be taken by a Governmental Authority, in
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each case which would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect;
THEN (i) upon the occurrence of any Event of Default described in Section 7.6 or 7.7, each of (a) the unpaid principal amount of and accrued interest on the Loans and (b) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Borrower and (ii) upon the occurrence and during the continuation of any other Event of Default, the Administrative Agent shall, upon the written request or with the written consent of the Requisite Lenders, by notice to the Borrower, declare all or any portion of the amounts described in clauses (a) and (b) above to be, and the same shall forthwith become, immediately due and payable.
SECTION 8. MISCELLANEOUS
8.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND NOTES.
A. RIGHT TO ASSIGN. Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including, without limitation, all or a portion of its Commitment or Loans owing to it or other Obligation (provided, however, that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any Loan and any related Commitment): (i) to any Person meeting the criteria of clause (A) of the definition of the term of "Eligible Assignee" upon the giving of notice to the Borrower and the Administrative Agent; and (ii) to any Person meeting the criteria of clause (B) of the definition of the term of "Eligible Assignee" and consented to by each of the Borrower and the Administrative Agent (such consent not to be (x) unreasonably withheld or delayed or, (y) in the case of the Borrower, required at any time an Event of Default shall have occurred and then be continuing); provided, further each such assignment pursuant to this Section 8.1A shall be in an aggregate amount of not less than $1,000,000 (or such lesser amount as may be agreed to by the Borrower and the Administrative Agent or as shall constitute the aggregate amount of the Commitment and Loans of the assigning Lender).
B. REQUIREMENTS. The assigning Lender and the assignee thereof shall execute and deliver to the Administrative Agent an Assignment Agreement, together with such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to the Administrative Agent pursuant to Section 2.5B(iii) as if such assignee was a Lender pursuant to that Section.
C. ACCEPTANCE AND NOTICE OF ASSIGNMENT. Upon its receipt of a duly executed and completed Assignment Agreement, together with the processing and recordation fee
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referred to in Section 8.1B (and any forms, certificates or other evidence required by this Agreement in connection therewith), the Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to the Borrower and shall maintain a copy of such Assignment Agreement.
D. REPRESENTATIONS AND WARRANTIES OF ASSIGNEE. Each Lender, upon execution and delivery hereof or upon executing and delivering an Assignment Agreement, as the case may be, represents and warrants as of the Closing Date or as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Commitment or Loans, as the case may be; and (iii) it will make or invest in, as the case may be, its Commitment or Loans for its own account in the ordinary course of its business and without a view to distribution of such Commitment or Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 8.1, the disposition of such Commitment or Loans or any interests therein shall at all times remain within its exclusive control).
E. EFFECT OF ASSIGNMENT. Subject to the terms and conditions of this
Section 8.1, as of the "Effective Date" specified in the applicable Assignment
Agreement: (i) the assignee thereunder shall have the rights and obligations of
a "Lender" hereunder to the extent such rights and obligations hereunder have
been assigned to it pursuant to such Assignment Agreement and shall thereafter
be a party hereto and a "Lender" for all purposes hereof; (ii) the assigning
Lender thereunder shall, to the extent that rights and obligations hereunder
have been assigned thereby pursuant to such Assignment Agreement, relinquish its
rights (other than any rights which survive the termination hereof under Section
8.8) and be released from its obligations hereunder (and, in the case of an
Assignment Agreement covering all or the remaining portion of an assigning
Lender's rights and obligations hereunder, such Lender shall cease to be a party
hereto; provided, anything contained in any of the Loan Documents to the
contrary notwithstanding, such assigning Lender shall continue to be entitled to
the benefit of all indemnities hereunder as specified herein with respect to
matters arising out of the prior involvement of such assigning Lender as a
Lender hereunder); (iii) the Commitments shall be modified to reflect the
Commitments of such assignee and of such assigning Lender, if any; and (iv) if
any such assignment occurs after the issuance of any Note hereunder, the
assigning Lender shall, upon the effectiveness of such assignment or as promptly
thereafter as practicable, surrender its applicable Notes to the Administrative
Agent for cancellation, and thereupon the Borrower shall issue and deliver a new
Note, if so requested by the assignee and/or assigning Lender, to such assignee
and/or to such assigning Lender, with appropriate insertions, to reflect the new
Commitments and/or outstanding Loans of the assignee and/or the assigning
Lender.
F. CERTAIN OTHER PERMITTED ASSIGNMENTS. In addition to any other assignment permitted pursuant to this Section 8.1, (i) any Lender may assign and/or pledge all or any
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portion of its Loans, the other Obligations owed by or to such Lender, and its Notes, if any, to secure obligations of such Lender including, without limitation, any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided, no Lender, as between the Borrower and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and provided further, in no event shall the applicable Federal Reserve Bank, pledgee or trustee be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder.
G. ASSIGNMENT TO A SPECIAL PURPOSE FUNDING VEHICLE. Notwithstanding anything to the contrary contained herein, any Lender (a "GRANTING LENDER") may grant to a special purpose funding vehicle (a "SPFV"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPFV to make any Loan, (ii) if an SPFV elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPFV hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPFV shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPFV, it will not institute against, or join any other person in instituting against, such SPFV any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 8.1G, any SPFV may (i) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Borrower and Administrative Agent) providing liquidity and/or credit support to or for the account of such SPFV to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPFV.
H. PARTICIPATIONS. Each Lender shall have the right at any time to sell one or more participations to any Person (other than the Borrower, any of its Subsidiaries or any of its Affiliates, or any Guarantor, any of its Subsidiaries or any of its Affiliates) in all or any part of its Commitment, Loans or in any other Obligation. The holder of any such
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participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification or waiver that would (i) extend the final scheduled maturity of any Loan or Note in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Event of Default or of a mandatory reduction in the Commitments shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), (ii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or (iii) release any or all of the Guarantors from the Guaranty or terminate the Guaranty. The Borrower agrees that each participant shall be entitled to the benefits of Sections 2.6C and 2.5 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 8.1A; provided, (i) a participant shall not be entitled to receive any greater payment under Section 2.5 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with the Borrower's prior written consent and (ii) a participant that would be a Non-US Lender if it were a Lender shall not be entitled to the benefits of Section 2.5B unless the Borrower is notified of the participation sold to such participant and such participant agrees, for the benefit of the Borrower, to comply with Section 2.5B as though it were a Lender. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 8.4 as though it were a Lender, provided such Participant agrees to be subject to Section 8.18 as though it were a Lender.
8.2 EXPENSES.
Whether or not the transactions contemplated hereby shall be
consummated, the Borrower agrees to pay promptly (i) all actual and reasonable
costs and out-of-pocket expenses incurred by the Arranger and each Agent in
connection with the negotiation, preparation and execution of the Loan Documents
and the transactions contemplated thereby; (ii) all the costs of furnishing all
opinions by counsel for the Borrower and the Guarantors; (iii) the reasonable
fees, out-of-pocket expenses and disbursements of counsel to the Arranger and
the Agents in connection with the negotiation, preparation and execution of the
Loan Documents and any other documents or matters requested by the Borrower;
(iv) all actual and reasonable costs and out-of-pocket expenses incurred by the
Administrative Agent in connection with any consents, amendments, waivers or
other modifications of the Loan Documents (including the reasonable fees,
out-of-pocket expenses and disbursements of counsel to the Administrative Agent
in connection therewith); and (v) after the occurrence of an Event of Default,
all costs and expenses, including reasonable attorneys' fees and costs of
settlement, incurred by the Arranger, any Agent or Lender in enforcing any
Obligations of or in collecting any payments due
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from the Borrower hereunder or under the other Loan Documents by reason of such Event of Default (including in connection with the sale of, collection from, or other realization upon any collateral or the enforcement of the Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in each case in the nature of a "work-out" or pursuant to any insolvency or bankruptcy cases or proceedings.
8.3 INDEMNITY.
A. In addition to the payment of expenses pursuant to Section 8.2, whether or not the transactions contemplated hereby shall be consummated, the Borrower agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless the Arranger, the Agents and each Lender, and the respective partners, officers, directors, employees, agents, attorneys, and affiliates of each of the Arranger and each of the Agents and each Lender (collectively called the "INDEMNITEES"), from and against any and all Indemnified Liabilities (as hereinafter defined); provided that the Borrower shall not have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct of that Indemnitee as determined by a final judgment of a court of competent jurisdiction. As used herein, "INDEMNIFIED LIABILITIES" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, actions, judgments, suits, claims (including Environmental Claims), costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby (including the Lenders' agreements to make the Loans hereunder or the use or intended use of the proceeds thereof, or any enforcement of any of the Loan Documents).
B. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this Section 8.3 may be unenforceable in whole or in part because they are violative of any law or public policy, the Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them.
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C. To the extent permitted by applicable law, the Borrower and each of its Subsidiaries shall not assert, and each hereby waives, any claim against the Lenders, the Agents, the Arranger and their respective Affiliates, officers, directors, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) (whether or not the claim therefor is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, as a result of, or in any way related to, this Agreement or any other Loan Document, any Related Agreement or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and the Borrower and each of its Subsidiaries hereby waives, releases and agrees not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
8.4 SET-OFF.
In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each of the Agents and each Lender, and each of their respective Affiliates, is hereby authorized by the Borrower at any time or from time to time subject to the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed), without notice to the Borrower or to any other Person (other than the Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Agent or such Lender, or their respective Affiliates, as the case may be, to or for the credit or the account of the Borrower against and on account of any obligations and liabilities of the Borrower to such Agent or such Lender under this Agreement and the other Loan Documents which are then due and payable, including all claims of any nature or description arising out of or connected with this Agreement or any other Loan Document, irrespective of whether or not (i) such Agent or such Lender shall have made any demand hereunder or (ii) said obligations and liabilities, or any of them, may be unmatured.
8.5 AMENDMENTS AND WAIVERS.
No amendment, modification, termination or waiver of any provision of this Agreement or of any other Loan Document, or consent to any departure by the Borrower therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders; provided, (A) that no amendment, modification, termination, waiver or consent shall, without the consent of each Lender affected thereby: (i) extend the scheduled final maturity of any Loan or Note, (ii) waive, reduce or postpone any scheduled repayment (but not prepayment), (iii) reduce the rate of interest on any Loan or any fee or other
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amount payable hereunder, (iv) extend the time for payment of any such interest
or fees, (v) reduce the principal amount of any Loan or Note, (vi) amend,
modify, terminate or waive any provision of this Section 8.5, (vii) amend,
modify or replace the definition of "Requisite Lenders" or "Pro Rata Share",
(viii) release any or all of the Guarantors from the Guaranty or terminate the
Guaranty (it being understood that any amendment, modification or waiver of any
provision of the Guaranty shall be in accordance with Section 3.5 thereof) or
(ix) consent to the assignment or transfer by the Borrower of any of its rights
and obligations under this Agreement; (B) that no such amendment, modification,
termination or waiver of any provision of the Loan Documents, or consent to any
departure by the Borrower therefrom, shall: (i) increase the Commitment of any
Lender over the amount thereof then in effect without the consent of such Lender
or (ii) amend, modify, terminate or waive any provision of this Agreement as the
same applies to the rights or obligations of any Agent, in each case without the
consent of such Agent; and (C) that no amendment, modification, waiver or
consent shall, without the prior written consent of the Guarantors: (i) extend
the scheduled final maturity of any Loan or Note, (ii) increase the rate of
interest on any Loan, (iii) increase the principal amount of any Loan or Note or
(iv) amend, modify, terminate or waive any provision of this proviso (C) to
Section 8.5. The Administrative Agent may, but shall have no obligation to, with
the concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of such Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances.
8.6 INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists.
8.7 NOTICES.
Unless otherwise specifically provided herein, all notices or other communications provided for hereunder between the Borrower and any other Person party hereto shall be in writing (including telecopier or electronic mail) and mailed, sent by overnight courier, telecopied, e-mailed, or delivered to, in the case of each signatory to this Agreement, at its address set forth on the signature pages hereto, or, as to each party, at such other address or to such other person as shall be designated by such party in a written notice to all other parties. Any notice, request or demand to or upon the Borrower or any other Person party hereto shall not be effective until received.
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8.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Borrower set forth in Sections 2.5, 2.6C, 8.2, 8.3 and 8.4 and the Agreements of the Lenders set forth in Sections 8.18, 9.2C and 9.4 shall survive the payment of the Loans and the termination of this Agreement.
8.9 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of the Arranger, any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to the Arranger, each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Loan Document or any Related Agreement. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.
8.10 MARSHALLING; PAYMENTS SET ASIDE.
No Agent or Lender shall be under any obligation to marshal any assets in favor of the Borrower or any other Person or against or in payment of any or all of the Obligations. To the extent that the Borrower makes a payment or payments to the Administrative Agent or the Lenders (or to the Administrative Agent, on behalf of the Lenders) or the Administrative Agent or the Lenders enforce any security interests or exercises their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.
$650,000,000 CREDIT AGREEMENT 8.11 SEVERABILITY. In case any provision in or obligation under this Agreement or the |
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
8.12 HEADINGS.
Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect.
8.13 APPLICABLE LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
8.14 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Agents and the Lenders (it being understood that each Lender's rights of assignment are subject to Section 8.1). Except as part of the Assurant Reincorporation and upon compliance with Section 5.9(ii), the Borrower may not assign or delegate its rights or obligations hereunder or any interest therein without the prior written consent of each Lender. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Affiliates of each of the Agents and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
8.15 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK, OR IN ANY COURT LOCATED IN ITS OWN CORPORATE DOMICILE. BY EXECUTING AND DELIVERING THIS AGREEMENT, THE BORROWER, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
$650,000,000 CREDIT AGREEMENT (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE BORROWER AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 8.7; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE BORROWER IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT EACH AGENT AND EACH LENDER RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SECTION 8.15 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. 8.16 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS |
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further
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warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 8.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court.
8.17 CONFIDENTIALITY.
Each Lender shall hold all non-public information regarding the Borrower and its Subsidiaries and their businesses in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, it being understood and agreed by the Borrower that in any event each Lender may make disclosures (i) to Affiliates of such Lender and their agents and advisors (and to other persons authorized by a Lender to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 8.17); (ii) reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by any Lender of its Loans or any interest therein, provided that, prior to any disclosure, such Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential; (iii) to any rating agency when required by it, provided that, prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential information relating to the Borrower or its Subsidiaries received by it from any of the Agents or any Lender; and (iv) required or requested by any governmental agency or representative thereof or by the NAIC or pursuant to legal process; provided that unless specifically prohibited by applicable law or court order, each Lender shall make reasonable efforts to notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; and provided, further that in no event shall any Lender be obligated or required to return any materials furnished by the Borrower or any of its Subsidiaries. Notwithstanding anything to the contrary set forth herein, each party (and each of their respective employees, representatives or other agents) may disclose to any and all persons, without limitations of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions and other tax analyses) that are provided to any such party relating to such tax
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treatment and tax structure. However, any information relating to the tax treatment or tax structure shall remain subject to the confidentiality provisions hereof (and the foregoing sentence shall not apply) to the extent reasonably necessary to comply with applicable securities laws. For this purpose, "tax structure" means any facts relevant to the federal income tax treatment of the transactions contemplated by this Agreement but does not include information relating to the identity of any of the parties hereto or any of their respective Affiliates.
8.18 RATABLE SHARING.
The Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of facility fees or commitment fees and other amounts then due and owing to such Lender hereunder or under the other Loan Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender), which is greater than the proportion received by any other Lender in respect to of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify the Administrative Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided that, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of the Borrower or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. The Borrower and each of its Subsidiaries expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by the Borrower or any of its Subsidiaries to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder.
8.19 COUNTERPARTS; EFFECTIVENESS.
This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become
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effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.
8.20 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.
The obligations of the Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitment of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by any of the Lenders pursuant hereto or thereto, shall be deemed to constitute any of the Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising hereunder and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.
8.21 USURY SAVINGS CLAUSE.
Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. As used herein, "HIGHEST LAWFUL RATE" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower shall pay to the Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to the Borrower.
$650,000,000 CREDIT AGREEMENT
SECTION 9. AGENTS
9.1 APPOINTMENT.
Merrill Lynch Capital Corp. is hereby appointed as Syndication Agent hereunder, and each Lender hereby authorizes Syndication Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Credit Suisse First Boston (acting through its Cayman Islands Branch) is hereby appointed as Documentation Agent hereunder, and each Lender hereby authorizes Documentation Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. MSSF is hereby appointed by each Lender as the Administrative Agent hereunder and under the other Loan Documents and each Lender hereby authorizes the Administrative Agent to act as its contractual representative in accordance with the terms of this Agreement and the other Loan Documents. Each Agent hereby agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Section 9 are solely for the benefit of the Agents and the Lenders, and the Borrower shall have no rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Agreement, each of the Agents shall act solely as an agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower or any of its Subsidiaries or any Guarantor.
9.2 POWERS AND DUTIES; GENERAL IMMUNITY.
A. POWERS; DUTIES SPECIFIED. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Loan Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents, employees and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agent, employee or attorney-in-fact selected by it with reasonable care. Each Agent shall be entitled to advice of counsel concerning the contractual arrangement between such Agent and the Lenders and all matters pertaining to such Agent's duties hereunder and under any other Loan Document. No Agent shall have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. In its capacity as the Lenders' contractual representative, the Administrative Agent is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this
$650,000,000 CREDIT AGREEMENT
Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against any Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives.
B. NO RESPONSIBILITY FOR CERTAIN MATTERS. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any other Loan Document or any other document or instrument furnished in connection herewith or therewith, or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to the Lenders or by or on behalf of the Borrower to any Agent or any Lender in connection with the Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of the Borrower or any other Person liable for the payment of any Obligations or any Subsidiary or Affiliate of the Borrower or any such Person, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Loan Documents or as to the use of the proceeds of the Loans or as to the existence or possible existence of any Event of Default or Potential Event of Default or to make disclosures with respect to the foregoing. Anything contained in this Agreement to the contrary notwithstanding, the Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the component amounts thereof.
C. EXCULPATORY PROVISIONS. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to the Lenders for any action taken or omitted by any Agent under or in connection with any of the Loan Documents except to the extent determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from such Agent's gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received written instructions in respect thereof from the Requisite Lenders (or such other number of Lenders as may be required to give such instructions under Section 8.5) and, upon receipt of such instructions from the Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for the Borrower and its Subsidiaries or employees of any Agent), accountants, experts and other professional advisors selected by it; and (ii)
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no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Requisite Lenders (or such other number of Lenders as may be required to give such instructions under Section 8.5).
D. ADMINISTRATIVE AGENT ENTITLED TO ACT AS LENDER. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to, own Securities of, and generally engage in any kind of banking, trust, financial advisory or other business with the Borrower or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower for services in connection with this Agreement and otherwise without having to account for the same to the Lenders.
E. ARRANGER; BOOKRUNNER, ETC. Except as otherwise expressly set forth in this Agreement, the Arranger, the Bookrunner, the Documentation Agent and the Syndication Agent shall not have any duties or responsibilities under the Loan Documents in their respective capacities as such.
9.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF CREDITWORTHINESS.
Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with the making of the Loans hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of the Borrower and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of the Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to the Lenders.
9.4 RIGHT TO INDEMNITY.
Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by the Borrower, for and against any and all liabilities, obligations, losses, damages, penalties,
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actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other Loan Documents (including for any such amounts incurred by or asserted against such Agent in connection with any dispute between such Agent and any Lender or between two or more Lenders); provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from such Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished.
9.5 SUCCESSOR ADMINISTRATIVE AGENT.
The Administrative Agent may resign at any time by giving thirty (30) days' prior written notice thereof to the Lenders and the Borrower, and the Administrative Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to the Borrower and the Administrative Agent and signed by the Requisite Lenders. Upon any such notice of resignation or any such removal, the Requisite Lenders shall have the right to select a successor Administrative Agent, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed); provided, that the Borrower's consent shall not be required for the Requisite Lenders to appoint any Lender as the Administrative Agent or at any time that an Event of Default shall have occurred and be continuing. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent and the retiring or removed Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as the Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement.
9.6 GUARANTY.
Each Lender hereby further authorizes the Administrative Agent, on behalf of and for the benefit of the Lenders, to enter into, and to be the agent for and representative of the Lenders under, the Guaranty and each Lender agrees to be bound by the terms of the Guaranty; provided, that, except as otherwise provided in the Guaranty, the Administrative Agent shall not enter into or consent to any amendment, modification,
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termination or waiver of any provision contained in the Guaranty without the prior consent of the Requisite Lenders. Anything contained in any of the Loan Documents to the contrary notwithstanding, the Borrower, the Administrative Agent and each Lender hereby agree that no Lender shall have any right individually to enforce the Guaranty, it being understood and agreed that all powers, rights and remedies hereunder and under the Guaranty may be exercised solely by the Administrative Agent for the benefit of the Lenders in accordance with the terms hereof and thereof.
9.7 ACKNOWLEDGMENT OF POTENTIAL RELATED TRANSACTIONS.
The Borrower hereby acknowledges its understanding that the Arranger, each of the Agents and each of the Lenders may from time to time effect transactions (for its own account or the account of customers), and hold positions in loans or options on loans that may be the subject of this arrangement. In addition, certain Affiliates of the Lenders are full service securities firms and as such may from time to time effect transactions (for their own account or the account of customers), and hold positions, in loans or options on loans or securities or options on securities that may be the subject of this arrangement. In addition, the Arranger, each of the Agents and each of the Lenders may employ the services of its affiliates in providing certain services hereunder and may exchange with such affiliates information concerning the Borrower and other companies that may be the subject of this arrangement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
FORTIS, INC.
By: /s/ Miles B. Yakre ----------------------------------------- Name: Miles Yakre Title: Vice President/Treasurer |
Notice Address:
Fortis, Inc.
One Chase Manhattan Plaza, 41st Floor
New York, NY 10005
Attention: Katherine Greenzang
Tel: (212) 859-7021
Fax: (212) 859-7034
S-650M
$650,000,000 CREDIT AGREEMENT
MORGAN STANLEY SENIOR FUNDING, INC.,
as Lender, Bookrunner, Arranger and
Administrative Agent
By: /s/ Jaap L. Tonckens ----------------------------------------- Name: Jaap L. Tonckens Title: Vice President MORGAN STANLEY SENIOR FUNDING |
Funding and Payment Office/Notice Address:
Morgan Stanley Senior Funding, Inc.
1585 Broadway
New York, NY 10036
Attention: James Morgan
Tel. (212) 537-1470
Fax (212) 537-1867 / 1866
S-650M
$650,000,000 CREDIT AGREEMENT
MERRILL LYNCH CAPITAL CORP.,
as Syndication Agent
By: /s/ Lawrence Temlock ----------------------------------------- Name: Lawrence Temlock Title: Vice President |
Notice Address:
Merrill Lynch Capital Corp.
4 World Financial Center
16th Floor, D0829
New York, NY 10080
Attention: Lawrence Temlock
Tel: (212) 449-1351
Fax: (212) 738-1186
MERRILL LYNCH BANK USA,
as Lender
By: /s/ David Millet ----------------------------------------- Name: David Millet Title: Vice President |
Notice Address: with a copy to: Merrill Lynch Bank USA Merrill Lynch Loan Portfolio Management 15 W. South Temple, Ste. 300 4 World Financial Center Salt Lake City, UT 84101 16th Floor, D0829 Attention: Julie Young New York, NY 10080 Tel: (801) 526-6331 Attention: Lawrence Temlock Tel: (212) 449-1351 Fax: (212) 738-1186 S-650M |
$650,000,000 CREDIT AGREEMENT CREDIT SUISSE FIRST BOSTON (ACTING THROUGH ITS CAYMAN ISLANDS BRANCH), as Lender and Documentation Agent By: /s/ Jay Chall ---------------------------------------- Name: Jay Chall Title: Director By: /s/ James Moran ---------------------------------------- Name: James Moran Title: Director Notice Address: Credit Suisse First Boston One Madison Avenue, 2nd Floor New York, New York 10010 Attention: Ed Markowski Tel: (212) 538-3380 Fax: (212) 538-6851 S-650M |
$650,000,000 CREDIT AGREEMENT SCHEDULE 2.1 |
(LENDERS' COMMITMENTS AND PRO RATA SHARES)
LENDER COMMITMENT PRO RATA SHARE ----------------------------------- --------------- -------------- Morgan Stanley Senior Funding, Inc. $325,000,000.00 50% Merrill Lynch Bank USA $162,500,000.00 25% Credit Suisse First Boston (acting $162,500,000.00 25% through its Cayman Islands branch) TOTAL $650,000,000.00 100% |
Exhibit 10.21
PARENT GUARANTY ($650,000,000 CREDIT AGREEMENT)
EXECUTION COPY
PARENT GUARANTY
This PARENT GUARANTY, dated as of December 19, 2003, is entered into by FORTIS N.V., a public company with limited liability (naamloze vennootschap) incorporated under the laws of The Netherlands having its statutory seat (statutaire zetel) at Utrecht, The Netherlands and registered with the Chamber of Commerce in Utrecht under number 30072145 ("Fortis N.V.") and FORTIS SA/NV, a public company with limited liability (societe anonyme/naamloze vennootschap) incorporated in Belgium and registered with the register of legal persons (rechtspersonenregister), Brussels, under company number 0451406524 (formerly registered with the Brussels Trade Register under No. 577.615 ("Fortis SA/NV", and together with Fortis N.V., each, a "Guarantor" and collectively the "Guarantors"), in favor and for the benefit of MORGAN STANLEY SENIOR FUNDING, INC. ("MSSF"), as Administrative Agent for and representative of (in such capacity herein called "Guaranteed Party") the Lenders (as hereinafter defined).
RECITALS
WHEREAS, FORTIS, INC., a Nevada corporation ("Fortis US"), MSSF (in each of its respective capacities as Bookrunner, Lead Arranger and Administrative Agent), Merrill Lynch Capital Corp., as Syndication Agent ("ML"), Credit Suisse First Boston (acting through its Cayman Islands branch), as Documentation Agent ("CSFB", and collectively with each of MSSF, ML and any other financial institution from time to time parties thereto, the "Lenders") have entered into a Credit Agreement of even date herewith (as it may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement") pursuant to which the Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain term loans to Borrower;
WHEREAS, it is a condition precedent to the making of a Loan under the Credit Agreement that the Borrower's obligations thereunder be guaranteed by the Guarantors; and
WHEREAS, the Guarantors are willing irrevocably and unconditionally to guaranty such obligations of Borrower.
NOW, THEREFORE, in consideration of the premises and to induce the Lenders to enter into the Credit Agreement and to make their respective loans to the Borrower and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Guarantors hereby agree as follows:
PARENT GUARANTY ($650,000,000 CREDIT AGREEMENT)
SECTION 1. DEFINITIONS
1.1 Certain Defined Terms. Capitalized terms used herein, including in the preamble and the recitals hereto, not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. All defined terms included in any provisions of the Existing Parent Facility which are incorporated by reference into this Guaranty shall have the meanings as included in the Existing Parent Facility unless otherwise provided herein. In addition, the following terms shall have the following meanings:
"Acceleration" shall mean any of the Obligations have been declared, or have become, immediately due and payable, or the commitments to extend credit of the Lenders shall have been terminated in accordance with the Credit Agreement.
"Act" as defined in Section 3.10(d).
"Aggregate Payments" as defined in Section 2.2.
"Beneficiary" means either the Guaranteed Party or each Lender, and "Beneficiaries" means the Guaranteed Party and each Lender, collectively.
"Borrower" means Fortis US and its permitted successors and assigns in accordance with the terms of the Credit Agreement, including Assurant.
"Contributing Guarantors" as defined in Section 2.2.
"Credit Extension" means the making of a Loan or other extension of credit under the Credit Agreement.
"Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit.
"Existing Parent Facility" means that certain EUR2,000,000,000 Multicurrency Revolving Credit Agreement, dated June 28, 1999, by and among, Fortis Finance N.V., as Borrower thereunder, Fortis N.V. and Fortis SA/NV as Guarantors thereunder, and the other institutions party thereto, a copy of which is attached hereto as Exhibit A, as the same may be amended, supplemented or otherwise modified from time to time, in accordance with Section 2.7(g) herein.
"Fair Share" as defined in Section 2.2.
"Fair Share Contribution Amount" as defined in Section 2.2.
"Foreign Taxes" as defined in Section 3.10(e).
PARENT GUARANTY ($650,000,000 CREDIT AGREEMENT)
"Funding Guarantor" as defined in Section 2.2.
"GAAP" means, with respect to each of the Guarantors, (i) generally accepted accounting principles in Belgium or (ii) International Auditing Standards/International Financial Reporting Standards ("IAS"), if the Guarantors financial statements are prepared in accordance with IAS, in each case as in effect from time to time.
"Guaranteed Obligations" as defined in Section 2.1.
"Guarantor Material Subsidiary" means any Subsidiary of a Guarantor if either (i) such Subsidiary (and its Subsidiaries) have consolidated gross revenues which exceed 5% of the gross revenues of the Guarantors and their Subsidiaries on a consolidated basis or (ii) such Subsidiary (and its Subsidiaries) have consolidated total assets which exceed 5% of the total assets of the Guarantors and their Subsidiaries on a consolidated basis, such calculation to be made on the basis of the most recent audited consolidated financial statements for the Guarantors and their Subsidiaries and of such Subsidiary.
"Guaranty" means this Parent Guaranty dated as of the date hereof, as it may be amended, supplemented or otherwise modified from time to time.
"Material Adverse Effect" means a material adverse effect upon (i) the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Guarantors and their Subsidiaries, taken as a whole, (ii) the ability of the Borrower or either of the Guarantors to perform, respectively, any of the Obligations of the Borrower or the obligations of either of the Guarantors under the Guaranty or (iii) the legality, validity, binding effect or enforceability against the Borrower or either of the Guarantors of a Loan Document to which it is a party.
"Obligee Guarantor" as defined in Section 2.9.
"Other Guaranty" means that certain Parent Guaranty, dated as of the date hereof, from Fortis N.V. and Fortis SA/NV in favor and for the benefit of Bank One, NA, as Guaranteed Party, as the same may be amended, supplemented or otherwise modified from time to time.
"payment in full", "paid in full" or any similar term means payment in full of the Guaranteed Obligations (other than inchoate indemnification obligations with respect to claims, losses or liabilities which have not yet arisen and are not yet due and payable), including without limitation all principal, interest, costs, fees and expenses (including, without limitation, reasonable legal fees and expenses) of the Beneficiaries as required under the Loan Documents.
1.2 Interpretation. References to "Sections" shall be to Sections and subsections, respectively, of this Guaranty unless otherwise specifically provided. References to "Clauses" in the context of the Existing Parent Facility shall be interpreted equivalently to similar references to "Sections" and subsections herein.
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SECTION 2. THE GUARANTY
2.1 Guaranty of the Obligations. Subject to the provisions of
Section 2.2, the Guarantors hereby jointly and severally irrevocably and
unconditionally guaranty to the Guaranteed Party for the ratable benefit of the
Beneficiaries the due and punctual payment in full of all Obligations when the
same shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code) (collectively, the "Guaranteed Obligations").
2.2 Contribution by Guarantor. The Guarantors desire to allocate
among themselves (collectively, the "Contributing Guarantors"), in a fair and
equitable manner, their obligations arising under this Guaranty. Accordingly, in
the event any payment or distribution is made on any date by a Guarantor (a
"Funding Guarantor") under this Guaranty such that its Aggregate Payments
exceeds its Fair Share as of such date, such Funding Guarantor shall be entitled
to a contribution from each of the other Contributing Guarantors in an amount
sufficient to cause each Contributing Guarantor's Aggregate Payments to equal
its Fair Share as of such date. "Fair Share" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (a)
the ratio of (i) the Fair Share Contribution Amount with respect to such
Contributing Guarantor to (ii) the aggregate of the Fair Share Contribution
Amounts with respect to all Contributing Guarantors multiplied by (b) the
aggregate amount paid or distributed on or before such date by all Funding
Guarantors under this Guaranty in respect of the obligations Guaranteed. "Fair
Share Contribution Amount" means, with respect to a Contributing Guarantor as of
any date of determination, the maximum aggregate amount of the obligations of
such Contributing Guarantor under this Guaranty that would not render its
obligations hereunder or thereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of the Bankruptcy Code or any
comparable applicable provisions of applicable law; provided, solely for
purposes of calculating the "Fair Share Contribution Amount" with respect to any
Contributing Guarantor for purposes of this Section 2.2, any assets or
liabilities of such Contributing Guarantor arising by virtue of any rights to
subrogation, reimbursement or indemnification or any rights to or obligations of
contribution hereunder shall not be considered as assets or liabilities of such
Contributing Guarantor. "Aggregate Payments" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (1)
the aggregate amount of all payments and distributions made on or before such
date by such Contributing Guarantor in respect of this Guaranty (including,
without limitation, in respect of this Section 2.2), minus (2) the aggregate
amount of all payments received on or before such date by such Contributing
Guarantor from the other Contributing Guarantors as contributions under this
Section 2.2. The amounts payable as contributions hereunder shall be determined
as of the date on which the related payment or distribution is made by the
applicable Funding Guarantor. The allocation among Contributing Guarantors of
their obligations as set forth in this Section 2.2 shall not be construed in
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any way to limit the liability of any Contributing Guarantor hereunder. Each Guarantor is a third party beneficiary to the contribution agreement set forth in this Section 2.2.
2.3 Payment by Guarantor. Subject to Section 2.2, the Guarantors hereby jointly and severally agree, in furtherance of the foregoing and not in limitation of any other right which any Beneficiary may have at law or in equity against any Guarantor by virtue hereof, that upon the failure of Borrower to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code), the Guarantors will upon demand pay, or cause to be paid, in Cash, to the Guaranteed Party for the ratable benefit of the Beneficiaries, an amount equal to the sum of the unpaid principal amount of all Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including interest which, but for Borrower's becoming the subject of a case under the Bankruptcy Code, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Borrower for such interest in the related bankruptcy case) and all other Guaranteed Obligations then owed to the Beneficiaries as aforesaid.
2.4 Liability of Guarantor Absolute. Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guaranteed Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows:
(a) this Guaranty is a guaranty of payment when due and not of collectability; this Guaranty is a primary obligation of each Guarantor and not merely a contract of surety;
(b) the Guaranteed Party may enforce this Guaranty upon the occurrence of an Event of Default notwithstanding the existence of any dispute between the Borrower and any Beneficiary with respect to the existence of such Event of Default;
(c) the obligations of each Guarantor hereunder are independent of the obligations of Borrower and the obligations of any other guarantor (including any other Guarantor) of the obligations of Borrower, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not any action is brought against Borrower or any of such other guarantors and whether or not Borrower is joined in any such action or actions;
(d) payment by any Guarantor of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge any Guarantor's liability for any portion of the Guaranteed Obligations which has not been paid. Without limiting the generality of the foregoing, if the Administrative Agent is awarded a judgment in any suit brought to enforce any Guarantor's covenant to pay a portion of the
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Guaranteed Obligations, such judgment shall not be deemed to release such Guarantor from its covenant to pay the portion of the Guaranteed Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge any other Guarantor's liability hereunder in respect of the Guaranteed Obligations;
(e) any Beneficiary, upon such terms as it deems
appropriate, without notice or demand and without affecting the validity or
enforceability hereof or giving rise to any reduction, limitation, impairment,
discharge or termination of any Guarantor's liability hereunder, from time to
time may (i) renew, extend, accelerate, increase the rate of interest on, or
otherwise change the time, place, manner or terms of payment of the Guaranteed
Obligations (subject, in each case (to the extent applicable), to compliance
with the proviso at the end of this Section 2.4(e)); (ii) settle, compromise,
release or discharge, or accept or refuse any offer of performance with respect
to, or substitutions for, the Guaranteed Obligations or any agreement relating
thereto and/or subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Guaranteed
Obligations and take and hold security for the payment hereof or the Guaranteed
Obligations; (iv) release, surrender, exchange, substitute, compromise, settle,
rescind, waive, alter, subordinate or modify, with or without consideration, any
security for payment of the Guaranteed Obligations, any other guaranties of the
Guaranteed Obligations, or any other obligation of any Person (including any
other Guarantor) with respect to the Guaranteed Obligations; (v) enforce and
apply any security now or hereafter held by or for the benefit of such
Beneficiary in respect hereof or the Guaranteed Obligations and direct the order
or manner of sale thereof, or exercise any other right or remedy that such
Beneficiary may have against any such security, in each case as such Beneficiary
in its discretion may determine consistent herewith, including foreclosure on
any such security pursuant to one or more judicial or nonjudicial sales; and
(vi) exercise any other rights available to it under the Loan Documents;
provided, that, notwithstanding the foregoing, no Beneficiary may, without the
prior written consent of the Guarantors: (A) extend the scheduled final maturity
of the Guaranteed Obligations, (B) increase the rate of interest on the
Guaranteed Obligations or (C) increase the principal amount of the Guaranteed
Obligations; and
(f) this Guaranty and the obligations of the Guarantors hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guaranteed Obligations), including the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Loan Documents, at law, in equity or otherwise) with respect to the Guaranteed Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guaranteed Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) hereof, any of the other
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Loan Documents or any agreement or instrument executed pursuant thereto, or of any of the Related Agreements, or of any other guaranty or security for the Guaranteed Obligations, in each case (subject, to the extent applicable, to the proviso at the end of Section 2.4(e)) whether or not in accordance with the terms hereof or such Loan Document or any agreement relating to such other guaranty or security; (iii) the Guaranteed Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the other Loan Documents or from the proceeds of any security for the Guaranteed Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guaranteed Obligations) to the payment of indebtedness other than the Guaranteed Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guaranteed Obligations; (v) any Beneficiary's consent to the change, reorganization or termination of the corporate structure or existence of the Borrower or any of its Subsidiaries and to any corresponding restructuring of the Guaranteed Obligations; (vi) any failure to perfect or continue perfection of a security interest, if any, in any collateral which secures any of the Guaranteed Obligations; (vii) any defenses, set offs or counterclaims which Borrower may allege or assert against any Beneficiary in respect of the Guaranteed Obligations, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guaranteed Obligations.
2.5 Waivers by Guarantors. Each Guarantor hereby waives, to the fullest extent permitted by applicable law, for the benefit of the Beneficiaries:
(a) any right to require any Beneficiary, as a condition of payment or performance by such Guarantor, to (i) proceed against Borrower, any other guarantor (including any other Guarantor) of the Guaranteed Obligations or any other Person, (ii) proceed against or exhaust any security held from Borrower, any such other guarantor or any other Person, (iii) proceed against or have resort to any balance of any Deposit Account or credit on the books of any Beneficiary in favor of Borrower or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary whatsoever;
(b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Borrower or any other Guarantor including any defense based on or arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Borrower or any other Guarantor from any cause other than payment in full of the Guaranteed Obligations;
(c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal;
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(d) any defense based upon any Beneficiary's errors or omissions in the administration of the Guaranteed Obligations, except behavior which amounts to gross negligence or willful misconduct;
(e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms hereof and any legal or equitable discharge of such Guarantor's obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto;
(f) except for notices of the changes described in the proviso at the end of Section 2.4(e), notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance hereof, notices of default hereunder, notices of any renewal, extension or modification of the Guaranteed Obligations or any agreement related thereto or any Related Agreement, notices of any extension of credit to Borrower and notices of any of the matters referred to in Section 2.4 and any right to consent to any thereof; and
(g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms hereof.
2.6 Guarantor Representations. In order to induce (i) the Lenders
to enter into the Credit Agreement and to make the Loans pursuant thereto and
(ii) the Guaranteed Party to enter into this Guaranty, each Guarantor represents
and warrants to the Beneficiaries that the following statements are true and
correct:
(a) Organization and Powers. Each Guarantor is duly organized and validly existing under the laws of its jurisdiction of organization. Each Guarantor has all requisite power and authority to own, lease and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Guaranty and any Loan Documents or Related Agreements to which it is a party and to carry out the transactions contemplated thereby.
(b) Authorization of Guaranty. The execution, delivery and performance by each Guarantor of this Guaranty and any other Loan Document or Related Agreement to which it is a party have been duly authorized by all necessary action on the part of such Guarantor.
(c) No Conflict. The execution, delivery and performance by each Guarantor of this Guaranty and the Other Guaranty and the consummation of the transactions contemplated by this Guaranty and the Other Guaranty, do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to each such Guarantor, or any of the Organizational Documents of such Guarantor, (ii)
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violate any order, judgment or decree of any court or other agency of government
binding on such Guarantor, except to the extent such violation could not be
reasonably expected to have a Material Adverse Effect, (iii) conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any agreement to which such Guarantor is a party or which is
binding on it or any of its assets, except to the extent such conflict, breach
or default could not reasonably be expected to have a Material Adverse Effect,
(iv) result in or require the creation or imposition of any Lien upon any of the
properties or assets of such Guarantor, or (v) require any approval of
stockholders, partners or members or any approval or consent of any Person under
any Contractual Obligation of such Guarantor, except for such approvals or
consents which will be obtained on or before the Closing Date.
(d) Government Consents. The execution, delivery and performance by each Guarantor of this Guaranty and the Other Guaranty and the consummation of the transactions contemplated by this Guaranty and the Other Guaranty do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority.
(e) Binding Obligation. This Guaranty and the Other Guaranty has been duly executed and delivered by each such Guarantor and is the legally valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability.
(f) No Material Adverse Change. Since December 31, 2002, no event or change has occurred that has caused or evidences, or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.
(g) No Restrictions on Guarantor Contribution. There are no restrictions under any Contractual Obligation to which any Guarantor is a party that would prohibit or otherwise prevent such Guarantor from making the Guarantor Contribution (as such term is defined in the Credit Agreement).
(h) Incorporation by Reference. The copy of the Existing Parent Facility attached hereto as Exhibit A is true and correct, and has not been amended, supplemented or otherwise modified. Each Guarantor hereby makes each of the representations and warranties contained in Clauses 14.5 through 14.8, inclusive, Clause 14.10, and Clauses 14.12 through 14.16, inclusive, of the Existing Parent Facility, which Clauses, together with all definitions in the Existing Parent Facility applicable to such Clauses, are hereby incorporated by reference as if set forth herein in their entirety, provided that, (i) all references to "Obligor" therein shall mean and be a reference to each "Guarantor" herein, (ii) all references to the "Agent" therein shall mean and be a reference to the "Guaranteed Party" herein, (iii) all references to "Material Adverse Effect" therein shall mean and be a reference to "Material Adverse Effect" as defined herein, (iv) all references to "Material Subsidiary" therein shall mean and be a reference
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to "Guarantor Material Subsidiary" as defined herein, (v) all references to "subsidiary" therein shall mean and be a reference to "Subsidiary" as defined herein, and (vi) all references to "this Agreement", "herein", "hereunder" and words of similar import therein shall mean and be a reference to this Guaranty. No amendment, modification or supplement to such representations or warranties or definitions made to the Existing Parent Facility shall be effective to amend such representations and warranties or definitions as incorporated by reference herein except as otherwise provided in Section 2.7(g) of this Guaranty.
2.7 Guarantor Covenants. Each Guarantor covenants and agrees that on and after the date hereof and until the Commitments have terminated and the Loans and Notes, together with interest and any fees thereunder, and all Guaranteed Obligations are paid in full:
(a) Existence. Each Guarantor will, and will cause each of the Guarantor Material Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights, privileges, licenses and franchises material to its business; provided, that neither Guarantor nor any of their respective Guarantor Material Subsidiaries shall be required to preserve any such right, privilege, license or franchise if the Guarantor's board of directors (or similar governing body) shall determine that the preservation thereof is no longer desirable in the conduct of the Guarantor's business taken as a whole, and that the loss thereof is not disadvantageous in any material respect to such Guarantor, the Borrower or the Lenders.
(b) Payment of Taxes and Claims. Each Guarantor will, and will cause each of the Guarantor Material Subsidiaries to, pay all Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings and adequate reserve or other appropriate provision, as shall be required in conformity with GAAP, shall have been made therefor.
(c) Compliance with Laws. Each Guarantor will, and will cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws), noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(d) Guarantor Contribution; Assignees. The Guarantors shall make the Guarantor Contribution (as such term is defined in the Credit Agreement) on or prior to the day on which the Assurant IPO occurs.
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(e) Claims Pari Passu. Each Guarantor shall ensure that at all times the claims of the Beneficiaries under this Guaranty rank at least pari passu with the claims of all of such Guarantor's other senior unsecured creditors, except those creditors whose claims are preferred by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or limiting creditors' rights generally.
(f) Notice of Default. Each Guarantor will promptly inform the Guaranteed Party of the occurrence of any default in the performance of or compliance with any term contained under this Guaranty, or any event which would constitute an Event of Default under Section 7.5(ii) of the Credit Agreement.
(g) Incorporation by Reference. Each Guarantor will comply with each of the covenants contained in Clauses 15.1 through 15.5, inclusive, Clause 16.1, Clause 16.2, Clauses 16.4 through 16.7, inclusive, and Clause 16.10, which such Clauses, together with all definitions in the Existing Parent Facility applicable to such Clauses, are hereby incorporated by reference as if set forth herein in their entirety, provided that:
(i) all references to each "Obligor" therein shall mean and be a reference to each "Guarantor" herein;
(ii) all references to "Finance Parties" therein shall mean and be a reference to "Beneficiaries" herein;
(iii) all references to the "Agent" therein shall mean and be a reference to the "Guaranteed Party" herein;
(iv) all references to the "Lead Arrangers" and "Banks" therein shall mean and be a reference to "Lenders" herein;
(v) all references to "this Agreement", "herein", "hereunder" and words of similar import therein shall mean and be a reference to this Guaranty;
(vi) all references to "Instructing Group" therein shall mean and be a reference to "Requisite Lenders" herein;
(vii) all references to "Material Adverse Effect" therein shall mean and be a reference to "Material Adverse Effect" as defined herein;
(viii) all references to "Material Subsidiary" therein shall mean and be a reference to "Guarantor Material Subsidiary" as defined herein;
(ix) all references to "subsidiary" therein shall mean and be a reference to "Subsidiary" as defined herein; and
(x) Clause 16.5 (Negative Pledge) of the Existing Parent Facility as incorporated herein by reference shall be deemed to have the phrase "provided, however, that, other than any Encumbrance
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permitted pursuant to clauses (a) through (f), inclusive, of the definition of "Permitted Encumbrance," all obligations of the Guarantors under this Guaranty shall be secured equally and ratably with the other obligations secured by any such Encumbrance on terms reasonably satisfactory to the Guaranteed Party and the Requisite Lenders" inserted at the end of the first sentence thereof immediately after the phrase "other than a Permitted Encumbrance," appearing therein.
No amendment, modification or supplement to such covenants or definitions made to the Existing Parent Facility, or the termination, refinancing or replacement of the Existing Parent Facility, shall be effective to amend such covenants or definitions as incorporated by reference herein without the prior consent of the Beneficiaries in accordance with Section 3.4; provided, however, that the provisions of Section 2.6(h) hereof and this Section 2.7(g) will be deemed modified (without the consent of any Person) to the extent necessary to incorporate by reference any respective amendment, modification or supplement to the Existing Parent Facility which contains terms and provisions more favorable to the Beneficiaries. In connection with any amendment, modification or supplement to the Existing Parent Facility which will be incorporated herein by reference, the Lenders hereby authorize the Guaranteed Party to enter into an appropriate amendment to this Guaranty to reflect such amendment, modification or supplement.
2.8 Guarantors' Rights of Subrogation, Contribution, etc. Until
the Guaranteed Obligations shall have been paid in full and the Commitments
shall have terminated, each Guarantor hereby waives any claim, right or remedy,
direct or indirect, that such Guarantor now has or may hereafter have against
Borrower or any other Guarantor or any of its assets in connection with this
Guaranty or the performance by such Guarantor of its obligations hereunder, in
each case whether such claim, right or remedy arises in equity, under contract,
by statute, under common law or otherwise and including without limitation (a)
any right of subrogation, reimbursement or indemnification that such Guarantor
now has or may hereafter have against Borrower with respect to the Guaranteed
Obligations, (b) any right to enforce, or to participate in, any claim, right or
remedy that any Beneficiary now has or may hereafter have against Borrower, and
(c) any benefit of, and any right to participate in, any collateral or security
now or hereafter held by any Beneficiary. In addition, until the Guaranteed
Obligations shall have been paid in full and the Commitments shall have
terminated each Guarantor shall withhold exercise of any right of contribution
such Guarantor may have against any other guarantor (including any other
Guarantor) of the Guaranteed Obligations, including, without limitation, any
such right of contribution as contemplated by Section 2.2. Each Guarantor
further agrees that, to the extent the waiver or agreement to withhold the
exercise of its rights of subrogation, reimbursement, indemnification and
contribution as set forth herein is found by a court of competent jurisdiction
to be void or voidable for any reason, any rights of subrogation, reimbursement
or indemnification such Guarantor may have against Borrower or against any
collateral or security, and any rights of contribution such Guarantor may have
against any such other guarantor, shall be junior and subordinate to any rights
any Beneficiary may have against Borrower, to all right, title and interest any
Beneficiary may have in any such collateral or security, and to any
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right any Beneficiary may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Guaranteed Obligations shall not have been finally and indefeasibly paid in full, such amount shall be held in trust for the Guaranteed Party on behalf of the Beneficiaries and shall forthwith be paid over to the Guaranteed Party for the benefit of the Beneficiaries to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms hereof.
2.9 Subordination of Other Obligations. Until such time that the Guaranteed Obligations shall have been paid in full and the Commitments shall have terminated, any Indebtedness of Borrower or any Guarantor now or hereafter held by any Guarantor (the "Obligee Guarantor") is hereby subordinated in right of payment to the Guaranteed Obligations (including, without limitation, the Existing Intercompany Obligations and any Indebtedness incurred under Section 6.2(v) of the Credit Agreement), and any such indebtedness collected or received by the Obligee Guarantor after a Potential Event of Default or an Event of Default has occurred and is continuing shall be held in trust for the Administrative Agent on behalf of the Beneficiaries and shall forthwith be paid over to the Administrative Agent for the benefit of the Beneficiaries to be credited and applied against the Guaranteed Obligations but without affecting, impairing or limiting in any manner the liability of the Obligee Guarantor under any other provision hereof.
2.10 Expenses. Each Guarantor agrees to pay, or cause to be paid, promptly upon written demand, and to save the Beneficiaries harmless against liability for, any and all reasonable costs and reasonable expenses (including reasonable fees and reasonable disbursements of counsel) incurred or expended by any Beneficiary in connection with the enforcement of or preservation of any rights under this Guaranty.
2.11 Continuing Guaranty. This Guaranty is a continuing guaranty and shall remain in effect until all of the Guaranteed Obligations shall have been paid in full and the Commitments shall have terminated. Each Guarantor hereby irrevocably waives any right to revoke this Guaranty as to future transactions giving rise to any Guaranteed Obligations.
2.12 Authority of Guarantors or Borrower. It is not necessary for any Beneficiary to inquire into the capacity or powers of any Guarantor or Borrower or the officers, directors or any agents acting or purporting to act on behalf of any of them.
2.13 Financial Condition of Borrower. Any Credit Extension may be made to Borrower or continued from time to time without notice to or authorization from any Guarantor regardless of the financial or other condition of Borrower at the time of any such grant or continuation. No Beneficiary shall have any obligation to disclose or discuss with any Guarantor its assessment, or any Guarantor's assessment, of the financial condition of Borrower. Each Guarantor has adequate means to obtain information from Borrower on a continuing basis concerning the financial condition of Borrower and its ability to perform its obligations under the Loan Documents, and each Guarantor assumes
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the responsibility for being and keeping informed of the financial condition of Borrower and of all circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary to disclose any matter, fact or thing relating to the business, operations or conditions of Borrower now known or hereafter known by any Beneficiary.
2.14 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any Beneficiary in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Guaranty and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available.
2.15 Bankruptcy.
(a) Until such time that the Guaranteed Obligations shall have been paid in full and the Commitments shall have terminated, no Guarantor shall, without the prior written consent of the Guaranteed Party acting pursuant to the instructions of the Requisite Lenders, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency case or proceeding of or against Borrower or any other Guarantor. The obligations of Guarantors hereunder shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any case or proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Borrower or any other Guarantor or by any defense which Borrower or any other Guarantor may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding.
(b) Each Guarantor acknowledges and agrees that any interest on any portion of the Guaranteed Obligations which accrues after the commencement of any case or proceeding referred to in clause (a) above (or, if interest on any portion of the Guaranteed Obligations ceases to accrue by operation of law by reason of the commencement of such case or proceeding, such interest as would have accrued on such portion of the Guaranteed Obligations if such case or proceeding had not been commenced) shall be included in the Guaranteed Obligations because it is the intention of each of the Guarantors and the Beneficiaries that the Guaranteed Obligations which are guaranteed by the Guarantors pursuant hereto should be determined without regard to any rule of law or order which may relieve Borrower of any portion of such Guaranteed Obligations. Each of the Guarantors will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay the Guaranteed Party, or allow the claim of the Guaranteed Party in respect of, any such interest accruing after the date on which such case or proceeding is commenced.
(c) In the event that all or any portion of the Guaranteed Obligations are paid by Borrower, the obligations of each of the Guarantors hereunder shall continue and remain
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in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from any Beneficiary as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guaranteed Obligations for all purposes hereunder.
2.16 Set Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Beneficiary is hereby authorized by each Guarantor at any time or from time to time subject to the consent of the Guaranteed Party (such consent not to be unreasonably withheld or delayed), without notice to either Guarantor or to any other Person (other than the Guaranteed Party), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including any Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Beneficiary, to or for the credit or the account of such Guarantor against and on account of any obligations and liabilities of such Guarantor to such Beneficiary under this Guaranty and the other Loan Documents which are then due and payable, including all claims of any nature or description arising out of or connected with this Guaranty or any other Loan Document, irrespective of whether or not (i) such Beneficiary shall have made any demand hereunder or (ii) an Acceleration has occurred, and although said obligations and liabilities, or any of them, may be unmatured.
SECTION 3. MISCELLANEOUS
3.1 Survival of Warranties. All agreements, representations and warranties made herein shall survive the execution and delivery of this Guaranty and the other Loan Documents and any increase or decrease in the Commitments under the Credit Agreement.
3.2 Notices. All notices and other communications provided for hereunder between any Beneficiary and either Guarantor shall be in writing (including telecopier or electronic mail) and mailed, sent by overnight courier, telecopied, e-mailed, or delivered to, in the case of each of the Guarantors and the Guaranteed Party, at its address set forth on the signature pages hereto, and in the case of any other Beneficiary, at its addresses as set forth in the Credit Agreement, or, as to each party, at such other address or to such other person as shall be designated by such party in a written notice to all other parties. Any notice, request or demand to or upon the Guaranteed Party or either Guarantor shall not be effective until received.
3.3 Severability of Provisions. Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining
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provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
3.4 Amendments and Waivers. No amendment, modification, termination or waiver of any provision of this Guaranty, or consent to any departure by or the release of any Guarantor therefrom, shall be effective without the written concurrence of the Lenders and, in the case of any such amendment or modification, either Guarantor; provided, that, notwithstanding the foregoing, any such amendment, modification, termination, waiver or consent (but in no event any release of a Guarantor) that has been determined to be immaterial by the Agents, in their sole discretion, shall be effective with the written concurrence of the Requisite Lenders. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given.
3.5 Headings. Section and subsection headings in this Guaranty are included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose or be given any substantive effect.
3.6 APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
3.7 Successors and Assigns. This Guaranty is a continuing guaranty and shall be binding upon each Guarantor and its respective permitted successors and assigns. This Guaranty shall inure to the benefit of the Beneficiaries and their respective successors and assigns. Any Beneficiary may, without notice or consent, assign its interest in this Guaranty in whole or in part. The terms and provisions of this Guaranty shall inure to the benefit of any transferee or assignee of any Loan made in accordance with the terms of the Credit Agreement, and in the event of such transfer or assignment the rights and privileges herein conferred upon such Beneficiary shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof.
3.8 CONSENT TO JURISDICTION; SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST EITHER GUARANTOR ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK, OR IN ANY COURT LOCATED IN ITS OWN CORPORATE DOMICILE. BY EXECUTING AND DELIVERING THIS GUARANTY, EACH GUARANTOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
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(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE (X) BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 3.2 HEREOF, OR (Y) BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OF ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO FORTIS FINANCIAL SERVICES AS EACH GUARANTOR'S AGENT IN NEW YORK CITY FOR SERVICE OF PROCESS AT ITS ADDRESS AT FORTIS FINANCIAL SERVICES, 520 MADISON AVE., NEW YORK, NY 10022, ATTENTION: ROY ANDERSEN (AND EACH GUARANTOR HEREBY DESIGNATES SUCH ENTITY AS ITS AGENT FOR SERVICE OF PROCESS HEREUNDER) OR AT SUCH ADDRESS OF WHICH THE GUARANTEED PARTY SHALL HAVE BEEN NOTIFIED IN WRITING BY THE BORROWER;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GUARANTOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT EACH BENEFICIARY RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 3.8
RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO
THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW
SECTION 5-1402 OR OTHERWISE.
3.9 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS GUARANTY HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THE LOAN DOCUMENTS AND THIS GUARANTY OR THE GUARANTEED PARTY/GUARANTOR RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on
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this waiver in entering into this Guaranty, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 3.9 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE THEREUNDER. In the event of litigation, this Guaranty may be filed as a written consent to a trial by the court.
3.10 Special Provisions.
(a) Payment in United States Dollars. The payment obligations of either Guarantor are obligations to make payments in United States dollars, and shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than United States dollars, or any other realization in such other currency, whether as proceeds of set-off, security, guarantee, distributions or otherwise, except to the extent that such tender, recovery or realization shall result in the effective receipt by the Beneficiaries of the full amount of dollars due and payable under any Loan Document, and each Guarantor shall promptly indemnify the Beneficiaries (as an alternative or additional cause of action) for the amount (if any) by which such effective receipt falls short of the full amount of dollars due and payable hereunder.
(b) Judgment Currency. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due from a Guarantor hereunder in dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Beneficiaries could purchase dollars with such other currency in New York City on the Business Day preceding that on which final judgment is given. The obligations of either Guarantor in respect of any sum due hereunder shall, notwithstanding any judgment in a currency other than dollars, be discharged only to the extent that on the Business Day following receipt by the Beneficiaries of any sum adjudged to be so due in such other currency the Beneficiaries may in accordance with normal banking procedures purchase dollars with such other currency; if the amount of dollars so purchased is less than the sum originally due to the Beneficiaries in dollars, the Guarantors agree, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify the Beneficiaries against such loss, and if the amount of dollars so purchased exceeds the sum originally due to the Beneficiaries, the Beneficiaries shall remit such excess to such Guarantor.
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(c) English Language. All information, notices, communications, opinions, reports, records and the like required to be given, kept or maintained by either Guarantor or to be delivered hereunder, if not in the English language, shall be accompanied by a certified English translation; provided, however, that the English version of all such information, notices, communications, opinions, reports, records and other documents, shall govern in the event of any conflict with the non-English version thereof.
(d) Waiver of Immunities. To the extent permitted by applicable law, if a Guarantor has or hereafter may acquire any immunity (sovereign or otherwise) from any legal action, suit or proceeding, from jurisdiction of any court or from set-off or any legal process (whether service or notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) with respect to itself or any of its property, such Guarantor hereby irrevocably waives and agrees not to plead or claim such immunity in respect of its obligations hereunder. Each Guarantor agrees that the waivers set forth above shall have the fullest extent permitted under the Foreign Sovereign Immunities Act of 1976 of the United States of America (the "Act") and are intended to be irrevocable and not subject to withdrawal for purposes of such Act.
(e) Foreign Income Taxes. All payments to be made
hereunder by a Guarantor shall be made free and clear of any deduction or
withholding for any present or future taxes or similar charges imposed by any
country (or any political subdivision or taxing authority thereof or therein)
other than the United States of America (such non-excluded taxes being called
"Foreign Taxes"). If any Foreign Taxes are imposed and required to be withheld
from any payment hereunder, the Guarantor shall (a) increase the amount of such
payment so that the Beneficiaries will receive a net amount (after deduction of
all Foreign Taxes) equal to the amount due hereunder, (b) pay such Foreign Taxes
to the appropriate taxing authority for the account of the Beneficiaries, and
(c) as promptly as possible thereafter send the Guaranteed Party an original
receipt (or a copy thereof that has been stamped by the appropriate taxing
authority to certify payment) showing payment thereof, together with such
additional documentary evidence as the Beneficiaries may from time to time
require. If a Guarantor fails to perform its obligations under parts (b) or (c)
of the preceding sentence, such Guarantor shall indemnify the Beneficiaries for
any incremental taxes, interest or penalties that may become payable by the
Beneficiaries as a consequence of such failure.
3.11 No Other Writing. This writing and the provisions of the Existing Parent Facility which are incorporated herein by reference pursuant to the provisions hereof, are intended by each Guarantor and the Beneficiaries as the final expression of this Guaranty and is also intended as a complete and exclusive statement of the terms of their agreement with respect to the matters covered hereby. No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or modify any terms of this Guaranty. Other than as provided herein, there are no conditions to the full effectiveness of this Guaranty.
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3.12 Further Assurances. At any time or from time to time, upon the request of the Guaranteed Party, each Guarantor shall execute and deliver such further documents and do such other acts and things as the Guaranteed Party may reasonably request in order to effect fully the purposes of this Guaranty.
3.13 Counterparts; Effectiveness. This Guaranty and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Guaranty shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the Guaranteed Party of written or telephonic notification of such execution and authorization of delivery thereof.
Remainder of page intentionally left blank
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IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
FORTIS N.V.
By: /s/ Betty Keutgen, /s/ Michel Baise ----------------------------------- Name: Title: Address: Archimedeslaan 6 P.O.Box 2049 3500 GA Utrecht The Netherlands Attn: Monica Roeling Phone: +31 30 257 6568 Fax: +31 30 257 7835 |
FORTIS SA/NV
By: /s/ Betty Keutgen, /s/ Michel Baise ----------------------------------- Name: Title: Address: Rue Royale, 20 1000 Brussels Belgium Attn: Gilbert Mittler Phone: +32 2 510 5206 Fax: +32 2 510 5621 |
MORGAN STANLEY SENIOR FUNDING, INC.
By: /s/ Jaap L. Tonckens -------------------- Name: Title: Address: 1585 Broadway New York, New York 10036 Attn: Mr. James Morgan Phone: 212-537-1470 Fax: 212-537-1867/1866 |
Exhibit 10.22
CREDIT AGREEMENT
DATED AS OF DECEMBER 19, 2003
AMONG
FORTIS, INC.,
AS BORROWER,
THE BANKS AND FINANCIAL INSTITUTIONS LISTED HEREIN,
AS LENDERS,
CITIGROUP GLOBAL MARKETS INC.
AND
MORGAN STANLEY SENIOR FUNDING, INC.,
AS JOINT BOOKRUNNERS,
CITIGROUP GLOBAL MARKETS INC.,
MORGAN STANLEY SENIOR FUNDING, INC.
AND
BANC ONE CAPITAL MARKETS, INC.,
AS JOINT LEAD ARRANGERS,
MORGAN STANLEY SENIOR FUNDING, INC.,
AS SYNDICATION AGENT,
CITICORP NORTH AMERICA INC.,
AS DOCUMENTATION AGENT,
AND
BANK ONE, NA
AS ADMINISTRATIVE AGENT
$1,100,000,000 CREDIT AGREEMENT
CREDIT AGREEMENT
TABLE OF CONTENTS
PAGE ---- SECTION 1. DEFINITIONS.................................................................................. 1 1.1 Certain Defined Terms....................................................................... 1 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement.......... 25 1.3 Other Definitional Provisions and Rules of Construction..................................... 26 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS AND LOANS.................................................... 26 2.1 Commitment; Making of Loan; Notes........................................................... 26 2.2 Interest on the Loans....................................................................... 28 2.3 Fees........................................................................................ 32 2.4 Repayments and Prepayments; General Provisions Regarding Payments........................... 32 2.5 Increased Costs; Taxes...................................................................... 35 2.6 Special Provisions Governing LIBOR Rate Loans............................................... 40 2.7 Removal or Replacement of a Lender.......................................................... 42 2.8 Mitigation.................................................................................. 43 SECTION 3. CONDITIONS PRECEDENT......................................................................... 43 3.1 Conditions to Closing Date.................................................................. 43 3.2 Conditions to each Loan..................................................................... 47 SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES.................................................... 48 4.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries............... 48 4.2 Authorization of Borrowing, etc............................................................. 48 4.3 Valid Issuance of Securities................................................................ 49 4.4 Financial Condition......................................................................... 49 4.5 No Material Adverse Change.................................................................. 51 4.6 Title to Properties; Liens.................................................................. 51 4.7 No Litigation; Compliance with Laws......................................................... 51 4.8 Payment of Taxes............................................................................ 52 4.9 No Default.................................................................................. 52 4.10 Governmental Regulation..................................................................... 52 4.11 Securities Activities....................................................................... 52 4.12 Employee Benefit Plans...................................................................... 53 4.13 Certain Fees................................................................................ 54 |
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4.14 Environmental Protection.................................................................... 54 4.15 Solvency.................................................................................... 54 4.16 Restrictions................................................................................ 55 4.17 Related Agreements.......................................................................... 55 4.18 Insurance Licenses.......................................................................... 55 4.19 Disclosure.................................................................................. 55 SECTION 5. BORROWER'S AFFIRMATIVE COVENANTS............................................................. 56 5.1 Financial Statements and Other Reports...................................................... 56 5.2 Books and Records........................................................................... 59 5.3 Existence................................................................................... 60 5.4 Insurance................................................................................... 60 5.5 Payment of Taxes and Claims................................................................. 60 5.6 Maintenance of Properties................................................................... 61 5.7 Compliance with Laws........................................................................ 61 5.8 Use of Proceeds............................................................................. 61 5.9 Assurant IPO; Other Financings.............................................................. 62 5.10 Claims Pari Passu........................................................................... 62 SECTION 6. BORROWER'S NEGATIVE COVENANTS................................................................ 63 6.1 Liens....................................................................................... 63 6.2 Indebtedness................................................................................ 65 6.3 Investments................................................................................. 67 6.4 Restrictions on Subsidiary Distributions.................................................... 68 6.5 Restricted Payments......................................................................... 69 6.6 Restriction on Fundamental Changes; Asset Sales and Acquisitions............................ 70 6.7 Disposal of Subsidiary Interests............................................................ 72 6.8 Conduct of Business......................................................................... 72 6.9 Transactions with Shareholders and Affiliates............................................... 72 6.10 Amendments or Waivers of Related Agreement.................................................. 73 6.11 Financial Covenants......................................................................... 73 SECTION 7. EVENTS OF DEFAULT............................................................................ 75 7.1 Failure to Make Payments When Due........................................................... 75 7.2 Default in Other Agreements................................................................. 75 7.3 Breach of Certain Covenants................................................................. 75 7.4 Breach of Warranty.......................................................................... 76 7.5 Other Defaults Under Loan Documents, Related Agreements and Guaranty........................ 76 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc........................................ 77 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc.......................................... 77 7.8 Judgments and Attachments................................................................... 78 7.9 Dissolution................................................................................. 78 |
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7.10 Employee Benefit Plans...................................................................... 78 7.11 Change in Control........................................................................... 78 7.12 Repudiation of Obligations.................................................................. 78 7.13 Insurance Licenses.......................................................................... 79 SECTION 8. MISCELLANEOUS................................................................................ 79 8.1 Assignments and Participations in Loans and Notes........................................... 79 8.2 Expenses.................................................................................... 82 8.3 Indemnity................................................................................... 83 8.4 Set-Off..................................................................................... 84 8.5 Amendments and Waivers...................................................................... 85 8.6 Independence of Covenants................................................................... 86 8.7 Notices..................................................................................... 86 8.8 Survival of Representations, Warranties and Agreements...................................... 86 8.9 Failure or Indulgence Not Waiver; Remedies Cumulative....................................... 86 8.10 Marshalling; Payments Set Aside............................................................. 87 8.11 Severability................................................................................ 87 8.12 Headings.................................................................................... 87 8.13 Applicable Law.............................................................................. 87 8.14 Successors and Assigns...................................................................... 87 8.15 Consent to Jurisdiction and Service of Process.............................................. 88 8.16 Waiver of Jury Trial........................................................................ 89 8.17 Confidentiality............................................................................. 89 8.18 Ratable Sharing............................................................................. 90 8.19 Counterparts; Effectiveness................................................................. 91 8.20 Obligations Several; Independent Nature of Lenders' Rights.................................. 91 8.21 Usury Savings Clause........................................................................ 91 SECTION 9. AGENTS....................................................................................... 92 9.1 Appointment................................................................................. 92 9.2 Powers and Duties; General Immunity......................................................... 93 9.3 Representations and Warranties; No Responsibility For Appraisal of Creditworthiness......... 95 9.4 Right to Indemnity.......................................................................... 95 9.5 Successor Administrative Agent.............................................................. 96 9.6 Guaranty.................................................................................... 96 9.7 Acknowledgment of Potential Related Transactions............................................ 96 |
$1,100,000,000 CREDIT AGREEMENT EXHIBITS I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III FORM OF NOTE IV-A FORM OF OPINION OF BORROWER'S IN-HOUSE COUNSEL IV-B FORM OF OPINION OF BORROWER'S NEW YORK COUNSEL IV-C FORM OF OPINION OF BORROWER'S NEVADA COUNSEL IV-D FORM OF OPINION OF FORTIS N.V.'S IN-HOUSE COUNSEL IV-E FORM OF OPINION OF LENDERS' NETHERLANDS COUNSEL IV-F FORM OF OPINION OF FORTIS SA/NV'S IN-HOUSE COUNSEL IV-G FORM OF OPINION OF GUARANTORS' BELGIAN COUNSEL IV-H FORM OF OPINION OF GUARANTORS' NEW YORK COUNSEL V FORM OF CERTIFICATE RE NON-BANK STATUS VI FORM OF GUARANTY VII FORM OF FINANCIAL CONDITION CERTIFICATE VIII FORM OF ASSIGNMENT AGREEMENT IX FORM OF JOINDER AGREEMENT iv |
$1,100,000,000 CREDIT AGREEMENT SCHEDULES 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 3.1F EXISTING INTERCOMPANY OBLIGATIONS 4.1C SUBSIDIARIES 4.7 LITIGATION 4.12 ERISA 6.2 INDEBTEDNESS 6.3A EXISTING INVESTMENTS 6.3B INVESTMENT GUIDELINES 6.4 APPLICABLE ORDERS AND AGREEMENTS 6.9 TRANSACTIONS WITH AFFILIATES |
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of December 19, 2003 and entered into by and among Fortis, Inc., a Nevada corporation ("FORTIS" or the "BORROWER"), the banks and financial institutions listed on the signature pages hereof (together with their respective successors and assigns, each individually referred to herein as a "LENDER" and collectively as "LENDERS"), Citigroup Global Markets Inc. ("CGMI") and Morgan Stanley Senior Funding, Inc. ("MSSF") as joint bookrunners (the "JOINT BOOKRUNNERS"), CGMI, MSSF and Banc One Capital Markets, Inc. as joint lead arrangers (the "JOINT LEAD ARRANGERS"), MSSF as syndication agent (the "SYNDICATION AGENT"), Citicorp North America Inc. as documentation agent (the "DOCUMENTATION AGENT") and Bank One, NA as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT").
PRELIMINARY STATEMENTS
The Borrower has requested, and the Lenders have agreed to extend, the credit facility hereinafter described in the amount and on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders, the Joint Bookrunners, the Joint Lead Arrangers, the Syndication Agent, the Documentation Agent and the Administrative Agent agree as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
The following terms used in this Agreement shall have the following meanings:
"ADDITIONAL PARENT DEBT" means short-term Indebtedness owing by the Borrower to either of the Guarantors or any of their Affiliates and incurred in the ordinary course of business of the Borrower and consistent with past business practice.
"ADMINISTRATIVE AGENT" has the meaning assigned to that term in the introduction to this Agreement.
"AFFECTED LENDER" has the meaning assigned to that term in
Section 2.6B.
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"AFFECTED LOANS" has the meaning assigned to that term in
Section 2.6B.
"AFFILIATE" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 10% or more of the Securities having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.
"AGENTS" means the Administrative Agent, the Syndication Agent and the Documentation Agent, collectively, and also means and includes any successor Administrative Agent appointed pursuant to Section 9.5.
"AGREEMENT" means this Credit Agreement as it may be amended, supplemented or otherwise modified from time to time.
"APPLICABLE INSURANCE REGULATORY AUTHORITY" means, when used with respect to any Insurance Subsidiary, the insurance department or similar administrative authority or agency located in (x) the state or other jurisdiction in which such Insurance Subsidiary is domiciled or (y) to the extent asserting regulatory jurisdiction over such Insurance Subsidiary, each state or other jurisdiction in which such Insurance Subsidiary is licensed or conducts business, and shall include any Federal insurance regulatory department, authority or agency that may be created and that asserts regulatory jurisdiction over such Insurance Subsidiary.
"APPLICABLE MARGIN (BORROWER RATE)" means, as of any date, a percentage per annum determined by reference to the applicable Performance Level with respect to the Borrower in effect on such date, as set forth below:
PERFORMANCE LEVEL (BORROWER) LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI -------------------------------------------------------------------------------------------------------- BASE RATE APPLICABLE MARGIN 0% 0% 0% 0.125% 0.625% 1.50% LIBOR APPLICABLE MARGIN 0.70% 0.70% 0.875% 1.125% 1.625% 2.50% |
$1,100,000,000 CREDIT AGREEMENT
"APPLICABLE MARGIN (GUARANTOR RATE)" means, as of any date, a percentage per annum determined by reference to the applicable Performance Level with respect to the Guarantors in effect on such date, as set forth below:
PERFORMANCE LEVEL (GUARANTOR) LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI ----------------------------- ------- -------- --------- -------- ------- -------- BASE RATE APPLICABLE MARGIN 0% 0% 0% 0% 0% 0.125% ---- ----- ----- ----- ---- ----- LIBOR APPLICABLE MARGIN 0.40% 0.625% 0.75% 0.875% 1.00% 1.125% ---- ----- ----- ----- ---- ----- |
; provided, that the definition of Applicable Margin (Guarantor Rate) hereunder shall be deemed modified (without the consent of any Person) to the extent necessary to incorporate by reference any amendments, modifications or supplements to the interest rate provisions of the Existing Parent Facility, to the extent that any such amendment, modification or supplement results in an increase in such interest rates under the Existing Parent Facility.
"APPLICABLE RESERVE REQUIREMENT" means, at any time, for any LIBOR Rate Loan, the maximum rate, expressed as a decimal, at which reserves (including, without limitation, any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against "Eurocurrency liabilities" (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator. Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the applicable LIBOR or any other interest rate of a Loan is to be determined, or (ii) any category of extensions of credit or other assets which include LIBOR Rate Loans. A LIBOR Rate Loan shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credit for proration, exceptions or offsets that may be available from time to time to the applicable Lender. The rate of interest on LIBOR Rate Loans shall be adjusted automatically on and as of the effective date of any change in the Applicable Reserve Requirement.
"ASSET SALE" means a sale, lease or sub-lease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer or other disposition to, or any exchange of property with, any Person (other than the Borrower or its wholly-owned Subsidiaries), in one transaction or a series of transactions, of all or any part of the Borrower's or any of
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its Subsidiaries' businesses, properties or assets of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, including, without limitation, the Capital Stock of any Subsidiary of the Borrower, other than (A) such businesses, properties or assets sold in the ordinary course of business and consistent with past business practice of the Borrower and its Subsidiaries, (B) any transaction or series of related transactions in which the Borrower or any of its Subsidiaries receives aggregate consideration of $500,000 or less (up to a maximum amount of $10,000,000 in the aggregate for all such transactions), (C) the Ohio Sale/leaseback Transaction (up to a maximum amount of $25,000,000) and (D) other transactions or series of related transactions for which the fair market value of the assets subject thereto (as determined in good faith by the board of directors of the Borrower or such Subsidiary (or similar governing body) engaging in such transactions) does not, together with all such transactions, exceed $20,000,000 in the aggregate.
"ASSIGNMENT AGREEMENT" means an Assignment Agreement substantially in the form of Exhibit VIII, with such amendments or modifications as may be approved by the Administrative Agent.
"ASSURANT" means Assurant, Inc., a Delaware corporation and, on the Closing Date, a wholly-owned Subsidiary of the Borrower.
"ASSURANT COMMERCIAL PAPER DEBT" means short-term Indebtedness incurred by the Borrower in the ordinary course of business of the Borrower and pursuant to the Borrower's commercial paper program.
"ASSURANT IPO" means the initial public offering by Fortis Insurance, N.V. of the Borrower Common Stock.
"ASSURANT REINCORPORATION" means the merger of Fortis with and into Assurant, for the purpose of reincorporating Fortis in the State of Delaware, after which Assurant will be domiciled in the State of Delaware and will be the successor to the business, operations and obligations of Fortis.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute.
"BASE RATE" means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"BASE RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Base Rate.
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"BORROWER" has the meaning assigned to that term in the introduction to this Agreement; provided, that, upon consummation of the Assurant Reincorporation and compliance with Section 5.9(iii), the Borrower shall mean Assurant, as the successor to Fortis.
"BORROWER COMMON STOCK" means the common Capital Stock of the Borrower.
"BUSINESS DAY" means (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state or in Chicago, Illinois are authorized or required by law or other governmental action to close and any day on which commercial banks and foreign exchange markets do not settle payments in Dollars, and (ii) with respect to all notices, determinations, fundings and payments in connection with the LIBOR Rate or any LIBOR Rate Loans, any day that is a Business Day described in clause (i) above and that is also a day for trading by and between banks in Dollar deposits in the London interbank market.
"CAPITAL LEASE", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person.
"CAPITAL SECURITIES" means (i) the $150,000,000 liquidation amount of 8.40% Capital Securities, Series A due 2027 issued by Fortis Capital Trust and/or (ii) the $50,000,000 liquidation amount of 7.94% Capital Securities, Series B due 2027 issued by Fortis Capital Trust II.
"CAPITAL STOCK" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.
"CASH" means money, currency or a credit balance in any demand or deposit account.
"CASH EQUIVALENTS" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any
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such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; and (v) shares of any money market mutual fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's.
"CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in the form of Exhibit V annexed hereto delivered by a Lender to the Administrative Agent pursuant to Section 2.5B(iii)(b).
"CHANGE OF CONTROL" means:
(a) at any time prior to the consummation of the Assurant IPO,
(i) the Guarantors, collectively, shall cease to beneficially own and control at
least 51% on a fully diluted basis of the economic and voting interests in the
Capital Stock of the Borrower or (ii) the majority of the seats (other than
vacant seats) on the board of directors (or similar governing body) of the
Borrower cease to be occupied by Persons who either (A) were members of the
board of directors of the Borrower on the Closing Date or (B) were nominated for
election by the board of directors of the Borrower, a majority of whom were
directors on the Closing Date or whose election or nomination for election was
previously approved by a majority of such directors; or
(b) at any time upon or following the consummation of the Assurant IPO, any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) (i) shall have acquired beneficial ownership of 30% or more on a fully diluted basis of the voting and/or economic interest in the Capital Stock of the Borrower or (ii) shall have obtained the power (whether or not exercised) to elect a majority of the members of the board of directors (or similar governing body) of the Borrower.
"CLOSING DATE" means the date on or after December 1, 2003 but before December 31, 2003, on which the initial Loans are made.
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"COMMITMENT" means the commitment of a Lender to make a Loan to the Borrower pursuant to Section 2.1A, and "COMMITMENTS" means such commitments of all Lenders in the aggregate.
"COMPLIANCE CERTIFICATE" means a certificate of the chief financial officer, treasurer or controller of the Borrower setting forth computations in reasonable detail satisfactory to the Administrative Agent (i) demonstrating compliance with the covenants set forth in Section 6.11, as at the end of the period covered by the financial statements being delivered with such certificate and (ii) certifying that such officer has obtained no knowledge of any Potential Event of Default or Event of Default except as specified in such certificate.
"CONSOLIDATED ADJUSTED EBIT" means, in respect of the Borrower
and its Subsidiaries on a consolidated basis, for any period, an amount equal to
the sum, without duplication, of the amounts for such period of (a) Consolidated
Net Income, (b) Consolidated Financing Expense and (c) provisions for taxes
based on income, but excluding (i) deferred gains and losses on business asset
sales and divestitures, (ii) any after-tax prepayment penalties incurred with
respect to the Capital Securities and the Existing Intercompany Obligations and
(iii) non-recurring costs associated with the consummation of the Assurant IPO.
"CONSOLIDATED ADJUSTED NET WORTH" means, as at any date of determination, the sum of the amounts that would, in accordance with GAAP, be included on the consolidated balance sheet of the Borrower and its Subsidiaries as of such date as (a) "common shareholders' equity" and (b) "preferred stock", but excluding (i) treasury stock, (ii) Disqualified Capital Stock and (iii) the effects of Financial Accounting Statement No. 115.
"CONSOLIDATED CAPITALIZATION" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, as at any date of determination, the sum of Consolidated Total Debt plus Consolidated Adjusted Net Worth.
"CONSOLIDATED FINANCING EXPENSE" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, for any period, total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) with respect to all outstanding Indebtedness during such period of the Borrower and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to any letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements and Currency Agreements.
"CONSOLIDATED NET INCOME" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, for any period, (i) the net income (or loss) for the Borrower and its Subsidiaries for such period taken as a single accounting period
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determined in conformity with GAAP, minus (ii) (a) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries or that Person's assets are acquired by the Borrower or any of its Subsidiaries, (b) any after-tax gains or losses attributable to returned surplus assets of any Pension Plan, and (c) (to the extent not included in clauses (a) and (b) above) any net extraordinary gains or net extraordinary losses.
"CONSOLIDATED TOTAL DEBT" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness, determined on a consolidated basis in accordance with GAAP, but excluding (i) Indebtedness constituting letters of credit issued for insurance regulatory purposes and for which adequate insurance reserves or other appropriate provisions consistent with Borrower's past practice have been made therefor and (ii) for the Fiscal Quarter ending December 31, 2003 only, Indebtedness with respect to the Capital Securities.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of any securities issued by that Person or of any indenture, mortgage, deed of trust, or other material contract, undertaking, agreement or other material instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.
"CONVERSION/CONTINUATION DATE" means the effective date of a continuation or conversion, as the case may be, as set forth in the applicable Conversion/Continuation Notice.
"CONVERSION/CONTINUATION NOTICE" means a
Conversion/Continuation Notice substantially in the form of Exhibit II.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement.
"DEBT ISSUANCE" means the issuance by the Borrower or any of its Subsidiaries of debt Securities.
"DEMAND NOTE" means that certain Demand Note, dated December 16, 2003, executed by the Borrower in favor of MSSF, which evidences a $650,000,000 loan made by MSSF to the Borrower, as the same may be amended, modified or otherwise supplemented from time to time.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock (other than Capital Stock that is solely redeemable, or at the election of the Borrower (not
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subject to any condition), may be redeemed, with Capital Stock that is not Disqualified Capital Stock) which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof, on or prior to May 31, 2005.
"DOCUMENTATION AGENT" has the meaning assigned to that term in the introduction to this Agreement.
"DOLLARS" and the sign "$" mean the lawful money of the United States of America.
"ELIGIBLE ASSIGNEE" means (A) any Lender and any Affiliate of any Lender; and (B) any commercial bank, savings and loan association, savings bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses; provided that no Affiliate of the Borrower or any of its Subsidiaries or any Guarantor or any of its Subsidiaries shall be an Eligible Assignee.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was maintained or contributed to by the Borrower or any of its Subsidiaries or, in the case of any such plan subject to Title IV of ERISA, by any of their respective ERISA Affiliates.
"ENVIRONMENTAL CLAIM" means any investigation, notice, notice
of violation, claim, action, suit, proceeding, demand, abatement order or other
order or directive (conditional or otherwise), by any Governmental Authority or
any other Person, arising (i) pursuant to or in connection with any actual or
alleged violation of any Environmental Law, (ii) in connection with any
Hazardous Materials or any actual or alleged Hazardous Materials Activity or
(iii) in connection with any actual or alleged damage, injury, threat or harm to
health, safety, natural resources or the environment.
"ENVIRONMENTAL LAWS" means any and all current or future
federal, state, local and foreign laws and regulations, statutes, ordinances,
orders, rules, guidance documents, judgments, Governmental Authorizations, or
any other requirements of Governmental Authorities relating to (i) environmental
matters, including those relating to any Hazardous Materials Activity, (ii) the
generation, use, storage, transportation or disposal of Hazardous Materials, or
(iii) occupational safety and health, industrial hygiene, land use or the
protection of human health or the environment, in any manner applicable to the
Borrower or any of its Subsidiaries or any Facilities.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto.
"ERISA AFFILIATE" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member.
"ERISA EVENT" means (i) a "reportable event" within the
meaning of Section 4043 of ERISA and the regulations issued thereunder with
respect to any Pension Plan (excluding those for which the provision for 30-day
notice to the PBGC has been waived by regulation); (ii) the failure to meet the
minimum funding requirements of Section 412 of the Internal Revenue Code with
respect to any Pension Plan (whether or not waived in accordance with Section
412(d) of the Internal Revenue Code) or the failure to make by its due date a
required installment under Section 412(m) of the Internal Revenue Code with
respect to any Pension Plan; (iii) the provision by the administrator of any
Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to
terminate such plan in a distress termination described in Section 4041(c) of
ERISA or the commencement of proceedings by the PBGC to terminate a pension plan
or the appointment of a trustee to administer a pension plan; (iv) the
withdrawal by the Borrower, any of its Subsidiaries or any of their respective
ERISA Affiliates from any Pension Plan with two or more contributing sponsors or
the termination of any such Pension Plan resulting in liability pursuant to
Section 4063 or 4064 of ERISA; (v) the occurrence of an event or condition that
could reasonably be expected to give rise to the imposition of liability on the
Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates
pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of
Section 4212(c) of ERISA; (vi) the filing of a material claim (other than
routine claims for benefits) against any Employee Benefit Plan other than a
Multiemployer Plan or the assets thereof, or against the Borrower, any of its
Subsidiaries or any of their respective ERISA Affiliates in connection with any
Employee Benefit Plan; or (vii) the imposition of a Lien pursuant to Section
401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with
respect to any Pension Plan.
"EVENT OF DEFAULT" means each of the events set forth in
Section 7.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.
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"EXISTING INTERCOMPANY OBLIGATIONS" means the Indebtedness of the Borrower to the Guarantors and their Affiliates as of the Closing Date; provided, that, for the avoidance of doubt, any Indebtedness repaid with the proceeds of the loan evidenced by the Demand Note shall not constitute Existing Intercompany Obligations.
"EXISTING PARENT FACILITY" means that certain EUR2,000,000,000 Multicurrency Revolving Credit Agreement, dated June 28, 1999, by and among Fortis Finance N.V., as borrower thereunder, the Guarantors, as guarantors thereunder, and the other institutions party thereto, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms of the Guaranty.
"FACILITIES" means any and all real property (including, without limitation, all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by the Borrower or any of its Subsidiaries or any of their respective predecessors or Affiliates.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 11:00 a.m. (New York City time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion.
"FEE LETTER" means those fee letters, each dated on or prior to the Closing Date, among the Borrower and the Lenders party thereto, and the Borrower and the Administrative Agent, respectively, in each case as the same may be amended, supplemented or otherwise modified from time to time.
"FINANCIAL CONDITION CERTIFICATE" means an officer's certificate in the form of Exhibit VII hereto.
"FISCAL QUARTER" means a fiscal quarter of any Fiscal Year.
"FISCAL YEAR" means the fiscal year of the Borrower and its Subsidiaries ending on December 31 of each calendar year. For purposes of this Agreement, any particular Fiscal Year shall be designated by reference to the calendar year in which such Fiscal Year ends.
"FORTIS" has the meaning assigned to that term in the introduction to this Agreement.
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"FUNDING AND PAYMENT OFFICE" means the office of the Administrative Agent as set forth under the Administrative Agent's name on the signature pages hereof, or such other office designated in a written notice delivered by the Administrative Agent to the Borrower and each Lender.
"GAAP" means, subject to the limitations on the application thereof set forth in Section 1.2, (i) with respect to the Borrower and its Subsidiaries, generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of determination, and (ii) with respect to the Guarantors and their Subsidiaries, "GAAP" as defined in the Guaranty.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government, and shall include any Applicable Insurance Regulatory Authority.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority.
"GUARANTOR" means each of (i) Fortis N.V., a public company with limited liability (naamloze vennootschap) incorporated under the laws of The Netherlands having its statutory seat (statutaire zetel) at Utrecht, The Netherlands and registered with the Chamber of Commerce in Utrecht under number 30072145 and (ii) Fortis SA/NV, a public company with limited liability (societe anonyme/naamloze vennootschap) incorporated in Belgium and registered with the register of legal persons (rechtspersonenregister), Brussels, under company number 0451406524 (formerly registered with the Brussels Trade Register under No. 577.615), and their respective successors and assigns.
"GUARANTOR CHANGE OF CONTROL" means any time that either Guarantor consummates any merger or consolidation or sells, transfers or leases all or substantially all of such Guarantor's assets, except to another Person that (x) assumes the rights and obligations of such Guarantor under the Guaranty pursuant to an agreement in form and substance satisfactory to the Administrative Agent and the Lenders and (y) at the time of such assignment or transfer, such Person assuming the rights or obligations of such
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Guarantor under the Guaranty has a credit rating equal to or higher than such Guarantor, as measured by both S&P and Moody's.
"GUARANTOR CONTRIBUTION" means the contribution in Cash to the capital of the Borrower, directly or indirectly, by the Guarantors (in exchange for equity of the Borrower) in an aggregate amount equal to the sum of (i) $650,000,000, plus (ii) certain additional amounts as may be deemed to be necessary by the Borrower and the Guarantors in connection with certain items, including, without limitation, the repayment of the Existing Intercompany Obligations, the repayment or redemption of the Capital Securities, and the Assurant IPO, in each case, including, without limitation, amounts required to enable the Borrower to pay penalties, accrued interest, fees and premiums and to redeem preferred stock, plus (iii) the principal amount of, and any accrued interest on, any Additional Parent Debt.
"GUARANTY" means that certain Guaranty made by each of the Guarantors substantially in the form attached hereto as Exhibit VI, as such agreement may be amended, supplemented or otherwise modified from time to time.
"GUARANTY FALL-AWAY DATE" has the meaning assigned to that term in the Guaranty.
"GUARANTY OBLIGATIONS" means all obligations of every nature of the Guarantors under the Guaranty.
"HAZARDOUS MATERIALS" means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Environmental Law or which poses a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing.
"HYBRID SECURITIES" means any preferred Securities which have
the following characteristics (and which shall include the Capital Securities):
(i) a wholly-owned Subsidiary of the Borrower which is a Delaware business trust
(or similar entity) lends substantially all of the proceeds from the issuance of
such preferred Securities to the Borrower or another wholly-owned Subsidiary of
the Borrower in exchange for junior subordinated debt Securities issued by the
Borrower or such other wholly-owned
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Subsidiary (as the case may be), (ii) such preferred Securities contain terms providing for the deferral of interest payments corresponding to provisions providing for the deferral of interest payments on such junior subordinated debt Securities and (iii) the Borrower or such wholly-owned Subsidiary of the Borrower (as the case may be) makes periodic interest payments on such junior subordinated debt Securities, which interest payments are in turn used to make corresponding payments to the holders of the preferred Securities.
"INDEBTEDNESS", as applied to any Person, means (i) all
indebtedness for borrowed money, (ii) that portion of obligations with respect
to Capital Leases that is properly classified as a liability on a balance sheet
in conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation owed for all or any part of the deferred purchase price of
property or services (excluding any such obligations incurred under ERISA),
which purchase price is (a) due more than six months from the date of incurrence
of the obligation in respect thereof or (b) evidenced by a note or similar
written instrument, (v) all indebtedness secured by any Lien on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person, (vi) the face amount of any letter of credit issued for
the account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings; (vii) the direct or indirect guaranty, endorsement
(otherwise than for collection or deposit in the ordinary course of business),
co-making, discounting with recourse or sale with recourse by such Person of the
obligation of another of the type described in clauses (i) through (vi) above
and clauses (x) and (xi) below; (viii) any obligation of such Person the primary
purpose or intent of which is to provide assurance to an obligee that the
obligation of the obligor thereof will be paid or discharged, or any agreement
relating thereto will be complied with, or the holders thereof will be protected
(in whole or in part) against loss in respect thereof (other than customary and
reasonable, unmatured and unpaid indemnity obligations with respect to the
Contractual Obligations of the Borrower or a wholly-owned Subsidiary of the
Borrower); (ix) any liability of such Person for an obligation of another
through any agreement (contingent or otherwise) (a) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise) or (b) to
maintain the solvency or any balance sheet item, level of income or financial
condition of another if, in the case of any agreement described under subclause
(a) or (b) of this clause (ix), the primary purpose or intent thereof is as
described in clause (viii) above; (x) all obligations of such Person in respect
of any Interest Rate Agreement and Currency Agreement; and (xi) all obligations
of such Person in respect of any Hybrid Securities.
"INDEBTEDNESS TO CAPITALIZATION RATIO" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, the ratio of (i) Consolidated Total
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Debt as of the last day of any Fiscal Quarter to (ii) Consolidated Capitalization as of such date.
"INDEMNITEE" has the meaning assigned to that term in Section 8.3.
"INDEMNIFIED LIABILITIES" has the meaning assigned to that term in Section 8.3.
"INSURANCE BUSINESS" means one or more aspects of the business of selling, issuing or underwriting insurance or reinsurance.
"INSURANCE CONTRACT" means any insurance binder, contract or policy issued by an Insurance Subsidiary but shall not include any Reinsurance Agreement or Retrocession Agreement.
"INSURANCE LICENSES" means, with respect to each Insurance Subsidiary, licenses (including, without limitation, licenses or certificates of authority from Applicable Insurance Regulatory Authorities), permits or authorizations to transact Insurance Business held, or required to be held, by such Insurance Subsidiary.
"INSURANCE SUBSIDIARY" means any Subsidiary of the Borrower that is licensed to conduct, or conducts or is engaged in, an Insurance Business.
"INTEREST COVERAGE RATIO" means, in respect of the Borrower and its Subsidiaries on a consolidated basis, the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Adjusted EBIT for the four Fiscal Quarter period then ended, to (ii) Consolidated Financing Expense for such four Fiscal Quarter period.
"INTEREST PAYMENT DATE" means with respect to: (i) any Base Rate Loan, the last day of each Fiscal Quarter of each year, commencing on the first such date to occur after the Closing Date, and the Maturity Date; and (ii) any LIBOR Rate Loan, the last day of the Interest Period applicable to such Loan and, if such Interest Period is longer than three months, each day during such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period.
"INTEREST PERIOD" has the meaning assigned to that term in
Section 2.2B.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest Period, the second Business Day prior to the first day of such Interest Period.
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"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute.
"INVESTMENT" means (i) any direct or indirect purchase or
other acquisition by the Borrower or any of its Subsidiaries of, or of a
beneficial interest in, any Securities of any other Person, (ii) any direct or
indirect redemption, retirement, purchase or other acquisition for value, by any
Subsidiary of the Borrower from any Person of any Capital Stock of such Person,
(iii) any direct or indirect loan, advance (other than advances to employees for
moving, entertainment and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution by the
Borrower or any of its Subsidiaries to any other Person, including all
indebtedness and accounts receivable from that other Person that are not current
assets or did not arise from sales to that other Person in the ordinary course
of business, and (iv) any other asset classified as an "investment" in
accordance with GAAP or included in Total Invested Assets in accordance with
SAP. The amount of any Investment shall be the original cost of such Investment
plus the cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment.
"JOINDER AGREEMENT" means a Joinder Agreement substantially in the form of Exhibit IX, with such amendments or modifications as may be approved by the Administrative Agent.
"JOINT BOOKRUNNERS" has the meaning assigned to that term in the introduction to this Agreement.
"JOINT LEAD ARRANGERS" has the meaning assigned to that term in the introduction to this Agreement.
"JOINT VENTURE" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that in no event shall any Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party.
"LENDER" and "LENDERS" have the meanings assigned to that term in the introduction to this Agreement, and shall include any other Person that shall become a party hereto pursuant to an Assignment Agreement, and shall not include any Person that ceases to be a party hereto pursuant to an Assignment Agreement.
"LIBOR" means, with respect to a LIBOR Rate Loan for the relevant Interest Period, the result of (i) the applicable British Bankers' Association LIBOR rate for deposits in Dollars as reported by any generally recognized financial information service as of 11:00 a.m. (London time) on the Interest Rate Determination Date, and
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having a maturity equal to such Interest Period; provided that, if no such British Bankers' Association LIBOR rate is available to the Administrative Agent, LIBOR for the relevant Interest Period shall instead be the rate determined by the Administrative Agent to be the rate at which the Administrative Agent or one of its Affiliate banks offers to place deposits in Dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) on the Interest Rate Determination Date, in the approximate amount of the relevant LIBOR Rate Loan of the Administrative Agent (in its capacity as a Lender) and having a maturity equal to such Interest Period divided by (ii) a percentage equal to (x) one minus (y) the Applicable Reserve Requirement.
"LIBOR RATE LOAN" means any Loan bearing interest at a rate calculated on the basis of LIBOR.
"LIEN" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing.
"LOAN DOCUMENTS" means this Agreement, the Notes, the
Guaranty, the Fee Letter and (when delivered in accordance with Section
5.9(iii)) the Joinder Agreement, in each case as amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof and
Section 8.5 herein.
"LOANS" means the loans made by the Lenders to the Borrower pursuant to Section 2.1.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon
(i) the business, operations, properties, assets, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole,
(ii) the ability of the Borrower or either of the Guarantors to perform,
respectively, any of the Obligations of the Borrower or the obligations of
either of the Guarantors under the Guaranty or (iii) the legality, validity,
binding effect or enforceability against the Borrower or either of the
Guarantors of a Loan Document to which it is a party.
"MATERIAL SUBSIDIARY" means, at any time, a Subsidiary of the Borrower that as of the end of the most recently completed Fiscal Year had total assets exceeding $5,000,000 or for such Fiscal Year had total revenues exceeding $25,000,000, in each case as determined by reference to the most recent audited consolidated financial statements for the Borrower and its Subsidiaries and of such Subsidiary.
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"MATURITY DATE" means the earliest to occur of (i) May 14, 2004 if the Assurant IPO has not been consummated prior to such date, (ii) December 17, 2004 or (iii) such date that the Commitments are reduced in whole or terminated and/or the Obligations become due and payable pursuant to Section 2.4 or Section 7.
"MOODY'S" means Moody's Investor Services, Inc.
"MSSF" has the meaning assigned to that term in the introduction to this Agreement.
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA.
"NAIC" means the National Association of Insurance Commissioners and any successor thereto.
"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, an amount equal to the difference of (i) Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received from such Asset Sale, minus (ii) any actual and reasonable documented costs incurred in connection with such Asset Sale, including (a) income, gains or other taxes or governmental charges reasonably estimated to be actually payable in connection with such Asset Sale related to the year of sale and (b) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale.
"NET INSURANCE/CONDEMNATION PROCEEDS" means the difference of
(i) any Cash payments or proceeds received by Borrower or any of its
Subsidiaries (a) under any business interruption or casualty insurance policy in
respect of a covered loss thereunder or (b) as a result of the taking of any
assets of Borrower or any of its Subsidiaries by any Person pursuant to the
power of eminent domain, condemnation or otherwise, or pursuant to a sale of any
such assets to a purchaser with such power under threat of such a taking, minus,
in each case, (ii) (a) any actual and reasonable documented costs incurred by
Borrower or any of its Subsidiaries in connection with the adjustment or
settlement of any claims of Borrower or such Subsidiary in respect thereof, and
(b) any actual and reasonable documented direct costs incurred in connection
with any sale of such assets as referred to in clause (i)(b) of this definition,
including income taxes reasonably estimated to be actually payable as a result
of any gain recognized in connection therewith.
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"NON-US LENDER" has the meaning assigned to that term in
Section 2.5B(iii)(a).
"NOTES" means (i) the promissory notes of the Borrower issued pursuant to Section 2.1D on the Closing Date with respect to the Loans and (ii) any promissory notes issued by the Borrower pursuant to Section 8.1E in connection with assignments of the Loans, in each case substantially in the form of Exhibit III annexed hereto, as they may be amended, supplemented or otherwise modified from time to time.
"NOTICE OF BORROWING" means a notice substantially in the form of Exhibit I annexed hereto delivered by the Borrower to the Administrative Agent pursuant to Section 2.1B with respect to a proposed borrowing of the Loans.
"OBLIGATIONS" means all obligations of every nature of the Borrower from time to time owed to the Agents, the Lenders or any of them under any of the Loan Documents.
"OFFICERS' CERTIFICATE" means, as applied to any corporation, a certificate executed on behalf of such corporation by its chairman of the board (if an officer) or its president or one of its vice presidents and by its chief financial officer or its treasurer or, as applied to any limited partnership, a certificate executed on behalf of such limited partnership by the chairman of the board (if an officer) or the president or one of the vice presidents and by the chief financial officer or treasurer of the general partner of such limited partnership, or, if the general partner of such limited partnership is an individual, executed by such individual; provided that every Officers' Certificate with respect to the compliance with a condition precedent to the making of any Loans hereunder shall include: (i) a statement that the officer or officers making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with, and (iii) a statement as to whether, in the opinion of the signers, such condition has been complied with.
"OHIO SALE/LEASEBACK TRANSACTION" means the arrangement with any Person providing for the leasing by the Borrower or one of its Subsidiaries of the property of such Borrower or such Subsidiary located in Springfield, Ohio, which property has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person.
"ORGANIZATIONAL DOCUMENTS" means (i) with respect to any corporation, its certificate or articles of incorporation or organization, as amended, and its by-laws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership,
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as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended. In the event any term or condition of this Agreement or any other Loan Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such "Organizational Document" shall only be to a document of a type customarily certified by such governmental official.
"OTHER BRIDGE FACILITY" means that certain $650,000,000 Credit Agreement, dated as of the date hereof, among the Borrower, the banks and financial institutions party thereto, MSSF as Bookrunner, Lead Arranger and Administrative Agent, Merrill Lynch Capital Corp. as Syndication Agent and Credit Suisse First Boston (acting through its Cayman Islands branch) as Documentation Agent.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto.
"PERMITTED ACQUISITIONS" means any acquisition by the Borrower or any of its wholly-owned Subsidiaries, whether by purchase, merger or otherwise, of all or substantially all of the assets of, all of the Capital Stock of, or a business line or unit or a division of, any Person; provided, (i) immediately prior to, and after giving effect thereto, no Potential Event of Default or Event of Default shall have occurred and be continuing or would result therefrom; (ii) all transactions in connection therewith shall be consummated, in all material respects, in accordance with all applicable laws and in conformity with all applicable Governmental Authorization; (iii) in the case of the acquisition of Capital Stock, all of the Capital Stock (except for any such Securities in the nature of directors' qualifying shares required pursuant to applicable law) acquired or otherwise issued by such Person or any newly formed wholly-owned Subsidiary of the Borrower in connection with such acquisition shall be owned 100% by the Borrower or such Subsidiary thereof, as applicable; (iv) the Borrower shall be in compliance with the financial covenants set forth in Section 6.11 on a pro forma basis after giving effect to such acquisition as of the last day of the Fiscal Quarter most recently ended, (as determined in accordance with Section 6.11(v)); (v) the Borrower shall have delivered to Administrative Agent (A) reasonably in advance of such acquisition, a Compliance Certificate evidencing compliance with Section 6.11 as required under clause (iv) above, together with all relevant financial information with respect to such acquired assets, including, without limitation, the aggregate consideration for such acquisition and any other information required to demonstrate compliance with Section 6.11; and (vi) any Person or assets or division as acquired in accordance herewith shall be in same business or lines of business in which the Borrower and/or its Subsidiaries are engaged as of the Closing Date.
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"PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA.
"PERFORMANCE LEVEL" means, with respect to the Borrower or a Guarantor, as the case may be, Performance Level I, Performance Level II, Performance Level III, Performance Level IV, Performance Level V or Performance Level VI, as identified by reference to the public debt rating of the Borrower or such Guarantor, as the case may be, in effect on such date as set forth below:
PERFORMANCE LEVEL PUBLIC DEBT RATING ----------------- ------------------ Level I Long Term Senior Unsecured Debt rated greater than or equal to A by S&P or A2 by Moody's Level II Long Term Senior Unsecured Debt rated greater than or equal to A- by S&P or A3 by Moody's Level III Long Term Senior Unsecured Debt rated greater than or equal to BBB+ by S&P or Baa1 by Moody's Level IV Long Term Senior Unsecured Debt rated greater than or equal to BBB by S&P or Baa2 by Moody's Level V Long Term Senior Unsecured Debt rated greater than or equal to BBB- by S&P or Baa3 by Moody's Level VI Long Term Senior Unsecured Debt rated less than or equal to BB+ by S&P or Ba1 by Moody's, and at all other times (including if such ratings are not available from both S&P and Moody's) |
For purposes of this definition, the Performance Level shall be determined by the applicable public debt rating for the Borrower or a Guarantor, as the case may be, as follows: (i) the public debt ratings shall be determined by the then-current rating announced by either S&P or Moody's, as the case may be, for any class of non-credit-enhanced long-term senior unsecured debt issued by the Borrower or a Guarantor, as applicable; (ii) if only one of S&P and Moody's shall have in effect such a public debt rating, the Performance Level will be Level VI (except as a result of either S&P or Moody's, as the case may be, ceasing to be in the business of issuing public debt ratings, in which case the Performance Level shall be determined by reference to the available rating); (iii) if neither S&P nor Moody's shall have in effect such a public debt rating, the applicable Performance Level will be Level VI; (iv) if such public debt ratings established by S&P and Moody's shall fall within different levels, or shall fall within different levels with respect to each Guarantor, in each case the public debt rating will be determined by the higher of the two ratings, provided, that in the event that the lower of
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such public debt ratings is more than one level below the higher of such public debt ratings, the public debt rating will be determined based upon the level that is one level above the lower of such public debt ratings; (v) if any such public debt rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change; and (vi) if S&P or Moody's shall change the basis on which such public debt ratings are established, or shall change its respective rating system, each reference to the public debt rating announced by S&P or Moody's, as the case may be, shall refer to the then-equivalent rating by S&P or Moody's, as the case may be.
"PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities.
"PHCS" means Private Health Care Systems, Inc., a Delaware corporation and an Affiliate of the Borrower.
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.
"PRIME RATE" means a rate per annum equal to the prime rate of interest announced from time to time by Bank One, NA (which is not necessarily the lowest rate charged to any customer), changing when and as such prime rate changes.
"PRO RATA SHARE" means, (A) prior to the making of the Loans with respect to each Lender the percentage obtained by dividing (i) the aggregate principal amount of such Lender's Commitment by (ii) the aggregate principal amount of all Commitments, and (B) after the making of the Loans with respect to each Lender the percentage obtained by dividing (i) the principal amount of such Lender's Loans by (ii) the aggregate principal amount of all Loans, in each case as such percentage may be adjusted by assignments permitted pursuant to Section 8.1.
"REINSURANCE AGREEMENT" means any agreement, contract, treaty or other arrangement whereby one or more insurers, as reinsurers, assume liabilities under insurance policies or agreements issued by another insurance or reinsurance company or companies.
"REGISTER" has the meaning assigned to that term in Section 2.1E.
"REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
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"RELATED AGREEMENTS" means the Other Bridge Facility and all other "Loan Documents" as defined therein.
"RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Material), including the movement of any Hazardous Material through the air, soil, surface water or groundwater.
"REPLACEMENT LENDER" has the meaning assigned to that term in
Section 2.7.
"REQUISITE LENDERS" means the Lenders holding more than 66-2/3% of the aggregate outstanding principal amount of the Loans.
"RESTRICTED PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
Capital Stock of the Borrower or any of its Subsidiaries now or hereafter
outstanding, except a dividend payable solely in shares of that class of Capital
Stock to the holders of that class; (ii) any redemption, retirement, sinking
fund or similar payment, purchase or other acquisition for value, direct or
indirect, of any shares of any class of Capital Stock of the Borrower or any of
its Subsidiaries now or hereafter outstanding; (iii) any payment made to retire,
or to obtain the surrender of, any outstanding warrants, options or other rights
to acquire shares of any class of Capital Stock of the Borrower or any of its
Subsidiaries now or hereafter outstanding; (iv) management or similar fees
payable to any Guarantor or any of its Affiliates (other than the Borrower or
any of its wholly-owned Subsidiaries); and (v) any payment or prepayment of
principal of, premium, if any, or interest on, or redemption, purchase,
retirement, defeasance (including in-substance or legal defeasance), sinking
fund or similar payment with respect to, (A) the Capital Securities and any Debt
Issuance permitted by Section 6.2(iii), (B) Additional Parent Debt permitted by
Section 6.2(iv) and (C) Assurant Commercial Paper Debt permitted by Section
6.2(v).
"RETROCESSION AGREEMENT" means any agreement, contract, treaty or other arrangement whereby one or more insurers or reinsurers, as retrocessionaries, assume liabilities of reinsurers under a Reinsurance Agreement or other retrocessionaries under another Retrocession Agreement.
"REVOLVING CREDIT FACILITY" means a multi-year revolving credit facility, dated after the Closing Date, among the Borrower and one or more banks or financial institutions, providing an unsecured revolving credit commitment no greater than $500,000,000 for the Borrower with a maturity date later than the Maturity Date hereunder.
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"S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill Corporation.
"SAP" means, with respect to any Insurance Subsidiary, the accounting procedures and practices prescribed or permitted by the Applicable Insurance Regulatory Authority, applied in accordance with Section 1.2 hereof.
"SECURITIES" means any stock, share, partnership interest, membership interest in a limited liability company, voting trust certificate, certificate of interest or participation in any profit-sharing agreement or arrangement, option, warrant, bond, debenture, note, or other evidence of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute.
"SOLVENT" means, with respect to any Person, that as of the date of determination both (A) (i) the then fair saleable value of the property of such Person is (y) greater than the total amount of liabilities (including contingent liabilities) of such Person and (z) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person has not incurred and does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise); and (B) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
"STATUTORY STATEMENT" means, as to any Insurance Subsidiary, a statement of the condition and affairs of such Insurance Subsidiary, prepared in accordance with SAP, and filed with the Applicable Insurance Regulatory Authority.
"STATUTORY SURPLUS" means, for any Insurance Subsidiary and its Subsidiaries, the "Total Adjusted Capital" (as defined by the NAIC) of such Insurance Subsidiary or Insurance Subsidiaries (as the case may be).
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"SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided, that, notwithstanding the foregoing, it is understood and agreed that (i) Fortis Brussels SA/NV and Fortis Utrecht N.V. are each Subsidiaries of the Guarantors and (ii) no real estate Joint Venture of the Borrower or its Subsidiaries shall be considered a Subsidiary of the Borrower or its Subsidiaries unless such Joint Venture is consolidated on the balance sheet of the Borrower.
"SYNDICATION AGENT" has the meaning assigned to that term in the introduction to this Agreement.
"TAX" means any present or future tax, levy, impost, duty, assessment, charge, deduction or withholding imposed, levied, collected, withheld or assessed by any Governmental Authority.
"TERMINATED LENDER" has the meaning assigned to that term in
Section 2.7.
"TOTAL INVESTED ASSETS" means at any date, for any Insurance Subsidiary and its Subsidiaries (determined on a consolidated basis, without duplication, in accordance with SAP), the amount shown on the most recent available Statutory Statement of such Insurance Subsidiary at p. 2, line 11 (or, if the form of Statutory Statement of such Insurance Subsidiary shall be amended, such other page and line of such amended form as shall reflect the same information).
"TYPE OF LOAN" means a Base Rate Loan or a LIBOR Rate Loan.
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER AGREEMENT.
Except as otherwise expressly provided in this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP or SAP, as applicable. Calculations in connection with the definitions, covenants and other provisions of this Agreement shall utilize accounting principles and policies in effect on the date hereof which are in conformity with those used to prepare the financial statements referred to in Section 4.4. Financial statements and other information required to be delivered by the Borrower to the Administrative Agent pursuant to clauses (i) and
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(ii) of Section 5.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation. In the event that a change in GAAP, SAP or other accounting principles and policies after the date hereof affects in any material respect the calculations of the covenants contained herein, the Lenders and the Borrower agree to negotiate in good faith to amend the affected covenants (and related definitions) to compensate for the effect of such changes so that the restrictions, limitations and performance standards effectively imposed by such covenants, as so amended, are substantially identical to the restrictions, limitations and performance standards imposed by such covenants as in effect on the date hereof; provided that, if the Requisite Lenders and the Borrower fail to reach agreement with respect to such amendment within a reasonable period of time following the date of effectiveness of any such change, calculation of compliance by the Borrower and its Subsidiaries with the covenants contained herein shall be determined in accordance with GAAP or SAP, as applicable, as in effect immediately prior to such change.
1.3 OTHER DEFINITIONAL PROVISIONS AND RULES OF CONSTRUCTION.
A. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference.
B. References to "Sections" and subsections shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided.
C. The use in any of the Loan Documents of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS AND LOANS
2.1 COMMITMENT; MAKING OF LOAN; NOTES.
A. COMMITMENTS. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, each Lender severally agrees to lend to the Borrower during the period from the Closing Date to December 31, 2003 an amount not exceeding its Pro Rata Share of the aggregate amount of the Commitments to be used for the purposes identified in Section 5.8A. The amount of each Lender's Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate amount of the Commitments is $1,100,000,000;
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provided that the Commitments of the Lenders shall be adjusted to give effect to any assignments of the Commitments pursuant to Section 8.1. Each Lender's Commitment shall expire immediately and without further action on December 31, 2003 to the extent Loans are not made by such Lender on or before that date. The Borrower may make up to three separate borrowings under the Commitments. Amounts borrowed under this Section 2.1A and subsequently repaid or prepaid may not be reborrowed.
B. BORROWING MECHANICS. When the Borrower desires that the Lenders make
Loans it shall deliver to the Administrative Agent on behalf of the Lenders a
Notice of Borrowing no later than 11:00 a.m. (New York City time) at least three
(3) Business Days in advance of a proposed Loan in the case of a LIBOR Rate
Loan, and no later than 11:00 a.m. (New York City time) at least one Business
Day in advance of a proposed Loan in the case of a Base Rate Loan (or, with
respect to a proposed Base Rate Loan to be made on the Closing Date, no later
than 10:00 a.m. (New York City time) on the Closing Date). Promptly upon receipt
by the Administrative Agent of such Notice of Borrowing, the Administrative
Agent shall notify each Lender of the proposed borrowing.
C. DISBURSEMENT OF FUNDS. Each Lender shall make its Loan available to the Administrative Agent not later than 12:00 p.m. (New York City time) on the date of each proposed Loan, by wire transfer of same day funds in Dollars, at the Funding and Payment Office. Upon satisfaction or waiver of the conditions precedent specified in Section 3, the Administrative Agent shall make the proceeds of the Loans available to the Borrower on the date of such proposed Loans by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by the Administrative Agent from the Lenders to be credited to the account of the Borrower at the Funding and Payment Office or to such other account as may be designated in writing to the Administrative Agent by the Borrower.
D. NOTES. Upon request by any Lender, the Borrower shall promptly execute and deliver to such Lender (or to the Administrative Agent for that Lender) a Note to evidence that Lender's Loans, in the principal amount of that Lender's Commitment and with other appropriate insertions.
The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by the Administrative Agent as provided in Section 8.1C. Any request, authority or consent of any person or entity who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, assignee or transferee of that Note or of any Note or Notes issued in exchange therefor.
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E. THE REGISTER.
(i) The Administrative Agent shall, on behalf of Borrower, maintain at its Funding and Payment Office a register for the recordation of the names and addresses of the Lenders and the Commitment and Loans of each Lender from time to time (the "REGISTER"). The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.
(ii) The Administrative Agent shall record in the Register the Commitment and the Loans of each Lender, and each repayment or prepayment in respect of the principal amount of such Loans. Any such recordation shall be conclusive and binding on the Borrower and each Lender, absent manifest error; provided that failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Commitment or the Obligations in respect of any applicable Loans.
(iii) Each Lender shall record on its internal records (including the Note held by such Lender) the amount of each Loan made by it and each payment in respect thereof. Any such recordation shall be conclusive and binding on the Borrower, absent manifest error; provided that failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Commitment or the Obligations in respect of any applicable Loans; and provided, further, that in the event of any inconsistency between the Register and any Lender's records, the recordations in the Register shall govern.
(iv) The Borrower, the Administrative Agent and the Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by the Administrative Agent and recorded in the Register as provided in Section 8.1C. Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans.
2.2 INTEREST ON THE LOANS.
A. RATE OF INTEREST; TYPE OF LOAN.
(i) Subject to the provisions of Sections 2.2E, 2.5 and 2.6, each Loan shall bear interest on the unpaid principal amount thereof from the date made through the
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Maturity Date (whether by acceleration or otherwise) at a rate equal to (a) if a Base Rate Loan, the Base Rate plus (i) prior to the Guaranty Fall-Away Date, the Applicable Margin (Guarantor Rate) and (ii) on or after the Guaranty Fall-Away Date, the Applicable Margin (Borrower Rate) or (b) if a LIBOR Rate Loan, the sum of LIBOR plus (i) prior to the Guaranty Fall-Away Date, the Applicable Margin (Guarantor Rate) and (ii) on or after the Guaranty Fall-Away Date, the Applicable Margin (Borrower Rate).
(ii) The basis for determining the rate of interest with respect to any Loan, and the Interest Period with respect to any LIBOR Rate Loan, shall be selected by the Borrower and notified to the Administrative Agent and the Lenders pursuant to the applicable Notice of Borrowing or Conversion/Continuation Notice, as the case may be. If on any day a Loan is outstanding with respect to which a Notice of Borrowing or Conversion/Continuation Notice has not been delivered to the Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such Loan shall be a Base Rate Loan.
(iii) In the event the Borrower fails to specify between a Base Rate Loan or a LIBOR Rate Loan in the applicable Notice of Borrowing or Conversion/Continuation Notice, such Loan (if outstanding as a LIBOR Rate Loan) will be automatically converted into a Base Rate Loan on the last day of the then-current Interest Period for such Loan (or if outstanding as a Base Rate Loan will remain as, or (if not then outstanding) will be made as, a Base Rate Loan). As soon as practicable after 11:00 a.m. (New York City time) on each Interest Rate Determination Date, the Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower and each Lender.
B. INTEREST PERIODS. In connection with each LIBOR Rate Loan, the applicable interest period (each an "INTEREST PERIOD") to be applicable to such Loan shall be a one, two, three or six month period, as selected by the Borrower in the applicable Notice of Borrowing or Conversion/Continuation Notice; provided that
(i) in the case of immediately successive Interest Periods applicable to a Loan, each successive Interest Period shall commence on the day on which the immediately preceding Interest Period expires;
(ii) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in
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such month, such Interest Period shall expire on the immediately preceding Business Day;
(iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iv) of this Section 2.2B, end on the last Business Day of a calendar month;
(iv) no Interest Period with respect to any portion of the Loans shall extend beyond the scheduled Maturity Date;
(v) there shall be no more than three (3) Interest Periods outstanding at any time; and
(vi) in the event the Borrower fails to specify an Interest Period for any LIBOR Rate Loan in the applicable Notice of Borrowing or Conversion/Continuation Notice, the Borrower shall be deemed to have selected an Interest Period of one month.
C. INTEREST PAYMENTS. On each Interest Payment Date applicable to any portion of the Loans, the Borrower shall pay an amount equal to the aggregate amount of interest that has accrued since the Closing Date or the last Interest Payment Date, as applicable in respect of such portion of the Loans. In addition, interest on each Loan shall be payable in arrears upon any scheduled payment or prepayment of such Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity).
D. DEFAULT RATE. Upon the occurrence and during the continuation of any Event of Default, the outstanding principal amounts of the Loans not paid when due and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable hereunder, shall thereafter bear interest (including post-petition interest in any case or proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is 2% per annum in excess of the rate otherwise payable with respect to the applicable Loans (including, without limitation, in the case of any such fees and other amounts payable under this Agreement). Payment or acceptance of the increased rates of interest provided for in this Section 2.2D is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Agents or the Lenders.
E. COMPUTATION OF INTEREST. Interest payable pursuant to Section 2.2A shall be computed (i) in the case of Base Rate Loans at times when the Base Rate is based on the Prime Rate on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of LIBOR Rate Loans, and Base Rate Loans at times when the Base Rate is based on the Federal Funds Effective Rate, on the basis of a 360-day year, in each case for the
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actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a LIBOR Rate Loan, the date of conversion of such LIBOR Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a LIBOR Rate Loan, the date of conversion of such Base Rate Loan to such LIBOR Rate Loan, as the case may be, shall be excluded; provided, if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan.
F. CONVERSION/CONTINUATION.
(i) Subject to Section 2.6 and so long as no Potential Event of Default or Event of Default shall have occurred and then be continuing, the Borrower shall have the option:
(a) to convert at any time all or any part of any Loan equal to $200,000,000 and integral multiples of $25,000,000 in excess of that amount from one Type of Loan to another Type of Loan; provided, a LIBOR Rate Loan may only be converted on the expiration of the Interest Period applicable to such LIBOR Rate Loan unless the Borrower shall pay all amounts due under Section 2.6 in connection with any such conversion; or
(b) upon the expiration of any Interest Period applicable to any LIBOR Rate Loan, to continue all or any portion of such Loan equal to $200,000,000 and integral multiples of $25,000,000 in excess of that amount as a LIBOR Rate Loan.
(ii) The Borrower shall deliver a Conversion/Continuation Notice to the Administrative Agent no later than 11:00 a.m. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a LIBOR Rate Loan). Except as otherwise provided herein, a Conversion/Continuation Notice for conversion to, or continuation of, any LIBOR Rate Loans (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and the Borrower shall be bound to effect a conversion or continuation in accordance therewith.
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2.3 FEES.
(i) The Borrower agrees to pay to the Administrative
Agent, for the account of each Lender, a commitment fee equal to the average of
the daily difference between (a) the outstanding Commitment of such Lender and
(b) the aggregate outstanding principal amount of the Loans made by such Lender,
multiplied by 0.12%. Accrued commitment fees will be payable in arrears on
December 31, 2003 or, if earlier, on the Maturity Date. All commitment fees will
be computed on the basis of a year of 360 days and will be payable for the
actual number of days elapsed.
(ii) The Borrower agrees to pay to the Joint Lead Arrangers and the Agents such fees in the amounts and at the times separately agreed to by the Borrower, the Joint Lead Arrangers and the Agents.
2.4 REPAYMENTS AND PREPAYMENTS; GENERAL PROVISIONS REGARDING PAYMENTS.
A. PAYMENTS OF LOANS.
The Borrower shall immediately prepay Loans at any time the outstanding amount of such Loans shall exceed the Commitments. The Loans and all other amounts owed hereunder with respect to the Loans shall be paid in full no later than the Maturity Date.
B. PREPAYMENTS; COMMITMENT REDUCTIONS.
(i) Voluntary Prepayments; Commitment Reductions. The Borrower may (x) at any time and from time to time upon not less than three (3) Business Day's prior irrevocable written notice given to the Administrative Agent, terminate or permanently reduce the unused portion of the Commitments on any Business Day or (y) at any time and from time to time prepay the Loans on any Business Day, in whole or in part, in each case in an aggregate minimum amount of $200,000,000 and integral multiples of $25,000,000 in excess of that amount or such lesser amount that may then be outstanding. Such notice of termination or reduction of the Commitment or prepayment of the Loans having been given as aforesaid shall be irrevocable and effective upon receipt by the Administrative Agent. The principal amount of the Loans specified in any notice of prepayment shall become due and payable on the prepayment date specified therein.
(ii) Mandatory Prepayments; Commitment Reductions.
(a) No later than (y) the third Business Day following the date of receipt by the Borrower or any of its Subsidiaries of any NET Asset Sale Proceeds, the Borrower shall prepay the Loans and/or the Commitments shall be permanently reduced
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as set forth in Section 2.4B(iii) in an aggregate amount equal to such Net Asset Sale Proceeds.
(b) No later than the third Business Day following the date of receipt by the Borrower or any of its Subsidiaries, or Administrative Agent as loss payee, of any Net Insurance/Condemnation Proceeds, the Borrower shall prepay the Loans and/or the Commitments shall be permanently reduced as set forth in Section 2.4B(iii) in an aggregate amount equal to such Net Insurance/Condemnation Proceeds; provided, that, in the case of any Subsidiary receiving any Net Insurance/Condemnation Proceeds, the Loans shall not be prepaid and/or the Commitments shall not be reduced in the event (and to the extent) any such Subsidiary is restricted in accordance with Section 6.4 from making a dividend or other distribution of such Net Insurance/Condemnation Proceeds to the Borrower.
(c) No later than the third Business Day following the date of receipt by the Borrower or any of its Subsidiaries of any Cash proceeds from (x) a capital contribution to, or (y) the issuance of any Capital Stock of, the Borrower or such Subsidiary (but excluding any issuance by a Subsidiary of the Borrower to the Borrower or to a wholly-owned Subsidiary of the Borrower, and any capital contribution by the Borrower or a Subsidiary of the Borrower to a wholly-owned Subsidiary of the Borrower), the Borrower shall prepay the Loans and/or the Commitments shall be permanently reduced as set forth in Section 2.4B(iii) in an aggregate amount equal to 100% of such proceeds, net of commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses.
(d) No later than the third Business Day
following the date of receipt by the Borrower or any of its Subsidiaries of any
Cash proceeds from the incurrence or issuance of any Indebtedness by the
Borrower or any such Subsidiary (including any Debt Issuance permitted by
Section 6.2(iii)(b) and any Assurant Commercial Paper Debt permitted by Section
6.2(v), but excluding other Indebtedness permitted under other subclauses of
Section 6.2), Borrower shall prepay the Loans and/or the Commitments shall be
permanently reduced as set forth in Section 2.4B(iii) in an aggregate amount
equal to 100% of such proceeds, net of underwriting discounts and commissions
and other reasonable costs and expenses associated therewith, including
reasonable legal fees and expenses.
(e) Concurrently with any prepayment of the Loans and/or reduction of the Commitments pursuant to Sections 2.4B(ii)(a) through 2.4B(ii)(d), the Borrower shall deliver to the Administrative Agent an Officers' Certificate demonstrating the calculation of the amount of the applicable net proceeds. In the event that the Borrower shall subsequently determine that the actual amount of net proceeds exceeded the amount set forth in such certificate, the Borrower shall promptly make an additional prepayment of the Loans and/or the Commitments shall be permanently reduced in an
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amount equal to such excess, and the Borrower shall concurrently therewith deliver to the Administrative Agent an Officers' Certificate demonstrating the derivation of such excess.
(iii) Application of Prepayments/Commitment Reductions. The amount of any net proceeds received by the Borrower as described in Section 2.4B(ii)(a) through 2.4B(ii)(d) shall be applied as follows: (1) first, to automatically and permanently reduce any unused Commitments and (2) second, to the prepayment of the Loans; provided, that the first $650,000,000 in the aggregate of net proceeds received by the Borrower or its Subsidiaries as described in Section 2.4B(ii)(c) (including, without limitation, the proceeds of the Guarantor Contribution) shall not be so applied in the event (and to the extent) such proceeds are applied to permanently reduce the commitments and/or repay the obligations under the Other Bridge Facility in accordance with the terms thereof (it being understood that any excess over such amount shall be applied in accordance herewith); provided, further, that only the first $125,000,000 (or such lesser amount that corresponds to Loans made hereunder for general corporate purposes in accordance with Section 5.8A(iii)) of net proceeds of Indebtedness constituting Assurant Commercial Paper Debt permitted by Section 6.2(v) received by the Borrower or its Subsidiaries shall be applied in accordance herewith. Notwithstanding the foregoing, if any Net Asset Sale Proceeds and Net Insurance/Condemnation Proceeds received are, collectively, less than $1,000,000, then the Borrower shall not be required to make any prepayment pursuant to this Section 2.4B until such times that the aggregate of all such Net Asset Sale Proceeds and Net Insurance Condemnation Proceeds not so applied equals or exceeds $1,000,000.
(iv) Application of Prepayments of Loans to Base Rate Loans and LIBOR Rate Loans. Any prepayment of Loans shall be applied first to Base Rate Loans to the full extent thereof before application to LIBOR Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by the Borrower pursuant to Section 2.6C.
(v) Guarantor Change of Control. Immediately upon the occurrence of a Guarantor Change of Control, the Commitments shall terminate and the Borrower shall repay the Loans.
C. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) Manner and Time of Payment. All payments by the Borrower of principal, interest, fees and other Obligations hereunder and under the Notes shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to the Administrative Agent not later than 2:00 P.M. (New York City time) on the date due at the Funding and Payment Office for the account of the Administrative Agent; funds received by the Administrative Agent after
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that time on such due date shall be deemed to have been paid by the Borrower on the next succeeding Business Day.
(ii) Payments on Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder, provided that if such next succeeding Business Day occurs in the next calendar month, such payment shall be due and payable on the immediately preceding Business Day.
(iii) Application of Payments to Principal and Interest. All payments in respect of the principal amount of the Loans shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments shall be applied to the payment of interest before application to principal.
(iv) Distribution to Lenders. The Administrative Agent shall promptly distribute to each Lender, at such address as such Lender shall indicate in writing, such Lender's applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, together with all other amounts due thereto, including, without limitation, all fees payable with respect thereto, to the extent received by the Administrative Agent.
(v) Interest on Costs and Expenses. If any Lender incurs
any cost or expense that this Agreement entitles it to collect from the
Borrower, such cost or expense shall be payable together with interest thereon
at a rate per annum equal to the rate applicable to Base Rate Loans as then in
effect, from the date such cost or expense is incurred until such payment date.
Such Lender shall notify the Borrower, through the Administrative Agent, of the
cost or expense to be paid plus the amount of interest thereon. This provision
shall not apply to payments or prepayments of principal, amounts to be applied
against principal, interest or any cost or expense to be collected pursuant to
Section 2.6C hereof.
2.5 INCREASED COSTS; TAXES.
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the provisions of Section 2.5B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a Governmental Authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof
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by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Lender (or its applicable lending
office) to any additional Tax (other than any Non-Excluded Tax covered by
Section 2.5B or any Tax on the overall net income of such Lender) with respect
to this Agreement or any of the other Loan Documents or any of its obligations
hereunder or thereunder or any payments to such Lender (or its applicable
lending office) of principal, interest, fees or any other amount payable
hereunder;
(ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirement with respect to LIBOR Rate Loans that is reflected in the definition of LIBOR); or
(iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market;
and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, the Borrower shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, subject to Section 2.4C(v), such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.5A, which statement shall be conclusive and binding upon all parties hereto absent manifest error.
B. WITHHOLDING OF TAXES.
(i) Payments to Be Free and Clear. All sums payable by the Borrower under this Agreement and the other Loan Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax imposed on or measured by the net income of any Lender (including franchise taxes imposed in lieu thereof) or any branch profits taxes) imposed,
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levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of the Borrower (a "Non-Excluded Tax").
(ii) Grossing-up of Payments. If the Borrower or any other Person is required by law to make any deduction or withholding on account of any Non-Excluded Tax from any sum paid or payable by the Borrower to the Administrative Agent or any Lender under any of the Loan Documents:
(a) the Borrower shall promptly notify the Administrative Agent of any such requirement or any change in any such requirement;
(b) the Borrower shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on the Borrower) for its own account or (if that liability is imposed on the Administrative Agent or such Lender, as the case may be) on behalf of and in the name of the Administrative Agent or such Lender;
(c) the sum payable by the Borrower in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, the Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made;
(d) the Borrower shall indemnify each such Lender, within thirty (30) days after demand by such Lender therefor, for the full amount of any Non-Excluded Tax paid or incurred by such Lender with respect to any payment by or obligation of the Borrower under the Loan Documents (including any Non-Excluded Tax imposed or asserted on or attributable to amounts payable under this Section 2.5) and any expenses arising therefrom or with respect thereto, whether or not such Non-Excluded Tax were correctly or legally imposed or asserted by the relevant Governmental Authority; and
(e) within thirty (30) days after paying any sum from which it is required by law to make any deduction or withholding, and within thirty (30) days after the due date of payment of any Tax which it is required by clause (b) above to pay, the Borrower shall deliver to the Administrative Agent evidence reasonably satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority;
provided, that no such additional amount shall be required to be paid to any Lender under clause (c) above except to the extent that any change after the date hereof (in the case of
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each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender.
(iii) Evidence of Exemption from U.S. Withholding Tax.
(a) Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code for U.S. federal income tax purposes) (a "NON-US LENDER") shall deliver to the Administrative Agent for transmission to the Borrower, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of the Borrower or the Administrative Agent (each in the reasonable exercise of its discretion), two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or any successor forms) or, in the case of a Non-US Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest" a Certificate re Non-Bank Status and two original copies of Form W-8BEN, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Lender, and/or such other documentation required under the Internal Revenue Code and reasonably requested by the Borrower to establish that such Lender is exempt from or entitled to a reduced rate of withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Loan Documents.
(b) Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to Section 2.5B(iii)(a) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly (1) deliver to the Administrative Agent for transmission to the Borrower two new original copies of Internal Revenue Service Form W-8BEN or W-8ECI, or a Certificate re Non-Bank Status and two (2) original copies of Internal Revenue Service Form W-8BEN, as the case may be, properly completed and duly executed by such Lender, and/or such other documentation required under the Internal Revenue Code and reasonably requested by the Borrower to confirm or establish that such Lender is exempt from or entitled to a reduced rate of withholding of United States federal income tax with respect to payments
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to such Lender under the Loan Documents or (2) notify the Administrative Agent and the Borrower of its inability to deliver any such forms, certificates or other evidence.
(c) The Borrower shall not be required to pay
any additional amount to any Non-US Lender under clause (c) of Section 2.5B(ii)
if such Lender shall have failed to satisfy the requirements of clause (a) or
(b)(1) of this Section 2.5B(iii); provided that if such Lender shall have
satisfied the requirements of Section 2.5B(iii)(a) on the Closing Date or on the
date of the Assignment Agreement pursuant to which it became a Lender, as
applicable, nothing in this Section 2.5B(iii)(c) shall relieve the Borrower of
its obligation to pay any additional amounts pursuant to clause (c) of Section
2.5B(ii) in the event that, as a result of any change in any applicable law,
treaty or governmental rule, regulation or order, or any change in the
interpretation, administration or application thereof, such Lender is no longer
properly entitled to deliver forms, certificates or other evidence at a
subsequent date establishing the fact that such Lender is exempt from or
entitled to a reduced rate of withholding.
(iv) Refunds. In the event that an additional payment is made under this Section 2.5B for the account of any Lender and such Lender, in its sole discretion, determines that it has finally and irrevocably received or been granted a credit against or release or remission for, or repayment of, any Tax paid or payable by it in respect of or calculated with reference to the deduction or withholding giving rise to such payment, such Lender shall, to the extent that it determines that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to the Borrower such amount as such Lender shall, in its sole discretion, have determined to be attributable to such deduction or withholding and which will leave such Lender (after such payment) in no worse position than it would have been in if the Borrower had not been required to make such deduction or withholding. Nothing herein contained shall interfere with the right of a Lender to arrange its tax affairs in whatever manner it thinks fit nor oblige any Lender to claim any tax credit or to disclose any information relating to its tax affairs or any computations in respect thereof or require any Lender to do anything that would prejudice its ability to benefit from any other credits, reliefs, remissions or repayments to which it may be entitled.
C. CAPITAL ADEQUACY ADJUSTMENT. In the event that any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence
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of, or with reference to, such Lender's Loans or Commitments, or participations therein or other obligations hereunder with respect to the Loans to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, subject to Section 2.4C(v), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error.
2.6 SPECIAL PROVISIONS GOVERNING LIBOR RATE LOANS.
Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to LIBOR Rate Loans as to the matters covered:
A. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that the Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any LIBOR Rate Loans, that by reason of circumstances affecting the interbank LIBOR market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of LIBOR Rate, the Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, LIBOR Rate Loans until such time as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, and (ii) any Notice of Borrowing or Conversion/Continuation Notice given by the Borrower with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by the Borrower.
B. ILLEGALITY OR IMPRACTICABILITY OF LIBOR RATE LOANS. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with the Borrower and the Administrative Agent) that the making, maintaining or continuation of its LIBOR Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful) or (ii) has become impracticable, or would cause such Lender material hardship, as a result of contingencies occurring after the date of this
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Agreement which materially and adversely affect the interbank LIBOR market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, LIBOR Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (b) to the extent such determination by the Affected Lender relates to a LIBOR Rate Loan then being requested by the Borrower pursuant to a Notice of Borrowing or a Conversion/Continuation Notice, the Affected Lender shall make such Loan as (or continue such Loan as or convert such Loan to, as the case may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding LIBOR Rate Loans (the "AFFECTED LOANS") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a LIBOR Rate Loan then being requested by the Borrower pursuant to a Notice of Borrowing or a Conversion/Continuation Notice, the Borrower shall have the option, subject to the provisions of Section 2.6C, to rescind such Notice of Borrowing or Conversion/Continuation Notice as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to the Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission the Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this Section 2.6B shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, LIBOR Rate Loans in accordance with the terms hereof.
C. COMPENSATION FOR BREAKAGE. The Borrower shall compensate each Lender upon written request by such Lender (which request shall set forth the basis for requesting such amounts) for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to lenders of funds borrowed by it to make or carry its LIBOR Rate Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds) which that Lender may sustain: (i) if for any reason (other than a default by such Lender) a borrowing of any LIBOR Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, or a conversion to or continuation of any LIBOR Rate Loan does not occur on a date specified therefor in a Conversion/Continuation Notice or a telephonic request for conversion or continuation, (ii) if any prepayment or other principal payment of, or any conversion of, any LIBOR Rate Loan made by such Lender occurs on a date other than the last day of an Interest Period applicable to such Loan or
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(iii) if any prepayment of any LIBOR Rate Loan made by such Lender is not made on any date specified in a notice of prepayment given by the Borrower.
D. BOOKING OF LIBOR RATE LOANS. Any Lender may make, carry or transfer LIBOR Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender.
E. ASSUMPTIONS CONCERNING FUNDING OF LIBOR RATE LOANS. Calculation of all amounts payable to a Lender under this Section 2.6 and under Section 2.5A and 2.5C shall be made as though that Lender had actually funded each of its relevant LIBOR Rate Loans through the purchase of a LIBOR deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of LIBOR in an amount equal to the amount of such LIBOR Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such LIBOR deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that each Lender may fund each of its LIBOR Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.6 and under Section 2.5A and 2.5C.
2.7 REMOVAL OR REPLACEMENT OF A LENDER.
Anything contained herein to the contrary notwithstanding, in the event
that: any Lender shall give notice to the Borrower that such Lender is an
Affected Lender or that such Lender is entitled to receive payments under
Section 2.5 or Section 2.6A or 2.6B, the circumstances which have caused such
Lender to be an Affected Lender or which entitle such Lender to receive such
payments shall remain in effect, and such Lender shall fail to withdraw such
notice within five (5) Business Days after the Borrower's request for such
withdrawal; then, with respect to each such Lender (a "TERMINATED LENDER"), the
Borrower may, by giving written notice to the Administrative Agent and any
Terminated Lender of its election to do so, elect to cause such Terminated
Lender (and such Terminated Lender hereby irrevocably agrees) to assign its
outstanding Loans in full to one or more Eligible Assignees (each a "REPLACEMENT
LENDER") in accordance with the provisions of Section 8.1 for a purchase price
equal to the outstanding principal amount of the Loans assigned and accrued
interest thereon and accrued and theretofore unpaid fees owing to such
Terminated Lender under Section 2.3 through the date of assignment, to be paid
by the Replacement Lender on the date of such assignment; provided, that on the
last day of the next successive Interest Period, the Borrower shall pay any
amounts payable to such Terminated Lender to the date of such assignment
pursuant to Sections 2.5 or 2.6 or otherwise as if it were a prepayment. Upon
the completion of such assignment and the prepayment of all amounts owing to any
Terminated Lender, such Terminated Lender shall no longer constitute a "Lender"
for purposes hereof; provided, that any rights of such Terminated Lender to
indemnification hereunder shall survive as to such Terminated Lender.
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2.8 MITIGATION.
Each Lender agrees that, as promptly as practicable after the officer
of such Lender responsible for administering the Loans of such Lender becomes
aware of the occurrence of an event or the existence of a condition that would
cause such Lender to become an Affected Lender or that would entitle such Lender
to receive payments under Section 2.5 or 2.6, it will, to the extent not
inconsistent with the internal policies of such Lender and any applicable legal
or regulatory restrictions, use reasonable efforts (i) to make, issue, fund or
maintain the Commitment of such Lender or the Affected Loans of such Lender
through another lending office of such Lender, or (ii) take such other measures
as such Lender may deem reasonable, if as a result thereof the circumstances
which would cause such Lender to be an Affected Lender would cease to exist or
the additional amounts which would otherwise be required to be paid to such
Lender pursuant to Section 2.5 or 2.6 would be materially reduced and if, as
determined by such Lender in its sole discretion, the making, issuing, funding
or maintaining of such Commitment or Loans through such other lending office or
in accordance with such other measures, as the case may be, would not otherwise
adversely affect such Commitment or Loans or the interests of such Lender;
provided that such Lender will not be obligated to utilize such other lending
office pursuant to this Section 2.8 unless the Borrower agrees to pay all
incremental expenses incurred by such Lender as a result of utilizing such other
lending office as described in clause (i) above. A certificate as to the amount
of any such expenses payable by the Borrower pursuant to this Section 2.8
(setting forth in reasonable detail the basis for requesting such amount)
submitted by such Lender to the Borrower (with a copy to the Administrative
Agent) shall be conclusive absent manifest error.
SECTION 3. CONDITIONS PRECEDENT
3.1 CONDITIONS TO CLOSING DATE.
The obligations of the Lenders to make the Loans hereunder on the Closing Date are subject to the satisfaction of the following conditions prior to or on the Closing Date:
A. BORROWER DOCUMENTS. The Borrower shall deliver or cause to be delivered to the Administrative Agent on behalf of each Lender the following with respect to the Borrower and each Guarantor:
(i) Certified copies of the Organizational Documents of such Person, each dated a recent date prior to the Closing Date, certified as of a recent date prior to the Closing Date by the appropriate governmental official or an officer of such Person, as applicable;
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(ii) Resolutions of the board of directors (or similar governing body) of such Person approving and authorizing the execution, delivery and performance of the Loan Documents and Related Agreements to which it is a party and certified as of the Closing Date by an officer of such Person as being in full force and effect without modification or amendment;
(iii) Signature and incumbency certificates of (or, with respect to the Guarantors only, powers of attorney from) the officers of such Person executing on behalf of such Person the Loan Documents and Related Agreements to which it is a party;
(iv) Executed originals of the Loan Documents to which such Person is a party;
(v) With respect to the Borrower, a good standing certificate or certificate of existence, as applicable, from the Secretary of State (or similar official) from the jurisdiction of formation of the Borrower certified as of a recent date prior to the Closing Date; and
(vi) Such other documents as the Administrative Agent on behalf of the Lenders may reasonably request.
B. OPINIONS OF COUNSEL. The Administrative Agent shall have received originally executed copies of one or more favorable written opinions of (i) Katherine Greenzang, Esq., Senior Vice President, General Counsel and Secretary for the Borrower; (ii) Simpson Thacher & Bartlett LLP, special New York counsel for the Borrower, (iii) Lionel Sawyer & Collins, Nevada counsel for the Borrower, (iv) Philip Povel, Esq., in-house legal counsel in The Netherlands to Fortis N.V., (v) De Brauw Blackstone Westbroek P.C., Netherlands counsel for the Lenders, (vi) Betty Keutgen, Esq., Director Legal Group of Fortis SA/NV, (vii) Linklaters De Bandt, Belgian counsel for each of the Guarantors, and (viii) Davis Polk & Wardwell, special New York counsel for each of the Guarantors, each in form and substance reasonably satisfactory to the Administrative Agent and its counsel, dated as of the Closing Date and setting forth substantially the matters in the opinions designated in Exhibit IV-A, Exhibit IV-B, Exhibit IV-C, Exhibit IV-D, Exhibit IV-E, Exhibit IV-F, Exhibit IV-G and Exhibit IV-H respectively annexed hereto and as to such other matters as the Administrative Agent may reasonably request.
C. RELATED AGREEMENTS. The Administrative Agent shall have received a fully executed or conformed copy of each Related Agreement and any documents executed in connection therewith, and each Related Agreement shall be satisfactory in form and substance to the Administrative Agent and shall be in full force and effect and no provision thereof shall have been modified or waived in any respect determined by any of
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the Lenders or the Administrative Agent to be material, in each case without the consent of the Lenders and the Administrative Agent.
D. STATUTORY RESERVES CERTIFICATE. The Administrative Agent shall have received a certificate of the chief financial officer or chief actuarial officer of the Borrower, dated the Closing Date, confirming the information in Section 4.4C.
E. PAYMENT OF AMOUNTS DUE. The Borrower shall have paid to the Joint Lead Arrangers and the Agents, all reasonable out-of-pocket costs, fees (including, without limitation, those fees due on the Closing Date referred to in Section 2.3), expenses (including, without limitation, legal fees and expenses) and other compensation payable on the Closing Date.
F. EXISTING INTERCOMPANY OBLIGATIONS; OTHER INDEBTEDNESS. The
Administrative Agent shall have received from the Borrower evidence satisfactory
to it that, on the Closing Date (immediately prior to the funding of the Loan
hereunder), the Borrower and its Subsidiaries have no Indebtedness other than
(i) the Existing Intercompany Obligations (as described on Schedule 3.1F hereto)
and the Demand Note which, collectively, do not exceed $1,275,002,000 in
aggregate principal amount, (ii) under the Related Agreements and (iii) as
permitted by Section 6.2.
G. GOVERNMENTAL AUTHORIZATIONS AND CONSENTS.
(i) The Borrower and each of the Guarantors shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the transactions contemplated by the Loan Documents and the Related Agreements, and each of the foregoing shall be in full force and effect and in form and substance satisfactory to the Administrative Agent and the Lenders. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Loan Documents or the Related Agreements or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired.
(ii) Each of the Lenders shall have received, at least two
(2) Business Days in advance of the Closing Date, all documentation and other
information required by Governmental Authorities under applicable
"know-your-customer" and anti-money laundering rules and regulations, including,
without limitation, as required by the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA
PATRIOT ACT) Act of 2001.
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H. MATERIAL ADVERSE EFFECT. Since December 31, 2002, there shall not have occurred a material adverse effect upon (i) the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole, or (ii) the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Guarantors and their Subsidiaries, taken as a whole.
I. NO LITIGATION. There shall not exist any action, suit, proceeding (whether administrative, judicial or otherwise), arbitration or governmental investigation at law or in equity, or before or by any Governmental Authority, domestic or foreign, pending or threatened, that, singly or in the aggregate, could reasonably be expected to materially impair the transactions contemplated by the Loan Documents or the transactions contemplated by the Related Agreements, or that could reasonably be expected to have a Material Adverse Effect.
J. SOLVENCY ASSURANCES. The Administrative Agent shall have received a Financial Condition Certificate from the chief financial officer of the Borrower, dated the Closing Date, satisfactory to the Administrative Agent, and with appropriate attachments demonstrating that, before and after giving effect to the Assurant Reincorporation, the Assurant IPO, the Revolving Credit Facility and any Debt Issuance and the other transactions contemplated by the Loan Documents and the Related Agreements, the Borrower, individually, and together with each of its Subsidiaries (on a consolidated basis), will be, Solvent.
K. FINANCIAL STATEMENTS. The Lenders shall have received from the Borrower (i) the historical financial statements and (ii) the pro forma consolidated balance sheets, prepared in accordance with GAAP and reflecting the consummation of the related financing and the other transactions contemplated by the Loan Documents and the Related Agreements (which pro forma financial statements shall be in form and substance satisfactory to the Lenders), in each case as provided in Section 4.4A of this Agreement.
L. MARKET CONDITIONS. There shall have not occurred or become known to any of the Joint Lead Arrangers, any of the Agents or any of the Lenders any circumstance, change or condition in the financial or capital markets generally that, in the judgment of the Joint Lead Arrangers, could have a material adverse effect on the market for capital market debt Securities or could otherwise materially and adversely impair the consummation of the Assurant IPO.
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3.2 CONDITIONS TO EACH LOAN.
A. CONDITIONS PRECEDENT. The obligations of the Lenders to make any Loans hereunder, including any Loans made on the Closing Date, are subject to the satisfaction of the following conditions:
(i) the Administrative Agent shall have received, in accordance with the provisions of Section 2.1B, an originally executed Notice of Borrowing signed by the Borrower;
(ii) after giving effect to the making of such Loans, the aggregate amount of all Loans outstanding shall not exceed the Commitments then in effect;
(iii) the representations and warranties contained herein and in the other Loan Documents and in the Related Agreements shall be true, correct and complete in all material respects on and as of the date of such Loans to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date;
(iv) no event shall have occurred and be continuing or would result from the consummation of the borrowing of the Loans hereunder, or the transactions contemplated by the Related Agreements, that would constitute an Event of Default or a Potential Event of Default; and
(v) the Administrative Agent shall have received evidence satisfactory to it that (A) the proceeds of the Loans shall be used, on the Closing Date, together with the proceeds of loans made under the Other Bridge Facility (borrowed under the Other Bridge Facility for the same purpose), to repay (in full) the Demand Note and the Existing Intercompany Obligations, and all accrued fees, costs, expenses, premiums or penalties in connection therewith and (B) to the extent that the proceeds of any of the Loans are to be used to repay or otherwise redeem the Capital Securities, or to pay accrued fees, costs, expenses, premiums or penalties in connection therewith, (x) the Borrower shall be in compliance with Section 5.8A and (y) such proceeds shall be used, together with the proceeds of loans made under the Other Bridge Facility (borrowed under the Other Bridge Facility for the same purpose), to repay or otherwise redeem all Capital Securities and to pay all such fees, costs, expenses, premiums or penalties.
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SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce the Agents and the Lenders to enter into this Agreement and to induce the Lenders to make the Loans hereunder, the Borrower represents and warrants to each Agent and each Lender that the following statements are true, correct and complete:
4.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND SUBSIDIARIES.
A. ORGANIZATION AND POWERS. The Borrower is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each Subsidiary of the Borrower is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, except where the failure to be duly organized, validly existing or in good standing has not had and could not reasonably be expected to have a Material Adverse Effect. The Borrower and each of its Subsidiaries has all requisite power and authority to own, lease and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents and Related Agreements to which it is a party and to carry out the transactions contemplated thereby.
B. QUALIFICATION AND GOOD STANDING. The Borrower and each of its Subsidiaries is duly qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had and could not reasonably be expected to have a Material Adverse Effect.
C. SUBSIDIARIES. Schedule 4.1C sets forth the ownership interest of the Borrower and each of its Subsidiaries in their respective Subsidiaries as of the Closing Date, and identifies each Subsidiary that is an Insurance Subsidiary.
4.2 AUTHORIZATION OF BORROWING, ETC.
A. AUTHORIZATION OF BORROWING, ETC. The execution, delivery and performance of each Loan Document and each Related Agreement to which it is a party have been duly authorized by all necessary action on the part of the Borrower.
B. NO CONFLICT. The execution, delivery and performance by the Borrower of each Loan Document and each Related Agreement to which it is a party and the consummation of the transactions contemplated by each Loan Document and each Related Agreement to which it is a party do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to the Borrower or any of its Subsidiaries, or any of the Organizational Documents of the Borrower or any of its Subsidiaries, (ii) violate any order, judgment or decree of any court or other agency of government binding on the Borrower or any of its Subsidiaries, except to the extent such
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violation could not reasonably be expected to have a Material Adverse Effect,
(iii) conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any Contractual Obligation of the
Borrower or any of its Subsidiaries, (iv) result in or require the creation or
imposition of any Lien upon any of the properties or assets of the Borrower or
any of its Subsidiaries, or (v) require any approval of stockholders, partners
or members or any approval or consent of any Person under any Contractual
Obligation of the Borrower or any of its Subsidiaries, except for such approvals
or consents which will be obtained on or before the Closing Date and disclosed
in writing to the Administrative Agent.
C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by the Borrower of each Loan Document and each Related Agreement to which it is a party and the consummation of the transactions contemplated by each Loan Document and each Related Agreement to which it is a party do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority.
D. BINDING OBLIGATION. Each of the Loan Documents and each of the Related Agreements to which it is a party has been duly executed and delivered by the Borrower and is the legally valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability.
4.3 VALID ISSUANCE OF SECURITIES.
The Capital Stock of the Borrower and each of its Material Subsidiaries has been duly authorized and validly issued, and is fully paid and nonassessable. No stockholder of the Borrower has or will have any preemptive rights to subscribe for any additional Capital Stock of the Borrower.
4.4 FINANCIAL CONDITION.
A. GAAP FINANCIAL STATEMENTS. The Borrower has heretofore delivered to the Administrative Agent (a) the audited consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 2002 and the audited consolidated balance sheet of the Guarantors and their Subsidiaries as at December 31, 2002, and the related audited consolidated statements of income, stockholders' equity and cash flows of each of such companies for the Fiscal Year then ended, together with all related notes and schedules thereto and (b) the unaudited pro forma consolidated balance sheet of the Borrower and its Subsidiaries as at September 30, 2003, and the related unaudited statements of income, stockholders' equity and cash flows of each of such companies for the portion of the Fiscal Year then ended. All such statements of the Borrower and its Subsidiaries were
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prepared in conformity with GAAP and fairly present, in all material respects, the financial position of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments. Neither the Borrower nor any of its Subsidiaries has any contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the foregoing financial statements or the notes thereto and which in any such case could reasonably be expected to have a Material Adverse Effect.
B. STATUTORY FINANCIAL STATEMENTS. All annual convention statements ("ANNUAL CONVENTION STATEMENTS") and the quarterly convention statements ("QUARTERLY CONVENTION STATEMENTS") and supplements thereto, in each case required to be filed since January 1, 2000 with any Applicable Insurance Regulatory Authority by the Insurance Subsidiaries have been duly filed and, except where the failure to file in a timely fashion, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect, all such filings have been timely. Such Annual Convention Statements for the Fiscal Years ended December 31, 2000, 2001 and 2002 and such Quarterly Convention Statements for the fiscal quarters ended March 31, 2003, June 30, 2003 and September 30, 2003 (including the financial statements on a statutory basis and the accompanying exhibits and schedules) and supplements thereto, were prepared in accordance with SAP applied on a consistent basis throughout such periods except as otherwise stated therein or required by the rules and regulations of the Applicable Insurance Regulatory Authorities and in accordance with the books and records of the Insurance Subsidiaries and present fairly, in accordance with such practices, the statutory financial position as at the date of, and the statutory results of its operations for the periods covered by, such Annual Convention Statements. Each Insurance Subsidiary owns assets that qualify as legal reserve assets under applicable insurance laws in an amount at least equal to all such required reserves and other similar amounts of such Insurance Subsidiary, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
C. STATUTORY RESERVES. The statutory reserves of each of the Insurance
Subsidiaries (the "STATUTORY RESERVES") as set forth in the Annual Convention
Statements and the Quarterly Convention Statements (i) were determined in
accordance with generally accepted actuarial standards consistently applied,
(ii) were fairly stated in all material respects in accordance with sound
actuarial principles, (iii) were based on actuarial assumptions that are in
accordance with those specified in the related policy provisions, (iv) make
adequate provision for all matured and unmatured liabilities of the Insurance
Subsidiaries under the terms of its Insurance Contracts, Reinsurance Agreements
and Retrocession Agreements at such date, (v) are computed and are fairly stated
in all material respects in accordance with SAP, and (vi) are in compliance in
all material respects with the requirements of all Applicable Insurance
Regulatory
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Authorities. Since December 31, 2002, there has been no change in the Statutory Reserves of any of the Insurance Subsidiaries, except for changes that could not reasonably be expected to have a Material Adverse Effect.
4.5 NO MATERIAL ADVERSE CHANGE.
Since December 31, 2002, no event or change has occurred that has caused or evidences, or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.
4.6 TITLE TO PROPERTIES; LIENS.
The Borrower and each of its Subsidiaries has (i) good and marketable title in fee simple in (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), or (iii) good and marketable title to (in the case of all other personal property), all of its material properties and assets reflected in the financial statements referred to in Section 4.4A or in the most recent financial statements delivered pursuant to Section 5.1, in each case except for assets disposed of since the date of such financial statements and prior to the Closing Date or as otherwise permitted under Section 6.6. Except as permitted by this Agreement or as contemplated by the Loan Documents and Related Agreements, all such properties and assets are free and clear of Liens.
4.7 NO LITIGATION; COMPLIANCE WITH LAWS.
Except as otherwise disclosed on Schedule 4.7 hereto, there are no actions, suits, proceedings (whether administrative, judicial or otherwise), arbitrations or governmental investigations (whether or not purportedly on behalf of the Borrower or any of it Subsidiaries) at law or in equity, or before or by any Governmental Authority, domestic or foreign (including any Environmental Claims), that are pending or, to the knowledge of the Borrower or any of its Subsidiaries, threatened against or affecting the Borrower or any of its Subsidiaries or any property of the Borrower or any of its Subsidiaries and that (x) individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or (y) involve any of the Loan Documents or the Related Agreements or the transactions contemplated thereby. Neither the Borrower nor any of its Subsidiaries (i) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or (ii) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any Governmental Authority, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.
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4.8 PAYMENT OF TAXES.
Except as otherwise permitted under Section 5.5, all tax returns and reports of the Borrower and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges imposed upon the Borrower and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable, except to the extent the failure to do so could not reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries knows of any proposed tax assessment against Borrower or any of its Subsidiaries which is not adequately reserved in accordance with GAAP and being contested by the Borrower or such Subsidiary in good faith and by appropriate proceedings.
4.9 NO DEFAULT.
Neither the Borrower nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect.
4.10 GOVERNMENTAL REGULATION.
Neither the Borrower nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or under any federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. Neither the Borrower nor any of its Subsidiaries is a "registered investment company" or a company "controlled" by a "registered investment company" or a "principal underwriter" of a "registered investment company" as such terms are defined in the Investment Company Act of 1940.
4.11 SECURITIES ACTIVITIES.
Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.
$1,100,000,000 CREDIT AGREEMENT 4.12 EMPLOYEE BENEFIT PLANS. A. Each of the Borrower and its Subsidiaries are in all material |
respects in compliance with all applicable provisions and requirements of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their obligations under each Employee Benefit Plan, except where the failure to do so could not reasonably be expected to result in a material liability to the Borrower or any of its Subsidiaries. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service, and the Borrower is not aware of any circumstances likely to result in revocation of such favorable determination letter.
B. No liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Employee Benefit Plan or any trust established under Title IV of ERISA (other than required contributions which have been timely made when due) has been or is expected to be incurred by the Borrower or any of its Subsidiaries or any of their ERISA Affiliates, and no ERISA Event has occurred or is reasonably expected to occur, in each case that would reasonably be expected to result in a material liability to the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates.
C. Except as disclosed on Schedule 4.12 hereto and to the extent required under Section 4980B of the Internal Revenue Code, no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of the Borrower and its Subsidiaries. The Borrower has retained the right to amend or terminate its retiree medical arrangements at any time.
D. The present value of the aggregate benefit liabilities under each Pension Plan sponsored, maintained or contributed to by the Borrower or any of its Subsidiaries or any of their ERISA Affiliates (determined as of the beginning of the most recent plan year on the basis of the actuarial assumptions specified for funding purposes in the most recent actuarial valuation for such Pension Plan), did not exceed the actuarial value of the assets of each such Pension Plan, in each case by an amount which could reasonably be expected to have a Material Adverse Effect.
E. None of the Borrower, any Subsidiary of the Borrower or any of their respective ERISA Affiliates contributes to or is required to contribute to a Multiemployer Plan. No Subsidiary or ERISA Affiliate of the Borrower or any Subsidiary of the Borrower maintains an Employee Benefit Plan subject to Title IV of ERISA.
$1,100,000,000 CREDIT AGREEMENT 4.13 CERTAIN FEES. No broker's or finder's fee or commission will be payable with respect |
to this Agreement or any of the transactions contemplated hereby except for such fees payable under Section 2.3 or as otherwise disclosed to the Joint Lead Arrangers and the Agents, and the Borrower hereby indemnifies each of the Joint Lead Arrangers and each of the Agents and each Lender against, and agrees that it will hold each of the Joint Lead Arrangers and each of the Agents and each Lender harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability.
4.14 ENVIRONMENTAL PROTECTION.
A. Neither the Borrower nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to any Environmental Law, any Environmental Claim, or any Hazardous Materials Activity that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
B. Neither the Borrower nor any of its Subsidiaries has received any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. ss. 9604) or any comparable state law.
C. There are and, to the Borrower's and each of its Subsidiaries' knowledge, have been no conditions, occurrences, or Hazardous Materials Activities which could reasonably be expected to form the basis of an Environmental Claim against the Borrower or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
D. Compliance with all current or reasonably anticipated future requirements pursuant to or under Environmental Laws is not reasonably expected to have a Material Adverse Effect.
4.15 SOLVENCY.
The Borrower, individually, and together with each of its Subsidiaries (on a consolidated basis), is, and on each date on which the Borrower incurs any Obligations will be, Solvent.
$1,100,000,000 CREDIT AGREEMENT 4.16 RESTRICTIONS. There are no contractual restrictions on the Borrower or any of its |
Subsidiaries which prohibit or otherwise restrict the transfer of cash or other assets from any Subsidiary of the Borrower to the Borrower, other than prohibitions or restrictions permitted under Section 6.4.
4.17 RELATED AGREEMENTS.
A. The Borrower has delivered to the Administrative Agent complete and correct copies of each Related Agreement and of all exhibits and schedules thereto. Each of the representations and warranties given by the Borrower in the Related Agreements is true and correct in all material respects as of the Closing Date (or as of any earlier date to which such representation and warranty specifically relates).
B. All Governmental Authorizations and all other authorizations, approvals and consents of any other Person required by the Related Agreements or to consummate the borrowings contemplated by the Related Agreements have been obtained and are in full force and effect.
C. On the Closing Date, (i) all of the conditions to effecting or consummating the borrowings contemplated by the Related Agreements as set forth in the Related Agreements have been duly satisfied or, with the consent of the Administrative Agent, waived, and (ii) the borrowings contemplated by the Related Agreements have been consummated in accordance with the Related Agreements and all applicable laws.
4.18 INSURANCE LICENSES.
No Insurance License, the suspension, revocation, termination, non-renewal or limitation of which could reasonably be expected to have a Material Adverse Effect, is the subject of a proceeding for suspension, revocation, termination, non-renewal or limitation and, to the knowledge of the Borrower and its Subsidiaries, no such suspension, revocation, termination, non-renewal or limitation has been threatened by any Governmental Authority. No Insurance Subsidiary transacts any Insurance Business, directly or indirectly, in any jurisdiction where such business requires any Insurance License that is not validly maintained by such Insurance Subsidiary, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
4.19 DISCLOSURE.
No representation or warranty of the Borrower contained in any of the Loan Documents or in any other document, certificate or written statement furnished to any of the Agents or any of the Lenders by or on behalf of the Borrower or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement
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(including, without limitation, the Form S-1 of Assurant as filed with the Securities and Exchange Commission (together with filed amendments)) contains any untrue statement of a material fact or omits to state a material fact (known to the Borrower or any of its Subsidiaries, in the case of any document not furnished by any of them) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by the Borrower to be reasonable at the time made, it being recognized by the Agents and the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known to the Borrower or any of its Subsidiaries (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to each of the Agents for use in connection with the transactions contemplated hereby.
SECTION 5. BORROWER'S AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as the Commitments
hereunder shall remain in effect and until payment in full of the Loans and all
other Obligations, unless the provisions of this Section 5 are waived or amended
in accordance with Section 8.5, the Borrower shall perform all covenants in this
Section 5.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
The Borrower will deliver to the Administrative Agent:
(i) Quarterly Financial Statements: within 45 days after the end of each Fiscal Quarter ending after the Closing Date, the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then-current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year, all in reasonable detail and certified by the chief financial officer of the Borrower as fairly presenting, in all material respects, the financial condition of the Borrower and its Subsidiaries as at the date indicated and the results of their operations and cash flows for the periods indicated in conformity with GAAP, subject to changes resulting from audit and normal year-end adjustments;
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(ii) Annual Financial Statements: within 90 days after the end of each Fiscal Year, (a) the consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year, in reasonable detail and certified by the chief financial officer of the Borrower as fairly presenting, in all material respects, the financial condition of the Borrower and its Subsidiaries as at the date indicated and the results of their operations and cash flows for the periods indicated; and (b) with respect to such consolidated financial statements a report thereon of PricewaterhouseCoopers LLP or other independent certified public accountants of recognized national standing selected by the Borrower, and reasonably satisfactory to the Administrative Agent (which report shall be unqualified as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards) together with a written statement by such independent certified public accountants stating (1) that their audit examination has included a review of the terms of the Loan Documents, (2) whether, in connection therewith, any condition or event that constitutes a Potential Event of Default or an Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof, and (3) that nothing has come to their attention that causes them to believe that the information contained in any Compliance Certificate is not correct or that the matters set forth in such Compliance Certificate are not stated in accordance with the terms hereof (it being understood that such statement shall be limited to the items that independent certified public accountants are permitted to cover in such statements pursuant to the professional standards and customs of the accounting profession);
(iii) Compliance Certificate: together with each delivery of financial statements of the Borrower and its Subsidiaries pursuant to Sections 5.1(i) and 5.1(ii), a duly executed and completed Compliance Certificate;
(iv) Filings: (a) promptly upon their becoming available, copies of all financial statements, periodic reports and proxy statements filed with, or furnished to, the Securities and Exchange Commission, or, after the closing of the Assurant IPO, sent by the Borrower to its shareholders or other security holders, and (b) promptly following the request of the Administrative Agent or any Lender, a copy of all material information filed by the Borrower with any Governmental Authority to the Administrative Agent or such Lender;
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(v) Notice of Default, etc.: promptly (with a copy to each Lender) upon (a) the occurrence of any condition or event that constitutes an Event of Default or Potential Event of Default or notice being given to the Borrower or any of its Subsidiaries with respect thereto, (b) any Person giving any notice to the Borrower or any of its Subsidiaries or taking any other action with respect to a claimed default or event or condition of the type referred to in Section 7.2, or (c) the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officers' Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Potential Event of Default, default, event or condition, and what action the Borrower has taken, is taking and proposes to take with respect thereto;
(vi) Notice of Litigation: promptly after the Borrower becomes aware or has knowledge of (x) the institution of any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration against or affecting the Borrower or any of its Subsidiaries or any of their respective property (collectively, "PROCEEDINGS") or (y) any material development in any such Proceeding, in either case that (A) the Borrower believes has a reasonable possibility of an adverse determination that could reasonably be expected to have a Material Adverse Effect or (B) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby or by the Related Agreements, written notice thereof together with such other information as may be reasonably available to the Borrower or such Subsidiary to enable the Lenders and their counsel to evaluate such matters;
(vii) Change in Rating: prompt written notice of any and all changes in the rating given the Borrower or, prior to the Guaranty Fall-Away Date, either of the Guarantors by Moody's or S&P;
(viii) Insurance Reports and Filings:
(a) (1) prompt written notice to the Administrative Agent and each Lender of the failure by any Insurance Subsidiary to file its Statutory Statements and any statements referred to in Section 4.4B or in Section 4.4C, and (2) promptly following the request of the Administrative Agent or any Lender, a complete copy of any Statutory Statement and any statements referred to in Section 4.4B or in Section 4.4C to the Administrative Agent or such Lender;
(b) promptly following the delivery or receipt, as the case may be, by any Insurance Subsidiary or any of their respective Subsidiaries, copies of (1) each material examination and/or audit report or other similar report submitted to any Insurance Subsidiary by any Applicable Insurance Regulatory Authority, (2) all material
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information which the Lenders may from time to time request with respect to the nature or status of any material deficiencies or violations reflected in any such examination, report or other similar report and (3) each registration, filing, submission, report, order, direction, instruction, approval, authorization, license or other notice which the Borrower or any Insurance Subsidiary may at any time make with, or receive from, any Applicable Insurance Regulatory Authority except with respect to matters arising in the ordinary course of business of the Borrower or such Insurance Subsidiary;
(c) promptly following the preparation thereof, any material report by an independent actuarial consulting firm reviewing the adequacy of loss reserves (net of reinsurance) of any Insurance Subsidiary, together with such firm's opinion affirming the adequacy of such loss reserves; and
(d) promptly following notification thereof from a Governmental Authority, and in any event not later than five (5) Business Days after receipt of such notice, written notice of the revocation, suspension, termination, non-renewal or limitation of, or the taking of any other action in respect of, any material Insurance License;
(ix) Related Agreements; Revolving Credit Facility: copies of all notices given or received by the Borrower in connection with the Related Agreements and the Revolving Credit Facility on the day that such notice is given by the Borrower or within three (3) Business Days after such notice is received by it, as the case may be (except that for notices of potential and actual defaults or events of default given or received by the Borrower, the Borrower will deliver copies of such notices to the Administrative Agent on the day that such notice is given by the Borrower or within one (1) Business Day after any such notice is received by the Borrower); provided, however, that so long as no Event of Default or Potential Event of Default has occurred and is continuing, notices of borrowing or extensions of credit given or received in the ordinary course by the Borrower in connection with the Related Agreements and the Revolving Credit Facility, need not be delivered; and
(x) Other Information: with reasonable promptness, such other information and data with respect to the Borrower or any of its Subsidiaries as from time to time may be reasonably requested by the Administrative Agent or any Lender.
5.2 BOOKS AND RECORDS.
The Borrower will, and will cause each of its Subsidiaries to, keep proper books of records and account in which full, true and correct entries in all material respects in conformity with GAAP and SAP, as applicable, consistently applied shall be made of all material dealings and transactions in relation to its business and activities; and (b) permit representatives or agents of the Administrative Agent (or during the continuance of a
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Event of Default hereunder, any Lender) to visit and inspect any of its properties or assets and examine and make abstracts from any of its books and records upon reasonable prior notice during normal business hours and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries so long as the Borrower is provided the opportunity to participate.
5.3 EXISTENCE.
Except as otherwise permitted by Section 6.6, the Borrower will, and will cause each of its Material Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights, privileges, licenses (including Insurance Licenses) and franchises material to its business; provided, that neither the Borrower nor any of its Subsidiaries shall be required to preserve the existence of any such Subsidiary, or any such right, privilege, license or franchise of the Borrower or such Subsidiary if the Borrower's or such Subsidiary's board of directors (or similar governing body) shall determine that the preservation of such existence, right, privilege, license or franchise is no longer desirable in the conduct of the business of such Person, and that the loss thereof or dissolution (as the case may be) is not disadvantageous in any material respect to the Borrower or such Subsidiary or the Lenders.
5.4 INSURANCE.
The Borrower will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of the Borrower and its Subsidiaries as may customarily be carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for such Persons.
5.5 PAYMENT OF TAXES AND CLAIMS.
The Borrower will, and will cause each of its Subsidiaries to, pay all Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings and adequate reserve or other appropriate provision, as shall be required in conformity with GAAP, shall have been made therefor.
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5.6 MAINTENANCE OF PROPERTIES.
The Borrower will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of the Borrower and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof.
5.7 COMPLIANCE WITH LAWS.
The Borrower will, and will cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws), noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
5.8 USE OF PROCEEDS.
A. PROCEEDS OF LOANS. The proceeds of the Loans made pursuant to 2.1A shall be used (i) on the Closing Date, together with the proceeds of loans made under the Other Bridge Facility (borrowed under the Other Bridge Facility for the same purpose) to repay (in full) the Demand Note and the Existing Intercompany Obligations, and all accrued fees, costs, expenses, premiums or penalties in connection therewith, (ii) to repay or otherwise redeem the Capital Securities, and to pay accrued fees, costs, expenses, premiums or penalties in connection therewith, or (iii) for general corporate purposes; provided, that not more than $125,000,000 of proceeds from Loans hereunder and under the Other Bridge Facility (borrowed under the Other Bridge Facility for the same purpose), in the aggregate, may be used for general corporate purposes; provided, further, that to the extent that the proceeds of any of the Loans are to be used to repay or otherwise redeem the Capital Securities, or to pay accrued fees, costs, expenses, premiums or penalties in connection therewith, such proceeds shall be used, together with the proceeds of loans made under the Other Bridge Facility (borrowed under the Other Bridge Facility for the same purpose), to repay or otherwise redeem all Capital Securities and to pay all such fees, costs, expenses, premiums or penalties.
B. MARGIN REGULATIONS. No part of the proceeds of the Loans made to the Borrower will be used, directly or indirectly, to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.
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5.9 ASSURANT IPO; OTHER FINANCINGS.
(i) The Borrower will use its best efforts to, as soon as
practicable following the Closing Date, to (a) consummate the Assurant IPO and,
thereafter, consummate a Debt Issuance with such fees, pricing, covenants and
other terms as are, in the reasonable opinion of the Joint Lead Arrangers,
prevailing for new issues of Securities of comparable size and credit rating in
the capital markets at the time such issuance is consummated and obtained in
comparable transactions made on an arm's length basis between unaffiliated
parties, with the amount to be financed to be in an amount at least sufficient
to repay the Obligations in full, (b) enter into the Revolving Credit Facility
in form and substance reasonably satisfactory to the Joint Lead Arrangers and
(c) repay or otherwise redeem (in full) the Capital Securities.
(ii) Borrower will, promptly after entering into the
Revolving Credit Facility, incur Assurant Commercial Paper Debt permitted by
Section 6.2(v) in an amount that corresponds to Loans made hereunder for general
corporate purposes in accordance with Section 5.8A(iii).
(iii) The Borrower will, on or before the closing date of the Assurant IPO, (a) consummate the Assurant Reincorporation and (b) in connection therewith, deliver or cause to be delivered to the Administrative Agent (A) a Joinder Agreement duly executed by Assurant (and the other parties thereto) and (B) favorable legal opinions covering such matters with respect to Assurant, the Loan Documents and such Joinder Agreement consistent with opinions delivered with respect to the Borrower and the Loan Documents on the Closing Date and addressed to the Administrative Agent and the Lenders in form and substance reasonably satisfactory thereto.
(iv) The Borrower will (a) provide written notice to the Administrative Agent and the Joint Lead Arrangers reasonably in advance of the consummation of the Assurant Reincorporation, the entering into of the Revolving Credit Facility and the closing of Debt Issuance described in clause (i)(a) above, and (b) make such filings under the Securities Act, the Exchange Act, the Trust Indenture Act of 1939, as amended, and state securities laws as shall be required to consummate such Debt Issuance.
5.10 CLAIMS PARI PASSU.
The Borrower shall ensure that at all times the Obligations and any other claims of the Joint Lead Arrangers, the Agents and the Lenders arising hereunder or under any of the Loan Documents rank at least pari passu with the claims of all of the Borrower's or its Subsidiaries' other senior unsecured creditors, except (i) those creditors whose claims are preferred by any bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally and (ii) those claims which are permitted to be secured under Section 6.1.
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SECTION 6. BORROWER'S NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations, unless the provisions of this Section are waived or amended in accordance with Section 8.5, the Borrower shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6.
6.1 LIENS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind of the Borrower, whether now owned or hereafter acquired, or any income or profits therefrom, except:
(i) Liens existing on the Closing Date securing Indebtedness in an aggregate principal amount not to exceed $20,000,000;
(ii) Liens imposed by law for Taxes that are not yet required to be paid pursuant to Section 5.5;
(iii) statutory Liens of landlords, banks (and rights of set-off), of carriers, warehousemen, mechanics, repairmen, workmen and material men, and other Liens imposed by law, in each case incurred in the ordinary course of business for amounts not yet overdue or for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of five days) are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts;
(iv) deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds, Reinsurance Agreements, Retrocession Agreements and other similar obligations (exclusive of obligations for the payment of borrowed money) incurred in the ordinary course of business;
(v) Liens on pledges or deposits of cash or securities made by any Insurance Subsidiary as a condition to obtaining or maintaining any licenses issued to it by any Applicable Insurance Regulatory Authority;
(vi) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title to real property, in each case which do not and will
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not, individually or in the aggregate, interfere in any material respect with the use or value thereof;
(vii) any interest or title of a lessor or sublessor under any operating or true lease of real estate entered into by the Borrower or one of its Subsidiaries in the ordinary course of its business covering only the assets so leased;
(viii) Liens created pursuant to Capital Leases permitted pursuant to Section 6.2(x); provided, that such Liens are only in respect of the property or assets subject to, and secure only, such Capital Leases;
(ix) purchase money Liens in real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed) by the Borrower or one of its Subsidiaries; provided, that (a) such Lien secures Indebtedness permitted by Section 6.2(x)), (b) such Lien is incurred, and the Indebtedness secured thereby is created, within ninety (90) days after such acquisition (or construction), (c) the Indebtedness secured thereby does not exceed 100% of the lesser of the cost or the fair market value of such real property, improvements or equipment at the time of such acquisition (or construction) and (d) such Lien does not apply to any other property or assets of the Borrower or any of its Subsidiaries;
(x) Liens given to secure the obligations of an Insurance Subsidiary under Reinsurance Agreements, Retrocession Agreements and other similar obligations (other than obligations for the payment of borrowed money), incurred by such Insurance Subsidiary in the ordinary course of business;
(xi) Liens securing judgments that do not constitute an Event of Default under Section 7.8;
(xii) Liens that are contractual rights of set-off (a) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness or (b) relating to pooled deposit or sweep accounts of the Borrower or any of its Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower and its Subsidiaries;
(xiii) licenses of intellectual property granted in a manner consistent with past practice; and
(xiv) other Liens securing Indebtedness in an aggregate principal amount not to exceed $10,000,000 at any time outstanding.
Notwithstanding any of the foregoing exceptions, the Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon
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the Capital Stock of any of its Subsidiaries owned by the Borrower or any such Subsidiary or upon any Indebtedness owed to such Subsidiary by the Borrower or any of its Subsidiaries.
6.2 INDEBTEDNESS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except:
(i) the Obligations;
(ii) Indebtedness arising under (a) the Related Agreements and (b) the Revolving Credit Facility;
(iii) Indebtedness in respect of (a) the Capital Securities and (b) any Debt Issuance in accordance with Section 5.9(i); provided, that the proceeds of each such Debt Issuance under the foregoing clause (b) are applied in accordance with Section 2.4B;
(iv) Additional Parent Debt in an aggregate principal amount not to exceed $200,000,000 at any time outstanding; provided, that all such Indebtedness (a) shall be unsecured, (b) shall be incurred after the Closing Date and (c) shall be extinguished on or prior to the consummation of the Assurant IPO;
(v) Assurant Commercial Paper Debt; provided, that (x) all such Indebtedness (A) shall be unsecured and (B) shall be incurred after consummation of the Assurant IPO, and (y) the proceeds of such Indebtedness are applied in accordance with Section 2.4B;
(vi) Indebtedness existing on the Closing Date and set forth on Schedule 6.2, but, in each case, not any extensions, renewals or replacements of such Indebtedness except (a) renewals and extensions expressly provided for in the agreements evidencing any such Indebtedness as the same are in effect on the date of this Agreement and (b) refinancings and extensions of any such Indebtedness if the terms and conditions thereof are not less favorable to the obligor thereon or to the Lenders than the Indebtedness being refinanced or extended, and the average life to maturity thereof is greater than or equal to that of the Indebtedness being refinanced or extended; provided, such Indebtedness permitted under the immediately preceding clause (a) or (b) above shall not (A) include Indebtedness of an obligor that was not an obligor with respect to the Indebtedness being extended, renewed or refinanced, (B) exceed in a principal amount the Indebtedness being renewed, extended or refinanced or (C) be incurred, created or assumed if any Potential Event of Default or Event of Default has occurred and is continuing or would result therefrom;
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(vii) Indebtedness owing by the Borrower to any Subsidiary; provided, that all such Indebtedness shall be unsecured and subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement that in any such case is satisfactory to the Administrative Agent;
(viii) Indebtedness owing by any wholly-owned Subsidiary of the Borrower to the Borrower or to another wholly-owned Subsidiary of the Borrower;
(ix) Indebtedness owing by any non-wholly-owned Subsidiary of the Borrower to the Borrower or to a wholly-owned Subsidiary of the Borrower; provided, that the aggregate principal amount of all such Indebtedness under this clause (x) shall not exceed $10,000,000 at any time outstanding;
(x) purchase money Indebtedness and Capital Leases, in
each case incurred in the ordinary course of business after the Closing Date,
(a) in an aggregate principal amount (including the capitalized portion of any
Capital Leases), not to exceed $3,000,000 at any time outstanding and (b) any
Capital Lease in connection with the Ohio Sale/leaseback Transaction;
(xi) Indebtedness of any Insurance Subsidiary in respect of letters of credit issued under letter of credit facilities and (a) securing obligations under Reinsurance Agreements or Retrocession Agreements entered into in the ordinary course of business of such Subsidiary or (b) issued in lieu of deposits to satisfy any requirements imposed by any Applicable Insurance Regulatory Authority, in any case to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed not later than ten (10) days following receipt by such Subsidiary of notice of payment on such letter of credit;
(xii) Indebtedness of the Borrower under Interest Rate Agreements entered into (a) in respect of the Obligations and the obligations under the Related Agreements and the Revolving Credit Facility and (b) in the ordinary course of business and consistent with past business practice of the Borrower and its Subsidiaries (and not for speculative purposes);
(xiii) Indebtedness owed to (including obligations in respect of letters of credit or bank guarantees or similar instruments for the benefit of) any Person providing workers' compensation, health, disability or other employee benefits or property, casualty or liability insurance to the Borrower or any of its Subsidiaries, pursuant to reimbursement or indemnification obligations to such Person, provided that upon the incurrence of Indebtedness with respect to reimbursement obligations regarding workers' compensation claims, such obligations are reimbursed not later than 30 days following such incurrence;
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(xiv) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is extinguished within three Business Days of its incurrence; and
(xv) other Indebtedness in an aggregate principal amount not to exceed $10,000,000 at any time outstanding.
6.3 INVESTMENTS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including without limitation any Joint Venture, except:
(i) Investments by the Borrower and its Subsidiaries in Cash Equivalents;
(ii) (a) the Borrower and its Subsidiaries may continue to own each Investment owned by it on September 30, 2003 (and other Investments owned as of the Closing Date) and identified in reasonable detail on Schedule 6.3A and (b) may continue to own and make Investments which comply with the Borrower's investment guidelines (including Investments in real estate as described therein in the form of Joint Ventures) attached hereto as Schedule 6.3B (with such amendments, supplements or other modifications to such investment guidelines as the Business Unit Investment Committees and/or the Risk Management Committee of the Borrower and its Subsidiaries may from time to time approve in the ordinary course of business and consistent with past business practice of the Borrower and its Subsidiaries, provided that copies of any such amendment, supplement or other modification shall be delivered to the Administrative Agent promptly following such approval);
(iii) (a) Investments constituting intercompany Indebtedness permitted by Section 6.2, (b) Investments in wholly-owned Subsidiaries of the Borrower that are in existence on the Closing Date and (c) Investments in wholly-owned Insurance Subsidiaries and wholly-owned Subsidiaries that engage in a business reasonably related to an Insurance Business;
(iv) (a) loans and advances to employees of the Borrower and its Subsidiaries for relocation and travel expenses made in the ordinary course of business and consistent with past practice, and (b) other loans and advances to employees of the Borrower and its Subsidiaries made in the ordinary course of business in an aggregate principal amount not to exceed $2,000,000 at any time outstanding (the amounts under this clause (b) to be inclusive of the amount of such loans and advances listed on Schedule 6.3A);
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(v) any non-Cash consideration in connection with any Asset Sale permitted pursuant to Section 6.6(iii);
(vi) Investments received by the Borrower or any of its Subsidiaries in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers, suppliers or other Persons, in each case in the ordinary course of business;
(vii) accounts receivable arising and trade credit granted in the ordinary course of business and any securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss and any prepayments and other credits to suppliers made in the ordinary course of business;
(viii) the Borrower may repurchase or otherwise acquire shares of its Capital Stock in connection with employee compensation in the ordinary course of business in accordance with plans approved by the board of directors of the Borrower;
(ix) Investments by the Borrower in PHCS not to exceed $25,000,000 in the aggregate;
(x) Investments by the Borrower or any of its Subsidiaries in customers or related ventures of the Borrower or such Subsidiaries; provided that (i) such customers or ventures are engaged, and continue to engage, in an Insurance Business or a business reasonably related to an Insurance Business, (ii) such Investments are made in the ordinary course of business and consistent with past practice of the Borrower or such Subsidiary and (iii) with respect to such Investments (A) existing on the Closing Date, the amount of such Investments (and renewals thereof with the same customer or venture) shall not exceed $38,000,000 and (B) made after the Closing Date, such Investments shall not exceed $25,000,000 in the aggregate for any Fiscal Year; and
(xi) Investments made in connection with Permitted Acquisitions permitted pursuant to Section 6.6.
6.4 RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS
The Borrower shall not, and shall not permit any of its Subsidiaries
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Subsidiary of the Borrower to (a) pay dividends or make any other distributions
on any of such Subsidiary's Capital Stock owned by the Borrower or any other
Subsidiary of the Borrower, (b) repay or prepay any Indebtedness owed by such
Subsidiary to the Borrower or any other Subsidiary of the Borrower, (c) make
loans or advances to the Borrower or any other Subsidiary of the Borrower, or
(d) transfer any of its property or assets to the Borrower or any other
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Subsidiary of the Borrower, other than restrictions existing (i) under this Agreement, any Related Agreement or the Revolving Credit Facility, (ii) under agreements evidencing Indebtedness permitted by Section 6.2(x) that impose restrictions on the property so acquired, (iii) under any applicable law, rule or regulation which applies generally to all insurance companies regulated thereunder, (iv) under any order from or agreement with an Applicable Insurance Regulatory Authority existing on the Closing Date as described on Schedule 6.4 hereto, (v) under any order from or agreement with an Applicable Insurance Regulatory Authority arising after the Closing Date which could not reasonably be expected to result in a Material Adverse Effect and (vi) by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses, Joint Venture agreements and similar agreements entered into in the ordinary course of business.
6.5 RESTRICTED PAYMENTS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Payment, except that:
(i) so long as no Potential Event of Default or Event of Default shall have occurred and be continuing, or would result after giving effect thereto, the Borrower, in accordance with its dividend policy as in effect at the closing of the Assurant IPO, may declare and pay regularly scheduled dividends: (a) with respect to the Borrower Common Stock; provided, that with respect to the Class B Common Stock of the Borrower and the Class C Common Stock of the Borrower, such dividends shall not exceed $45,000,000 in the aggregate and (b) with respect to the Class B Preferred Stock of the Borrower and the Class C Preferred Stock of the Borrower; provided, that with respect to such Class B Preferred Stock, such dividends shall not exceed 4.0% per $1000 liquidation price per share per annum, and with respect to such Class C Preferred Stock, such dividends shall not exceed 4.0% per $1000 liquidation price per share per annum (in each case under the foregoing clauses (a) and (b), taking into account all such dividends made prior to the Closing Date, and with such share amount to be adjusted ratably in respect of stock distributions, recapitalizations, stock splits or any similar event);
(ii) any Subsidiary of the Borrower may make Restricted Payments to its parent if such parent is the Borrower or a wholly-owned Subsidiary of the Borrower; provided, that, notwithstanding anything to the contrary contained herein, the Borrower shall cause its Subsidiaries to make Restricted Payments in a timely manner to the Borrower necessary to enable the Borrower to repay the Obligations in accordance with this Agreement; provided, further, in the event that such Restricted Payments are not sufficient to enable the Borrower to repay the Obligations in accordance with this Agreement, the Borrower will use its best efforts to obtain the approvals of any Govern-
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mental Authority to permit its Insurance Subsidiaries to make Restricted Payments to the Borrower in an amount sufficient for the Borrower to repay such Obligations;
(iii) the Borrower may make Restricted Payments to repay or otherwise redeem the Capital Securities;
(iv) the Borrower may make regularly scheduled payments of interest in respect of the Assurant Commercial Paper Debt permitted by Section 6.2(v) and any Debt Issuance permitted by Section 6.2(iii), and may make mandatory prepayments or redemptions of such Assurant Commercial Paper Debt and such Debt Issuance, in each case in accordance with the terms of, and only to the extent required by, the indentures or other agreements pursuant to which such Assurant Commercial Paper Debt or Debt Issuance were issued, respectively;
(v) so long as no Potential Event of Default or Event of Default shall have occurred and be continuing, or would result after giving effect thereto, the Borrower may make regularly scheduled payments of interest in respect of the Additional Parent Debt permitted by Section 6.2(iv) and the Capital Securities, in each case in accordance with the terms of, and only to the extent required by, the indentures or other agreements pursuant to which such Capital Securities and Additional Parent Debt were issued, respectively, and may prepay or repay such Additional Parent Debt and the Assurant Commercial Paper Debt; and
(vi) Restricted Payments in connection with Investments described under Section 6.3(viii).
6.6 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sub-lessor), exchange, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any portion of its business, assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, or acquire by purchase or otherwise the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business of any Person, in each case except:
(i) (A) any Subsidiary of the Borrower may be merged with or into the Borrower or any wholly-owned Subsidiary of the Borrower, (B) any non-wholly-owned Subsidiary of the Borrower may be merged with or into any other non-wholly-owned Subsidiary of the Borrower, (C) any Subsidiary of the Borrower may be liquidated, wound up or dissolved, or all or any part of its business, property or assets
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may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the Borrower or any wholly-owned Subsidiary of the Borrower or (D) any non-wholly-owned Subsidiary of the Borrower may be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to any other non-wholly-owned Subsidiary of the Borrower; provided, in the case of (x) a merger with the Borrower, the Borrower shall be the continuing or surviving Person (except following consummation of the Assurant Reincorporation and upon compliance with Section 5.9(iii), pursuant to which Assurant shall be the continuing and surviving Person), (y) a merger not involving the Borrower and involving a wholly-owned Subsidiary of the Borrower, such wholly-owned Subsidiary shall be the continuing or surviving Person and (z) any such transaction involving non-wholly-owned Subsidiaries in which the Borrower and its Subsidiaries have different ownership percentages, the transferee, or the continuing or surviving Subsidiary, shall be the non-wholly-owned Subsidiary in which the Borrower and its Subsidiaries have the greater ownership percentage (which percentage shall be unchanged as a result of such transaction);
(ii) sales or other dispositions of assets that do not constitute Asset Sales;
(iii) Asset Sales (the proceeds of which shall be valued at the principal amount thereof in the case of non-Cash proceeds consisting of notes or other debt Securities and valued at fair market value in the case of other non-Cash proceeds); provided (1) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of the Borrower or such Subsidiary (or similar governing body) engaging in such Asset Sale), (2) no less than 90% of such consideration shall be paid in Cash, (3) in the case of a Subsidiary engaging in such Asset Sale, there shall exist no restriction on the ability of such Subsidiary to dividend or otherwise distribute the Net Asset Sale Proceeds thereof to the Borrower and (4) the Net Asset Sale Proceeds thereof shall be applied as required by Section 2.4B(ii)(a);
(iv) sales, transfers or dispositions of Investments permitted to exist in accordance with Section 6.3(i) and (ii), and Investments permitted by Section 6.3(iii);
(v) any Insurance Subsidiary may enter into any Insurance Contract, Reinsurance Agreement or Retrocession Agreement in the ordinary course of its existing Insurance Business in accordance with its normal underwriting, indemnity and retention policies; and
(vi) Permitted Acquisitions, the consideration for which does not exceed $5,000,000 in the aggregate.
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6.7 DISPOSAL OF SUBSIDIARY INTERESTS.
Except for any sale of all of its interests in the Capital Stock of any of its Subsidiaries in compliance with the provisions of Section 6.6, the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to (i) the Borrower or a wholly-owned Subsidiary of the Borrower (subject to the restrictions on such disposition otherwise imposed hereunder) or (ii) qualify directors if required by applicable law.
6.8 CONDUCT OF BUSINESS.
From and after the Closing Date, the Borrower shall not, and shall not permit any of its Subsidiaries to, engage in any business or conduct any activities other than engaging in the business as now conducted by the Borrower and its Subsidiaries and businesses reasonably related thereto, and in the case of Insurance Subsidiaries, to engage in only those lines of insurance business for which the Insurance Subsidiaries are licensed by Applicable Insurance Regulatory Authority from time to time. The Borrower shall solely be a holding company, and shall not enter into Insurance Contracts, Reinsurance Agreements or Retrocession Agreements.
6.9 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.
The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service or the making of any intercompany loan) with any Affiliate of the Borrower or any of its Subsidiaries, any holder of Capital Stock or other interests in the Borrower or any of its Subsidiaries, or any such Affiliate of any such holder, except on fair and reasonable terms that are no less favorable to the Borrower or that Subsidiary, as the case may be, than those that might be obtained at the time in a comparable arm's length transaction from a Person who is not such a holder or Affiliate; provided, that the foregoing restriction shall not apply to (a) any transaction between the Borrower and its Subsidiaries or between such Subsidiaries, or between the Borrower or its Subsidiaries and the Guarantors, in each case to the extent otherwise permitted under the other provisions of Section 6 herein; (b) reasonable and customary fees paid to members of the board of directors (or similar governing body) of the Borrower and its Subsidiaries; (c) compensation arrangements for officers and other employees of the Borrower and its Subsidiaries entered into in the ordinary course of business; and (d) transactions described in Schedule 6.9.
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6.10 AMENDMENTS OR WAIVERS OF RELATED AGREEMENT.
(i) The Borrower will not agree to any amendment, restatement, supplement or other modification to, or waive any of its rights under, any Related Agreement, the Revolving Credit Facility or any agreement relating to the Assurant Reincorporation, in each case to the extent any such amendment, restatement, supplement or modification could be materially adverse to the Lenders, without obtaining the prior written consent of the Requisite Lenders.
(ii) The Borrower will not, and will not permit any of its Subsidiaries to, amend or otherwise change the terms of any Indebtedness described in clause (v) of the definition of Restricted Payments (other than the Additional Parent Debt and the Assurant Commercial Paper Debt) or the certificate of designations or other document governing the rights or obligations with respect to the Class B and Class C Common Stock of the Borrower and the Class B and Class C Preferred Stock of the Borrower, or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on such Indebtedness or the rate or frequency of dividends payable on such Capital Stock, change (to earlier dates) any dates upon which payments of principal or interest are due thereon or the date for redemptions thereof, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions thereof (or of any guaranty thereof), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Indebtedness or Capital Stock (or a trustee or other representative on their behalf) which could be materially adverse to the Lenders.
6.11 FINANCIAL COVENANTS.
(i) Minimum Statutory Capital. The Borrower shall not permit the Statutory Surplus of the Insurance Subsidiaries (on a consolidated basis) at any time to be less than $1,500,000,000.
(ii) Minimum Interest Coverage Ratio. The Borrower shall not permit the Interest Coverage Ratio as of the last day of any Fiscal Quarter to be less than the correlative ratio set forth opposite such date below:
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FISCAL QUARTER ENDED INTEREST COVERAGE RATIO -------------------- ----------------------- December 31, 2003 4.00:1.00 March 31, 2004 4.00:1.00 June 30, 2004 5.50:1.00 September 30, 2004 5.50:1.00 |
(iii) Maximum Indebtedness to Capitalization Ratio. The Borrower shall not permit the Indebtedness to Capitalization Ratio as of the last day of any Fiscal Quarter to exceed 0.475:1.00; provided, that, beginning with the last day of the Fiscal Quarter in which the closing of the Assurant IPO occurs (and on the last day of any Fiscal Quarter thereafter), the Borrower shall not permit the Indebtedness to Capitalization Ratio to exceed 0.35:1.00; provided, further, that, notwithstanding the foregoing, for the Fiscal Quarters ending December 31, 2003 and March 31, 2004, the Borrower shall not permit the Indebtedness to Capitalization Ratio to exceed 0.50:1.00.
(iv) Minimum Consolidated Adjusted Net Worth. The Borrower shall not permit its Consolidated Adjusted Net Worth at any time to be less than the sum of (x) $1,800,000,000 (minus any after-tax prepayment penalties incurred with respect to the Capital Securities and the Existing Intercompany Obligations), plus (y) 50% of Consolidated Net Income for each Fiscal Quarter (beginning with the first Fiscal Quarter ending after the Closing Date) for which Consolidated Net Income (measured at the end of each such Fiscal Quarter) is a positive amount plus (z) 100% of the proceeds from any capital contribution to, or issuance of any Capital Stock of, the Borrower or any Subsidiary of the Borrower (but excluding any issuance by a Subsidiary of the Borrower to the Borrower or to a wholly-owned Subsidiary of the Borrower, and any capital contribution by the Borrower or a Subsidiary of the Borrower to a wholly-owned Subsidiary of the Borrower).
(v) Certain Calculations. With respect to any period during which a Permitted Acquisition or an Asset Sale has occurred (each, a "SUBJECT TRANSACTION"), for purposes of determining compliance with the financial covenants set forth in this Section 6.11, Consolidated Adjusted EBIT shall be calculated with respect to such period on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S-X promulgated under the Securities Act and as interpreted by the staff of the Securities and Exchange Commission, which would include cost savings resulting from head count reduction, closure of facilities and similar restructuring charges, which pro forma adjustments shall be certified by the chief financial officer of the Borrower)
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using the historical audited financial statements of any business so acquired or to be acquired or sold or to be sold and the consolidated financial statements of the Borrower and its Subsidiaries which shall be reformulated as if such Subject Transaction, and any Indebtedness incurred or repaid in connection therewith, had been consummated or incurred or repaid at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans incurred during such period).
SECTION 7. EVENTS OF DEFAULT
If any of the following conditions or events ("EVENTS OF DEFAULT") shall occur:
7.1 FAILURE TO MAKE PAYMENTS WHEN DUE.
Failure by the Borrower to pay any installment of principal of the Loan when due, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; or failure by the Borrower to pay any interest on the Loan or any fee or any other amount due under this Agreement within three (3) Business Days after the date due; or
7.2 DEFAULT IN OTHER AGREEMENTS.
(i) Failure of the Borrower or any of its Subsidiaries to pay when
due any principal of or interest on or any other amount payable in respect of
one or more items of Indebtedness (other than Indebtedness referred to in
Section 7.1 above) in excess of $20,000,000 individually or $50,000,000 in the
aggregate and in each case beyond the end of any grace period provided therefor,
if any; or (ii) breach or default by the Borrower or any of its Subsidiaries
with respect to any other material term of (a) one or more items of such
Indebtedness or (b) any loan agreement, mortgage, indenture or other agreement
relating to such item(s) of Indebtedness, in each case beyond the end of any
grace period provided therefor, if any, if the effect of such breach or default
is to cause, or to permit the holder or holders of that Indebtedness (or a
trustee on behalf of such holder or holders) to cause, that Indebtedness to
become or be declared due and payable (or redeemable) prior to its stated
maturity or the stated maturity of any underlying obligation, as the case may
be; or
7.3 BREACH OF CERTAIN COVENANTS.
(i) Failure of the Borrower to perform or comply with any term or
condition contained in Sections 2.4B(ii), 2.4B(v), 5.1(v), 5.3 (with respect to
the existence of the Borrower only), 5.8, 5.10 or Section 6 of this Agreement;
(ii) failure of the Borrower to
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perform or comply with Section 5.1(vi) and such failure shall not have been remedied or waived within five (5) days after an officer of the Borrower or any of its Subsidiaries becoming aware of such failure; or (iii) prior to the Guaranty Fall-Away Date, failure of any Guarantor to perform or comply with any term or condition contained in Sections 2.7(a) (with respect to the existence of any Guarantor or any Guarantor Material Subsidiary (as such term is defined in the Guaranty) only), 2.7(d), 2.7(e) or 2.7(f) of the Guaranty; or
7.4 BREACH OF WARRANTY.
(i) Any representation, warranty, certification or other statement made by the Borrower in any Loan Document or Related Agreement, or by the Borrower or any of its Subsidiaries in any statement or certificate at any time given by the Borrower or any such Subsidiary in writing pursuant hereto or thereto, or in connection herewith or therewith shall be false in any material respect on the date as of which made, or (ii) prior to the Guaranty Fall-Away Date, any representation, warranty, certification or other statement made by any Guarantor in the Guaranty, or by any Guarantor or any of its Subsidiaries in any statement or certificate at any time given by any Guarantor or any such Subsidiary in writing pursuant hereto or thereto, or in connection herewith or therewith shall be false in any material respect on the date as of which made; or
7.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS, RELATED AGREEMENTS AND GUARANTY.
(i) The Borrower shall default in the performance of or compliance with any term contained in this Agreement, any of the other Loan Documents or the Related Agreements to which it is a party, or prior to the Guaranty Fall-Away Date, any Guarantor shall default in the performance of or compliance with any term contained in the Guaranty or the Related Agreements to which it is a party, in each case other than any such term referred to in any other subsection of this Section 7, and such default shall not have been remedied or waived within thirty (30) days after receipt by the Borrower of notice from the Administrative Agent of such default; or
(ii) Prior to the Guaranty Fall-Away Date, the occurrence of any event that would otherwise constitute an "Event of Default" (as that term is defined in the Existing Parent Facility) under Clause 17.4 through Clause 17.8, inclusive, and Clause 17.11 through 17.13, inclusive, of the Existing Parent Facility, which such Clauses, together with all definitions in the Existing Parent Facility applicable to such Clauses (as amended by the Guaranty, as applicable), are hereby incorporated by reference as if set forth herein in their entirety; provided, that all references to "Obligor" therein shall mean and be a reference to each "Guarantor" herein, all references to "Material Adverse Effect" therein shall mean and be a reference to "Material Adverse Effect" as defined in the Guaranty, all references to "Material Subsidiary" therein shall mean and be a reference to "Guarantor Material Subsidiary" as defined in the Guaranty, all references to "subsidiary" therein
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shall mean and be a reference to "Subsidiary" as defined herein, all references to "Instructing Group" therein shall mean and be a reference to "Requisite Lenders" as defined herein, and all references to "Agreement" shall mean and be a reference to the Guaranty; provided, further, that no amendment, modification or supplement to such provisions or definitions made to the Existing Parent Facility, or the termination, refinancing or replacement of the Existing Parent Facility, shall be effective to amend such provisions or definitions as incorporated by reference herein; provided, however, that this Section 7.5(ii) will be deemed modified (without the consent of any Person) to the extent necessary to incorporate by reference any such respective amendment, modification or supplement to the Existing Parent Facility which contains provisions more favorable to the Lenders; or
7.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) A court of competent jurisdiction shall enter a decree or order for relief in respect of the Borrower or any of its Material Subsidiaries in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against the Borrower or any of its Material Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower or any of its Material Subsidiaries, or over all or a substantial part of their respective property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of the Borrower or any of its Material Subsidiaries for all or a substantial part of their respective property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of the Borrower or any of its Material Subsidiaries, and any such event described in this clause (ii) shall continue for sixty (60) days unless dismissed, bonded or discharged; or
7.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) The Borrower or any of its Material Subsidiaries shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or the Borrower or any of its Material Subsidiaries shall make any assignment for the benefit of creditors; or
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(ii) the Borrower or any of its Material Subsidiaries shall be unable, or shall fail generally, or shall admit in writing their respective inability, to pay its debts as such debts become due; or the board of directors (or similar governing body) of the Borrower or any of its Material Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in this Section 7.7 or in Section 7.6 above; or
7.8 JUDGMENTS AND ATTACHMENTS.
Any money judgment, writ or warrant of attachment or similar process involving in excess of $20,000,000 individually or $50,000,000 in the aggregate (in each case not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against the Borrower or any of its Subsidiaries, or any of their respective assets, and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days (or in any event later than five (5) days prior to the date of any proposed sale thereunder); or
7.9 DISSOLUTION.
Any order, judgment or decree shall be entered against the Borrower or any of its Material Subsidiaries decreeing the dissolution or split up of such Person; or
7.10 EMPLOYEE BENEFIT PLANS.
There shall occur one or more ERISA Events which individually or in the aggregate results in or is reasonably be expected to result in liability of the Borrower or any of its Subsidiaries or any of their respective ERISA Affiliates in excess of $25,000,000 during the term of this Agreement; or the occurrence of an event or condition that could reasonably be expected to result in the imposition of a Lien or security interest under Section 412(n) of the Internal Revenue Code or under ERISA; or
7.11 CHANGE IN CONTROL. A Change of Control shall occur; or 7.12 REPUDIATION OF OBLIGATIONS. At any time after the execution and delivery thereof, (i) the Guaranty |
for any reason shall cease to be in full force and effect (other than by reason
of the satisfaction in full of the Obligations or the Guaranty Obligations, the
occurrence of the Guaranty Fall-Away Date or any other termination of the
Guaranty in accordance with the terms thereof) or shall be declared null and
void, or any Guarantor shall repudiate in writing its obligations thereunder,
(ii) this Agreement for any reason shall cease to be in full force and effect
(other than by reason of the satisfaction in full of the Obligations) or shall
be
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declared null and void, or (iii) the Borrower or any Guarantor shall contest the validity or enforceability of any Loan Document or the Guaranty, or any Related Document, or deny in writing that it has any further liability under any Loan Document to which it is a party; or
7.13 INSURANCE LICENSES.
Any one or more Insurance Licenses shall be suspended, revoked, terminated, not renewed or limited, or any other action shall be taken by a Governmental Authority, in each case which would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect;
THEN (i) upon the occurrence of any Event of Default described in Section 7.6 or 7.7, each of (a) the unpaid principal amount of and accrued interest on the Loans and (b) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Borrower and (ii) upon the occurrence and during the continuation of any other Event of Default, the Administrative Agent shall, upon the written request or with the written consent of the Requisite Lenders, by notice to the Borrower, declare all or any portion of the amounts described in clauses (a) and (b) above to be, and the same shall forthwith become, immediately due and payable.
SECTION 8. MISCELLANEOUS
8.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND NOTES.
A. RIGHT TO ASSIGN. Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including, without limitation, all or a portion of its Commitment or Loans owing to it or other Obligation (provided, however, that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any Loan and any related Commitment): (i) to any Person meeting the criteria of clause (A) of the definition of the term of "Eligible Assignee" upon the giving of notice to the Borrower and the Administrative Agent; and (ii) to any Person meeting the criteria of clause (B) of the definition of the term of "Eligible Assignee" and consented to by each of the Borrower and the Administrative Agent (such consent not to be (x) unreasonably withheld or delayed or, (y) in the case of the Borrower, required at any time an Event of Default shall have occurred and then be continuing); provided, further each such assignment pursuant to this Section 8.1A shall be in an aggregate amount of not less than $1,000,000 (or such lesser amount as may be agreed to by the Borrower and the Administrative Agent or as shall constitute the aggregate amount of the Commitment and Loans of the assigning Lender).
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B. REQUIREMENTS. The assigning Lender and the assignee thereof shall execute and deliver to the Administrative Agent an Assignment Agreement, together with (i) a processing and recordation fee of $3,500 (paid by the assigning Lender or the assignee), and (ii) such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to the Administrative Agent pursuant to Section 2.5B(iii) as if such assignee was a Lender pursuant to that Section.
C. ACCEPTANCE AND NOTICE OF ASSIGNMENT. Upon its receipt of a duly executed and completed Assignment Agreement, together with the processing and recordation fee referred to in Section 8.1B (and any forms, certificates or other evidence required by this Agreement in connection therewith), the Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to the Borrower and shall maintain a copy of such Assignment Agreement.
D. REPRESENTATIONS AND WARRANTIES OF ASSIGNEE. Each Lender, upon execution and delivery hereof or upon executing and delivering an Assignment Agreement, as the case may be, represents and warrants as of the Closing Date or as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Commitment or Loans, as the case may be; and (iii) it will make or invest in, as the case may be, its Commitment or Loans for its own account in the ordinary course of its business and without a view to distribution of such Commitment or Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 8.1, the disposition of such Commitment or Loans or any interests therein shall at all times remain within its exclusive control).
E. EFFECT OF ASSIGNMENT. Subject to the terms and conditions of this
Section 8.1, as of the "Effective Date" specified in the applicable Assignment
Agreement: (i) the assignee thereunder shall have the rights and obligations of
a "Lender" hereunder to the extent such rights and obligations hereunder have
been assigned to it pursuant to such Assignment Agreement and shall thereafter
be a party hereto and a "Lender" for all purposes hereof; (ii) the assigning
Lender thereunder shall, to the extent that rights and obligations hereunder
have been assigned thereby pursuant to such Assignment Agreement, relinquish its
rights (other than any rights which survive the termination hereof under Section
8.8) and be released from its obligations hereunder (and, in the case of an
Assignment Agreement covering all or the remaining portion of an assigning
Lender's rights and obligations hereunder, such Lender shall cease to be a party
hereto; provided, anything contained in any of the Loan Documents to the
contrary notwithstanding, such assigning Lender shall continue to be entitled to
the benefit of all indemnities hereunder as specified herein with respect to
matters arising out of the prior involvement of such assigning Lender as a
Lender hereunder); (iii) the Commitments
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shall be modified to reflect the Commitments of such assignee and of such assigning Lender, if any; and (iv) if any such assignment occurs after the issuance of any Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes to the Administrative Agent for cancellation, and thereupon the Borrower shall issue and deliver a new Note, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new Commitments and/or outstanding Loans of the assignee and/or the assigning Lender.
F. CERTAIN OTHER PERMITTED ASSIGNMENTS. In addition to any other assignment permitted pursuant to this Section 8.1, (i) any Lender may assign and/or pledge all or any portion of its Loans, the other Obligations owed by or to such Lender, and its Notes, if any, to secure obligations of such Lender including, without limitation, any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided, no Lender, as between the Borrower and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and provided further, in no event shall the applicable Federal Reserve Bank, pledgee or trustee be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder.
G. ASSIGNMENT TO A SPECIAL PURPOSE FUNDING VEHICLE. Notwithstanding anything to the contrary contained herein, any Lender (a "GRANTING LENDER") may grant to a special purpose funding vehicle (a "SPFV"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPFV to make any Loan, (ii) if an SPFV elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPFV hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPFV shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPFV, it will not institute against, or join any other person in instituting against, such SPFV any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 8.1G, any SPFV may (i) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without
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paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Borrower and Administrative Agent) providing liquidity and/or credit support to or for the account of such SPFV to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPFV.
H. PARTICIPATIONS. Each Lender shall have the right at any time to sell
one or more participations to any Person (other than the Borrower, any of its
Subsidiaries or any of its Affiliates, or any Guarantor, any of its Subsidiaries
or any of its Affiliates) in all or any part of its Commitment, Loans or in any
other Obligation. The holder of any such participation, other than an Affiliate
of the Lender granting such participation, shall not be entitled to require such
Lender to take or omit to take any action hereunder except with respect to any
amendment, modification or waiver that would (i) extend the final scheduled
maturity of any Loan or Note in which such participant is participating, or
reduce the rate or extend the time of payment of interest or fees thereon
(except in connection with a waiver of applicability of any post default
increase in interest rates) or reduce the principal amount thereof, or increase
the amount of the participant's participation over the amount thereof then in
effect (it being understood that a waiver of any Event of Default or of a
mandatory reduction in the Commitments shall not constitute a change in the
terms of such participation, and that an increase in any Commitment or Loan
shall be permitted without the consent of any participant if the participant's
participation is not increased as a result thereof), (ii) consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement or (iii) release any or all of the Guarantors from the
Guaranty or terminate the Guaranty. The Borrower agrees that each participant
shall be entitled to the benefits of Sections 2.6C and 2.5 to the same extent as
if it were a Lender and had acquired its interest by assignment pursuant to
Section 8.1A; provided, (i) a participant shall not be entitled to receive any
greater payment under Section 2.5 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such participant,
unless the sale of the participation to such participant is made with the
Borrower's prior written consent and (ii) a participant that would be a Non-US
Lender if it were a Lender shall not be entitled to the benefits of Section 2.5B
unless the Borrower is notified of the participation sold to such participant
and such participant agrees, for the benefit of the Borrower, to comply with
Section 2.5B as though it were a Lender. To the extent permitted by law, each
participant also shall be entitled to the benefits of Section 8.4 as though it
were a Lender, provided such Participant agrees to be subject to Section 8.18 as
though it were a Lender.
8.2 EXPENSES.
Whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to pay promptly (i) all actual and reasonable costs and out-of-pocket
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expenses incurred by each Joint Lead Arranger and each Agent in connection with the syndication of the Loans and the negotiation, preparation and execution of the Loan Documents and the transactions contemplated thereby; (ii) all the costs of furnishing all opinions by counsel for the Borrower and the Guarantors; (iii) the reasonable fees, out-of-pocket expenses and disbursements of counsel to the Joint Lead Arrangers and the Agents in connection with the negotiation, preparation and execution of the Loan Documents and any other documents or matters requested by the Borrower; (iv) all actual and reasonable costs and out-of-pocket expenses incurred by the Administrative Agent in connection with any consents, amendments, waivers or other modifications of the Loan Documents (including the reasonable fees, out-of-pocket expenses and disbursements of counsel to the Administrative Agent in connection therewith); and (v) after the occurrence of an Event of Default, all costs and expenses, including reasonable attorneys' fees and costs of settlement, incurred by any Joint Lead Arranger, any Agent or Lender in enforcing any Obligations of or in collecting any payments due from the Borrower hereunder or under the other Loan Documents by reason of such Event of Default (including in connection with the sale of, collection from, or other realization upon any collateral or the enforcement of the Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in each case in the nature of a "work-out" or pursuant to any insolvency or bankruptcy cases or proceedings.
8.3 INDEMNITY.
A. In addition to the payment of expenses pursuant to Section 8.2, whether or not the transactions contemplated hereby shall be consummated, the Borrower agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless each of the Joint Lead Arrangers and Agents and each Lender, and the respective partners, officers, directors, employees, agents, attorneys, and affiliates of each of the Joint Lead Arrangers and each of the Agents and each Lender (collectively called the "INDEMNITEES"), from and against any and all Indemnified Liabilities (as hereinafter defined); provided that the Borrower shall not have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct of that Indemnitee as determined by a final judgment of a court of competent jurisdiction. As used herein, "INDEMNIFIED LIABILITIES" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, actions, judgments, suits, claims (including Environmental Claims), costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations
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(including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby (including the Lenders' agreements to make the Loans hereunder or the use or intended use of the proceeds thereof, or any enforcement of any of the Loan Documents).
B. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this Section 8.3 may be unenforceable in whole or in part because they are violative of any law or public policy, the Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them.
C. To the extent permitted by applicable law, the Borrower and each of its Subsidiaries shall not assert, and each hereby waives, any claim against the Lenders, the Agents, Joint Lead Arrangers and their respective Affiliates, officers, directors, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) (whether or not the claim therefor is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, as a result of, or in any way related to, this Agreement or any other Loan Document, any Related Agreement or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and the Borrower and each of its Subsidiaries hereby waives, releases and agrees not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
8.4 SET-OFF.
In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each of the Agents and each Lender, and each of their respective Affiliates, is hereby authorized by the Borrower at any time or from time to time subject to the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed), without notice to the Borrower or to any other Person (other than the Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Agent or such Lender, or their respective Affiliates, as the case may be, to or for the credit or the
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account of the Borrower against and on account of any obligations and liabilities of the Borrower to such Agent or such Lender under this Agreement and the other Loan Documents which are then due and payable, including all claims of any nature or description arising out of or connected with this Agreement or any other Loan Document, irrespective of whether or not (i) such Agent or such Lender shall have made any demand hereunder or (ii) said obligations and liabilities, or any of them, may be unmatured.
8.5 AMENDMENTS AND WAIVERS.
No amendment, modification, termination or waiver of any provision of
this Agreement or of any other Loan Document, or consent to any departure by the
Borrower therefrom, shall in any event be effective without the written
concurrence of the Requisite Lenders; provided, (A) that no amendment,
modification, termination, waiver or consent shall, without the consent of each
Lender affected thereby: (i) extend the scheduled final maturity of any Loan or
Note, (ii) waive, reduce or postpone any scheduled repayment (but not
prepayment), (iii) reduce the rate of interest on any Loan or any fee or other
amount payable hereunder, (iv) extend the time for payment of any such interest
or fees, (v) reduce the principal amount of any Loan or Note, (vi) amend,
modify, terminate or waive any provision of this Section 8.5, (vii) amend,
modify or replace the definition of "Requisite Lenders" or "Pro Rata Share",
(viii) release any or all of the Guarantors from the Guaranty or terminate the
Guaranty (it being understood that any amendment, modification or waiver of any
provision of the Guaranty shall be in accordance with Section 3.5 thereof) or
(ix) consent to the assignment or transfer by the Borrower of any of its rights
and obligations under this Agreement; (B) that no such amendment, modification,
termination or waiver of any provision of the Loan Documents, or consent to any
departure by the Borrower therefrom, shall: (i) increase the Commitment of any
Lender over the amount thereof then in effect without the consent of such Lender
or (ii) amend, modify, terminate or waive any provision of this Agreement as the
same applies to the rights or obligations of any Agent, in each case without the
consent of such Agent; and (C) that no amendment, modification, waiver or
consent shall, without the prior written consent of the Guarantors: (i) extend
the scheduled final maturity of any Loan or Note, (ii) increase the rate of
interest on any Loan, (iii) increase the principal amount of any Loan or Note or
(iv) amend, modify, terminate or waive any provision of this proviso (C) to
Section 8.5. The Administrative Agent may, but shall have no obligation to, with
the concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of such Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances.
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8.6 INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists.
8.7 NOTICES.
Unless otherwise specifically provided herein, all notices or other communications provided for hereunder between the Borrower and any other Person party hereto shall be in writing (including telecopier or electronic mail) and mailed, sent by overnight courier, telecopied, e-mailed, or delivered to, in the case of each signatory to this Agreement, at its address set forth on the signature pages hereto, or, as to each party, at such other address or to such other person as shall be designated by such party in a written notice to all other parties. Any notice, request or demand to or upon the Borrower or any other Person party hereto shall not be effective until received.
8.8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Borrower set forth in Sections 2.5, 2.6C, 8.2, 8.3 and 8.4 and the Agreements of the Lenders set forth in Sections 8.18, 9.2C and 9.4 shall survive the payment of the Loans and the termination of this Agreement.
8.9 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of any Joint Lead Arranger, any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Joint Lead Arranger, each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Loan Document or any Related Agreement. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.
$1,100,000,000 CREDIT AGREEMENT 8.10 MARSHALLING; PAYMENTS SET ASIDE. No Agent or Lender shall be under any obligation to marshal any assets |
in favor of the Borrower or any other Person or against or in payment of any or all of the Obligations. To the extent that the Borrower makes a payment or payments to the Administrative Agent or the Lenders (or to the Administrative Agent, on behalf of the Lenders) or the Administrative Agent or the Lenders enforce any security interests or exercises their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.
8.11 SEVERABILITY.
In case any provision in or obligation under this Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
8.12 HEADINGS.
Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect.
8.13 APPLICABLE LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
8.14 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Agents and the Lenders (it being understood that each Lender's rights of assignment are subject to Section 8.1). Except as part of the Assurant Reincorporation and upon compliance with Section 5.9(iii), the Borrower may not assign or delegate its rights or obligations hereunder or any interest therein without the prior written consent of each Lender. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective
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successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Affiliates of each of the Agents and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
8.15 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK, OR IN ANY COURT LOCATED IN ITS OWN CORPORATE DOMICILE. BY EXECUTING AND DELIVERING THIS AGREEMENT, THE BORROWER, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE BORROWER AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 8.7;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE BORROWER IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT EACH AGENT AND EACH LENDER RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 8.15
RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO
THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW
SECTION 5-1402 OR OTHERWISE.
$1,100,000,000 CREDIT AGREEMENT 8.16 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS |
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 8.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court.
8.17 CONFIDENTIALITY.
Each Lender shall hold all non-public information regarding the Borrower and its Subsidiaries and their businesses in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, it being understood and agreed by the Borrower that in any event each Lender may make disclosures (i) to Affiliates of such Lender and their agents and advisors (and to other persons authorized by a Lender to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 8.17); (ii) reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by any Lender of its Loans or any interest therein, provided that, prior to any disclosure, such Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information
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confidential; (iii) to any rating agency when required by it, provided that, prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential information relating to the Borrower or its Subsidiaries received by it from any of the Agents or any Lender; and (iv) required or requested by any governmental agency or representative thereof or by the NAIC or pursuant to legal process; provided that unless specifically prohibited by applicable law or court order, each Lender shall make reasonable efforts to notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; and provided, further that in no event shall any Lender be obligated or required to return any materials furnished by the Borrower or any of its Subsidiaries. Notwithstanding anything to the contrary set forth herein, each party (and each of their respective employees, representatives or other agents) may disclose to any and all persons, without limitations of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions and other tax analyses) that are provided to any such party relating to such tax treatment and tax structure. However, any information relating to the tax treatment or tax structure shall remain subject to the confidentiality provisions hereof (and the foregoing sentence shall not apply) to the extent reasonably necessary to comply with applicable securities laws. For this purpose, "tax structure" means any facts relevant to the federal income tax treatment of the transactions contemplated by this Agreement but does not include information relating to the identity of any of the parties hereto or any of their respective Affiliates.
8.18 RATABLE SHARING.
The Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of facility fees or commitment fees and other amounts then due and owing to such Lender hereunder or under the other Loan Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender), which is greater than the proportion received by any other Lender in respect to of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify the Administrative Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries
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of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided that, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of the Borrower or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. The Borrower and each of its Subsidiaries expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by the Borrower or any of its Subsidiaries to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder.
8.19 COUNTERPARTS; EFFECTIVENESS.
This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.
8.20 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.
The obligations of the Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitment of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by any of the Lenders pursuant hereto or thereto, shall be deemed to constitute any of the Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising hereunder and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.
8.21 USURY SAVINGS CLAUSE.
Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. As used herein, "HIGHEST LAWFUL RATE" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter
$1,100,000,000 CREDIT AGREEMENT
be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower shall pay to the Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to the Borrower.
SECTION 9. AGENTS
9.1 APPOINTMENT.
MSSF is hereby appointed as Syndication Agent hereunder, and each Lender hereby authorizes Syndication Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Citicorp North America Inc. is hereby appointed as Documentation Agent hereunder, and each Lender hereby authorizes Documentation Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Bank One, NA is hereby appointed by each Lender as the Administrative Agent hereunder and under the other Loan Documents and each Lender hereby authorizes the Administrative Agent to act as its contractual representative in accordance with the terms of this Agreement and the other Loan Documents. Each Agent hereby agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Section 9 are solely for the benefit of the Agents and the Lenders, and the Borrower shall have no rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Agreement, each of the Agents shall act solely as an agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower or any of its Subsidiaries or any Guarantor.
$1,100,000,000 CREDIT AGREEMENT
9.2 POWERS AND DUTIES; GENERAL IMMUNITY.
A. POWERS; DUTIES SPECIFIED. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Loan Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents, employees and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agent, employee or attorney-in-fact selected by it with reasonable care. Each Agent shall be entitled to advice of counsel concerning the contractual arrangement between such Agent and the Lenders and all matters pertaining to such Agent's duties hereunder and under any other Loan Document. No Agent shall have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. In its capacity as the Lenders' contractual representative, the Administrative Agent is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against any Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives.
B. NO RESPONSIBILITY FOR CERTAIN MATTERS. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any other Loan Document or any other document or instrument furnished in connection herewith or therewith, or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to the Lenders or by or on behalf of the Borrower to any Agent or any Lender in connection with the Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of the Borrower or any other Person liable for the payment of any Obligations or any Subsidiary or Affiliate of the Borrower or any such Person, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Loan Documents or as to the use of the proceeds of the Loans or as to the existence or possible existence of any Event of Default or Potential Event of Default or to make disclosures with respect to the foregoing. Anything contained in this Agreement to the contrary notwithstanding, the Administrative Agent shall not have any liability arising
$1,100,000,000 CREDIT AGREEMENT
from confirmations of the amount of outstanding Loans or the component amounts thereof.
C. EXCULPATORY PROVISIONS. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to the Lenders for any action taken or omitted by any Agent under or in connection with any of the Loan Documents except to the extent determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from such Agent's gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received written instructions in respect thereof from the Requisite Lenders (or such other number of Lenders as may be required to give such instructions under Section 8.5) and, upon receipt of such instructions from the Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for the Borrower and its Subsidiaries or employees of any Agent), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Requisite Lenders (or such other number of Lenders as may be required to give such instructions under Section 8.5).
D. ADMINISTRATIVE AGENT ENTITLED TO ACT AS LENDER. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to, own Securities of, and generally engage in any kind of banking, trust, financial advisory or other business with the Borrower or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower for services in connection with this Agreement and otherwise without having to account for the same to the Lenders.
$1,100,000,000 CREDIT AGREEMENT
E. JOINT LEAD ARRANGERS; JOINT BOOKRUNNERS, ETC. Except as otherwise expressly set forth in this Agreement, the Joint Lead Arrangers, the Joint Bookrunners, the Documentation Agent and the Syndication Agent shall not have any duties or responsibilities under the Loan Documents in their respective capacities as such.
9.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF CREDITWORTHINESS.
Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with the making of the Loans hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of the Borrower and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of the Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to the Lenders.
9.4 RIGHT TO INDEMNITY.
Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by the Borrower, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other Loan Documents (including for any such amounts incurred by or asserted against such Agent in connection with any dispute between such Agent and any Lender or between two or more Lenders); provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from such Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished.
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9.5 SUCCESSOR ADMINISTRATIVE AGENT.
The Administrative Agent may resign at any time by giving thirty (30) days' prior written notice thereof to the Lenders and the Borrower, and the Administrative Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to the Borrower and the Administrative Agent and signed by the Requisite Lenders. Upon any such notice of resignation or any such removal, the Requisite Lenders shall have the right to select a successor Administrative Agent, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed); provided, that the Borrower's consent shall not be required for the Requisite Lenders to appoint any Lender as the Administrative Agent or at any time that an Event of Default shall have occurred and be continuing. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent and the retiring or removed Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as the Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement.
9.6 GUARANTY.
Each Lender hereby further authorizes the Administrative Agent, on behalf of and for the benefit of the Lenders, to enter into, and to be the agent for and representative of the Lenders under, the Guaranty and each Lender agrees to be bound by the terms of the Guaranty; provided, that, except as otherwise provided in the Guaranty, the Administrative Agent shall not enter into or consent to any amendment, modification, termination or waiver of any provision contained in the Guaranty without the prior consent of the Requisite Lenders. Anything contained in any of the Loan Documents to the contrary notwithstanding, the Borrower, the Administrative Agent and each Lender hereby agree that no Lender shall have any right individually to enforce the Guaranty, it being understood and agreed that all powers, rights and remedies hereunder and under the Guaranty may be exercised solely by the Administrative Agent for the benefit of the Lenders in accordance with the terms hereof and thereof.
9.7 ACKNOWLEDGMENT OF POTENTIAL RELATED TRANSACTIONS.
The Borrower hereby acknowledges its understanding that each of the Joint Lead Arrangers, each of the Agents and each of the Lenders may from time to time effect transactions (for its own account or the account of customers), and hold positions in loans or options on loans that may be the subject of this arrangement. In addition, certain Affiliates of the Lenders are full service securities firms and as such may from time to
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time effect transactions (for their own account or the account of customers), and hold positions, in loans or options on loans or securities or options on securities that may be the subject of this arrangement. In addition, each of the Joint Lead Arrangers, each of the Agents and each of the Lenders may employ the services of its affiliates in providing certain services hereunder and may exchange with such affiliates information concerning the Borrower and other companies that may be the subject of this arrangement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
FORTIS, INC.
By: /s/ Miles Yakre --------------------------------- Name: Miles Yakre Title: Vice President/Treasurer |
Notice Address:
Fortis, Inc.
One Chase Manhattan Plaza, 41st Floor
New York, NY 10005
Attention: Katherine Greenzang
Tel: (212) 859-7021
Fax: (212) 859-7034
$1,100,000,000 CREDIT AGREEMENT
CITICORP NORTH AMERICA INC.,
as Lender and Documentation Agent
By: /s/ Robert A. Danziger ----------------------------------- Name: Robert A. Danziger Title: Attorney-In-Fact |
Notice Address:
Citicorp North America Inc.
388 Greenwich St, 23rd Floor
New York, NY 10013-2375
Attention: Maria Hackley
Tel: (212) 816-3968
Fax: (212) 816-4144
CITIGROUP GLOBAL MARKETS INC.,
as Joint Bookrunner and Joint Lead
Arranger
By: /s/ Robert A. Danziger ---------------------------------- Name: Robert A. Danziger Title: Attorney-In-Fact |
Notice Address:
Citigroup Global Markets Inc.
388 Greenwich St, 23rd Floor
New York, NY 10013-2375
Attention: Maria Hackley
Tel: (212) 816-3968
Fax: (212) 816-4144
S-1.1B
$1,100,000,000 CREDIT AGREEMENT
MORGAN STANLEY SENIOR FUNDING,
INC., as Lender, Syndication Agent,
Joint Bookrunner and Joint Lead
Arranger
By: /s/ Jaap L. Tonckens ----------------------------------- Name: Jaap L. Tonckens Title: Vice President |
Notice Address:
Morgan Stanley Senior Funding, Inc.
1585 Broadway
New York, NY 10036
Attention: James Morgan
Tel. (212) 537-1470
Fax (212) 537-1867 / 1866
S-1.1B
$1,100,000,000 CREDIT AGREEMENT
BANK ONE, NA,
as Lender and Administrative Agent
By: /s/ Gerard. P. Fogarty ----------------------------------- Name: Gerard. P. Fogarty Title: Director |
Funding and Payment Office Address: Notice Address: Bank One, NA Bank One, NA 1 Bank One Plaza 1 Bank One Plaza Mail Code: IL1-0010 Mail Code: IL1-0325 Chicago, IL 60670 Chicago, IL 60670 Attention: Lillian Arroyo Attention: Gerard Fogarty Tel: (312) 385-7014 Tel: (312) 325-3197 Fax: (312) 385-7102 Fax: (312) 325-3190 |
BANC ONE CAPITAL MARKETS, INC,
as Joint Lead Arranger
By: /s/ T. Heldring ----------------------------------- Name: T. Heldring Title: |
Notice Address:
Banc One Capital Markets, Inc.
1 Bank One Plaza
Mail Code: IL1-0429
Chicago, IL 60670
Attn: Tim Houlahan
Tel: (312) 732-8758
Fax: (312) 732-7455
S-1.1B
$1,100,000,000 CREDIT AGREEMENT
CREDIT SUISSE FIRST BOSTON
(ACTING THROUGH ITS CAYMAN ISLANDS BRANCH),
as Lender
By: /s/ Jay Chall --------------------------------------- Name: Jay Chall Title: Director By: /s/ James Moran --------------------------------------- Name: James Moran Title: Director |
Notice Address:
Credit Suisse First Boston
One Madison Avenue, 2nd Floor
New York, New York 10010
Attention: Ed Markowski
Tel: (212) 538-3380
Fax: (212) 538-6851
S-1.1B
$1,100,000,000 CREDIT AGREEMENT
MERRILL LYNCH BANK USA,
as Lender
By: /s/ David Millet -------------------------------------- Name: David Millet Title: Vice President |
Notice Address: with a copy to: Merrill Lynch Bank USA Merrill Lynch Loan Portfolio Management 15 W. South Temple, Ste. 300 4 World Financial Center Salt Lake City, UT 84101 16th Floor, D0829 Attention: Julie Young New York, NY 10080 Tel: (801) 526-6331 Attention: Lawrence Temlock Tel: (212) 449-1351 Fax: (212) 738-1186 S-1.1B |
$1,100,000,000 CREDIT AGREEMENT GOLDMAN SACHS CREDIT PARTNERS L.P., as Lender By: /s/ Albert Dombrowski ----------------------- Name: Albert Dombrowski Title: Authorized Signatory Notice Address: Goldman, Sachs & Co. 85 Broad Street, 29th Floor New York, New York 10004 Attention: Jennifer Percival Tel: (212) 902-6284 Fax: (212) 357-8068 S-1.1B |
$1,100,000,000 CREDIT AGREEMENT JPMORGAN CHASE BANK, as Lender By: /s/ Heather A. Lindstrom -------------------------- Name: Heather A. Lindstrom Title: Vice President Notice Address: JPMorgan Chase Bank 270 Park Avenue, Fourth Floor New York, NY 10017 Attention: Heather Lindstrom Tel: (212) 270-9839 Fax: (212) 270-1511 |
S-1.1B
SCHEDULE 2.1
(LENDERS' COMMITMENTS AND PRO RATA SHARES)
LENDER COMMITMENT PRO RATA SHARE ------ ---------- -------------- Bank One, NA $ 283,333,333.34 25.75% Morgan Stanley Senior Funding, Inc. $ 283,333,333.33 25.75% Citicorp North America Inc. $ 283,333,333.33 25.75% Credit Suisse First Boston (acting through its Cayman Islands branch) $ 75,000,000 6.82% Merrill Lynch Bank USA $ 75,000,000 6.82% Goldman Sachs Credit Partners L.P. $ 50,000,000 4.55% JPMorgan Chase Bank $ 50,000,000 4.55% TOTAL $1,100,000,000.00 100% |
Exhibit 10.23
PARENT GUARANTY (US$1,100,000,000 CREDIT AGREEMENT)
PARENT GUARANTY
This PARENT GUARANTY, dated as of December 19, 2003, is entered into by FORTIS N.V., a public company with limited liability (naamloze vennootschap) incorporated under the laws of The Netherlands having its statutory seat (statutaire zetel) at Utrecht, The Netherlands and registered with the Chamber of Commerce in Utrecht under number 30072145 ("Fortis N.V.") and FORTIS SA/NV, a public company with limited liability (societe anonyme/naamloze vennootschap) incorporated in Belgium and registered with the register of legal persons (rechtspersonenregister), Brussels, under company number 0451406524 (formerly registered with the Brussels Trade Register under No. 577.615 ("Fortis SA/NV", and together with Fortis N.V., each, a "Guarantor" and collectively the "Guarantors"), in favor and for the benefit of BANK ONE, NA ("Bank One"), as Administrative Agent for and representative of (in such capacity herein called "Guaranteed Party") the Lenders (as hereinafter defined).
RECITALS
WHEREAS, FORTIS, INC., a Nevada corporation ("Fortis US"), Morgan Stanley Senior Funding, Inc. ("MSSF") in each of its respective capacities as Joint Bookrunner, Joint Lead Arranger and Syndication Agent, Citigroup Global Markets Inc. ("CGM") as Joint Bookrunner and Joint Lead Arranger, Citicorp North America, Inc. ("CNA") as Documentation Agent, Banc One Capital Markets, Inc. ("BOCM") as Joint Lead Arranger, Bank One collectively with each of MSSF, CNA and any other financial institution from time to time parties thereto, the "Lenders", have entered into a Credit Agreement of even date herewith (as it may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement") pursuant to which the Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain term loans to Borrower;
WHEREAS, it is a condition precedent to the making of Loans under the Credit Agreement that the Borrower's obligations thereunder be guaranteed by the Guarantors; and
WHEREAS, the Guarantors are willing irrevocably and unconditionally to guaranty such obligations of Borrower until such time as the Guaranty terminates by its terms.
NOW, THEREFORE, in consideration of the premises and to induce the Lenders to enter into the Credit Agreement and to make their respective loans to the Borrower and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Guarantors hereby agree as follows:
PARENT GUARANTY (US$1,100,000,000 CREDIT AGREEMENT)
SECTION 1. DEFINITIONS
1.1 Certain Defined Terms. Capitalized terms used herein, including in the preamble and the recitals hereto, not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. All defined terms included in any provisions of the Existing Parent Facility which are incorporated by reference into this Guaranty shall have the meanings as included in the Existing Parent Facility unless otherwise provided herein. In addition, the following terms shall have the following meanings:
"Acceleration" shall mean any of the Obligations have been declared, or have become, immediately due and payable, or the commitments to extend credit of the Lenders shall have been terminated in accordance with the Credit Agreement.
"Act" as defined in Section 3.10(d).
"Aggregate Payments" as defined in Section 2.2.
"Beneficiary" means either the Guaranteed Party or each Lender, and "Beneficiaries" means the Guaranteed Party and each Lender, collectively.
"Borrower" means Fortis US and its permitted successors and assigns in accordance with the terms of the Credit Agreement, including Assurant.
"Contributing Guarantors" as defined in Section 2.2.
"Credit Extension" means the making of a Loan or other extension of credit under the Credit Agreement.
"Deposit Account" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit.
"Existing Parent Facility" means that certain EUR2,000,000,000 Multicurrency Revolving Credit Agreement, dated June 28, 1999, by and among, Fortis Finance N.V., as Borrower thereunder, Fortis N.V. and Fortis SA/NV as Guarantors thereunder, and the other institutions party thereto, a copy of which is attached hereto as Exhibit A, as the same may be amended, supplemented or otherwise modified from time to time, in accordance with Section 2.7(g) herein.
"Fair Share" as defined in Section 2.2.
"Fair Share Contribution Amount" as defined in Section 2.2.
PARENT GUARANTY (US$1,100,000,000 CREDIT AGREEMENT)
"Foreign Taxes" as defined in Section 3.10(e).
"Funding Guarantor" as defined in Section 2.2.
"GAAP" means, with respect to each of the Guarantors, (i) generally accepted accounting principles in Belgium or (ii) International Auditing Standards/International Financial Reporting Standards ("IAS"), if the Guarantors financial statements are prepared in accordance with IAS, in each case as in effect from time to time.
"Guaranteed Obligations" as defined in Section 2.1.
"Guarantor Material Subsidiary" means any Subsidiary of a Guarantor if either (i) such Subsidiary (and its Subsidiaries) have consolidated gross revenues which exceed 5% of the gross revenues of the Guarantors and their Subsidiaries on a consolidated basis or (ii) such Subsidiary (and its Subsidiaries) have consolidated total assets which exceed 5% of the total assets of the Guarantors and their Subsidiaries on a consolidated basis, such calculation to be made on the basis of the most recent audited consolidated financial statements for the Guarantors and their Subsidiaries and of such Subsidiary.
"Guaranty" means this Parent Guaranty dated as of the date hereof, as it may be amended, supplemented or otherwise modified from time to time.
"Guaranty Fall-Away Date" means the date on which all of the following conditions are satisfied: (i) the Assurant IPO has closed; (ii) the Guarantors collectively owning less than fifty percent (50%) of the Common Stock of the Borrower; and (iii) the Borrower having (at or subsequent to the time the conditions in both clauses (i) and (ii) have been satisfied) stand-alone senior unsecured ratings equal to or higher than both BBB+ from S&P and Baa1 from Moody's, respectively, each with a stable outlook.
"Material Adverse Effect" means a material adverse effect upon (i) the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Guarantors and their Subsidiaries, taken as a whole, (ii) the ability of the Borrower or either of the Guarantors to perform, respectively, any of the Obligations of the Borrower or the obligations of either of the Guarantors under the Guaranty or (iii) the legality, validity, binding effect or enforceability against the Borrower or either of the Guarantors of a Loan Document to which it is a party.
"Obligee Guarantor" as defined in Section 2.9.
"Other Guaranty" means that certain Parent Guaranty, dated as of the date hereof, from Fortis N.V. and Fortis SA/NV in favor and for the benefit of MSSF as Guaranteed Party, as the same may be amended, supplemented or otherwise modified from time to time.
"Payment in full", "paid in full" or any similar term means payment in full of the Guaranteed Obligations (other than inchoate indemnification obligations with respect to
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claims, losses or liabilities which have not yet arisen and are not yet due and payable), including without limitation all principal, interest, costs, fees and expenses (including, without limitation, reasonable legal fees and expenses) of the Beneficiaries as required under the Loan Documents.
1.2 Interpretation. References to "Sections" shall be to Sections and subsections, respectively, of this Guaranty unless otherwise specifically provided. References to "Clauses" in the context of the Existing Parent Facility shall be interpreted equivalently to similar references to "Sections" and subsections herein.
SECTION 2. THE GUARANTY
2.1 Guaranty of the Obligations. Subject to the provisions of
Section 2.2, the Guarantors hereby jointly and severally irrevocably and
unconditionally guaranty to the Guaranteed Party for the ratable benefit of the
Beneficiaries the due and punctual payment in full of all Obligations when the
same shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code) (collectively, the "Guaranteed Obligations"), which
Guaranteed Obligations arise prior to the Guaranty Fall-Away Date.
2.2 Contribution by Guarantor. The Guarantors desire to allocate among themselves (collectively, the "Contributing Guarantors"), in a fair and equitable manner, their obligations arising under this Guaranty. Accordingly, in the event any payment or distribution is made on any date by a Guarantor (a "Funding Guarantor") under this Guaranty such that its Aggregate Payments exceeds its Fair Share as of such date, such Funding Guarantor shall be entitled to a contribution from each of the other Contributing Guarantors in an amount sufficient to cause each Contributing Guarantor's Aggregate Payments to equal its Fair Share as of such date. "Fair Share" means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (a) the ratio of (i) the Fair Share Contribution Amount with respect to such Contributing Guarantor to (ii) the aggregate of the Fair Share Contribution Amounts with respect to all Contributing Guarantors multiplied by (b) the aggregate amount paid or distributed on or before such date by all Funding Guarantors under this Guaranty in respect of the obligations Guaranteed. "Fair Share Contribution Amount" means, with respect to a Contributing Guarantor as of any date of determination, the maximum aggregate amount of the obligations of such Contributing Guarantor under this Guaranty that would not render its obligations hereunder or thereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code or any comparable applicable provisions of applicable law; provided, solely for purposes of calculating the "Fair Share Contribution Amount" with respect to any Contributing Guarantor for purposes of this Section 2.2, any assets or liabilities of such Contributing Guarantor arising by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered as assets or liabilities of such Contributing Guarantor. "Aggregate Payments" means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (1)
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the aggregate amount of all payments and distributions made on or before such
date by such Contributing Guarantor in respect of this Guaranty (including,
without limitation, in respect of this Section 2.2), minus (2) the aggregate
amount of all payments received on or before such date by such Contributing
Guarantor from the other Contributing Guarantors as contributions under this
Section 2.2. The amounts payable as contributions hereunder shall be determined
as of the date on which the related payment or distribution is made by the
applicable Funding Guarantor. The allocation among Contributing Guarantors of
their obligations as set forth in this Section 2.2 shall not be construed in any
way to limit the liability of any Contributing Guarantor hereunder. Each
Guarantor is a third party beneficiary to the contribution agreement set forth
in this Section 2.2.
2.3 Payment by Guarantor. Subject to Section 2.2, the Guarantors hereby jointly and severally agree, in furtherance of the foregoing and not in limitation of any other right which any Beneficiary may have at law or in equity against any Guarantor by virtue hereof, that upon the failure of Borrower to pay any of the Guaranteed Obligations (which Guaranteed Obligations arise prior to the Guaranty Fall-Away Date) when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code), the Guarantors will upon demand pay, or cause to be paid, in Cash, to the Guaranteed Party for the ratable benefit of the Beneficiaries, an amount equal to the sum of the unpaid principal amount of all Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including interest which, but for Borrower's becoming the subject of a case under the Bankruptcy Code, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Borrower for such interest in the related bankruptcy case) and all other Guaranteed Obligations then owed to the Beneficiaries as aforesaid.
2.4 Liability of Guarantor Absolute. Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guaranteed Obligations or that such Guaranteed Obligations have arisen after the Guaranty Fall-Away Date. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows:
(a) this Guaranty is a guaranty of payment when due and not of collectability; this Guaranty is a primary obligation of each Guarantor and not merely a contract of surety;
(b) the Guaranteed Party may enforce this Guaranty upon the occurrence of an Event of Default notwithstanding the existence of any dispute between the Borrower and any Beneficiary with respect to the existence of such Event of Default;
(c) the obligations of each Guarantor hereunder are independent of the obligations of Borrower and the obligations of any other guarantor (including any other
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Guarantor) of the obligations of Borrower, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not any action is brought against Borrower or any of such other guarantors and whether or not Borrower is joined in any such action or actions;
(d) payment by any Guarantor of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge any Guarantor's liability for any portion of the Guaranteed Obligations which has not been paid. Without limiting the generality of the foregoing, if the Administrative Agent is awarded a judgment in any suit brought to enforce any Guarantor's covenant to pay a portion of the Guaranteed Obligations, such judgment shall not be deemed to release such Guarantor from its covenant to pay the portion of the Guaranteed Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge any other Guarantor's liability hereunder in respect of the Guaranteed Obligations;
(e) any Beneficiary, upon such terms as it deems
appropriate, without notice or demand and without affecting the validity or
enforceability hereof or giving rise to any reduction, limitation, impairment,
discharge or termination of any Guarantor's liability hereunder, from time to
time may (i) renew, extend, accelerate, increase the rate of interest on, or
otherwise change the time, place, manner or terms of payment of the Guaranteed
Obligations (subject, in each case (to the extent applicable), to compliance
with the proviso at the end of this Section 2.4(e)); (ii) settle, compromise,
release or discharge, or accept or refuse any offer of performance with respect
to, or substitutions for, the Guaranteed Obligations or any agreement relating
thereto and/or subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Guaranteed
Obligations and take and hold security for the payment hereof or the Guaranteed
Obligations; (iv) release, surrender, exchange, substitute, compromise, settle,
rescind, waive, alter, subordinate or modify, with or without consideration, any
security for payment of the Guaranteed Obligations, any other guaranties of the
Guaranteed Obligations, or any other obligation of any Person (including any
other Guarantor) with respect to the Guaranteed Obligations; (v) enforce and
apply any security now or hereafter held by or for the benefit of such
Beneficiary in respect hereof or the Guaranteed Obligations and direct the order
or manner of sale thereof, or exercise any other right or remedy that such
Beneficiary may have against any such security, in each case as such Beneficiary
in its discretion may determine consistent herewith, including foreclosure on
any such security pursuant to one or more judicial or nonjudicial sales; and
(vi) exercise any other rights available to it under the Loan Documents;
provided, that, notwithstanding the foregoing, no Beneficiary may, without the
prior written consent of the Guarantors: (A) extend the scheduled final maturity
of the Guaranteed Obligations, (B) increase the rate of interest on the
Guaranteed Obligations or (C) increase the principal amount of the Guaranteed
Obligations; and
(f) this Guaranty and the obligations of the Guarantors hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guaranteed
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Obligations), including the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Loan Documents, at law, in equity or otherwise) with respect to the Guaranteed Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guaranteed Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) hereof, any of the other Loan Documents or any agreement or instrument executed pursuant thereto, or of any of the Related Agreements, or of any other guaranty or security for the Guaranteed Obligations, in each case (subject, to the extent applicable, to the proviso at the end of Section 2.4(e)) whether or not in accordance with the terms hereof or such Loan Document or any agreement relating to such other guaranty or security; (iii) the Guaranteed Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the other Loan Documents or from the proceeds of any security for the Guaranteed Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guaranteed Obligations) to the payment of indebtedness other than the Guaranteed Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guaranteed Obligations; (v) any Beneficiary's consent to the change, reorganization or termination of the corporate structure or existence of the Borrower or any of its Subsidiaries and to any corresponding restructuring of the Guaranteed Obligations; (vi) any failure to perfect or continue perfection of a security interest, if any, in any collateral which secures any of the Guaranteed Obligations; (vii) any defenses, set offs or counterclaims which Borrower may allege or assert against any Beneficiary in respect of the Guaranteed Obligations, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guaranteed Obligations.
2.5 Waivers by Guarantors. Each Guarantor hereby waives, to the fullest extent permitted by applicable law, for the benefit of the Beneficiaries:
(a) any right to require any Beneficiary, as a condition of payment or performance by such Guarantor, to (i) proceed against Borrower, any other guarantor (including any other Guarantor) of the Guaranteed Obligations or any other Person, (ii) proceed against or exhaust any security held from Borrower, any such other guarantor or any other Person, (iii) proceed against or have resort to any balance of any Deposit Account or credit on the books of any Beneficiary in favor of Borrower or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary whatsoever;
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(b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Borrower or any other Guarantor including any defense based on or arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Borrower or any other Guarantor from any cause other than payment in full of the Guaranteed Obligations or the occurrence of the Guaranty Fall-Away Date;
(c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal;
(d) any defense based upon any Beneficiary's errors or omissions in the administration of the Guaranteed Obligations, except behavior which amounts to gross negligence or willful misconduct;
(e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms hereof and any legal or equitable discharge of such Guarantor's obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto;
(f) except for notices of the changes described in the proviso at the end of Section 2.4(e), notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance hereof, notices of default hereunder, notices of any renewal, extension or modification of the Guaranteed Obligations or any agreement related thereto or any Related Agreement, notices of any extension of credit to Borrower and notices of any of the matters referred to in Section 2.4 and any right to consent to any thereof; and
(g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms hereof.
2.6 Guarantor Representations. In order to induce (i) the Lenders
to enter into the Credit Agreement and to make the Loans pursuant thereto and
(ii) the Guaranteed Party to enter into this Guaranty, each Guarantor represents
and warrants to the Beneficiaries that the following statements are true and
correct:
(a) Organization and Powers. Each Guarantor is duly organized and validly existing under the laws of its jurisdiction of organization. Each Guarantor has all requisite power and authority to own, lease and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Guaranty and any Loan Documents or Related Agreements to which it is a party and to carry out the transactions contemplated thereby.
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(b) Authorization of Guaranty. The execution, delivery and performance by each Guarantor of this Guaranty and any other Loan Document or Related Agreement to which it is a party have been duly authorized by all necessary action on the part of such Guarantor.
(c) No Conflict. The execution, delivery and performance by each Guarantor of this Guaranty and the Other Guaranty and the consummation of the transactions contemplated by this Guaranty and the Other Guaranty, do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to each such Guarantor, or any of the Organizational Documents of such Guarantor, (ii) violate any order, judgment or decree of any court or other agency of government binding on such Guarantor, except to the extent such violation could not be reasonably expected to have a Material Adverse Effect, (iii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any agreement to which such Guarantor is a party or which is binding on it or any of its assets, except to the extent such conflict, breach or default could not reasonably be expected to have a Material Adverse Effect, (iv) result in or require the creation or imposition of any Lien upon any of the properties or assets of such Guarantor, or (v) require any approval of stockholders, partners or members or any approval or consent of any Person under any Contractual Obligation of such Guarantor, except for such approvals or consents which will be obtained on or before the Closing Date.
(d) Government Consents. The execution, delivery and performance by each Guarantor of this Guaranty and the Other Guaranty and the consummation of the transactions contemplated by this Guaranty and the Other Guaranty do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority.
(e) Binding Obligation. This Guaranty and the Other Guaranty has been duly executed and delivered by each such Guarantor and is the legally valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability.
(f) No Material Adverse Change. Since December 31, 2002, no event or change has occurred that has caused or evidences, or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.
(g) No Restrictions on Guarantor Contribution. There are no restrictions under any Contractual Obligation to which any Guarantor is a party that would prohibit or otherwise prevent such Guarantor from making the Guarantor Contribution (as such term is defined in the Credit Agreement).
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(h) Incorporation by Reference. The copy of the Existing
Parent Facility attached hereto as Exhibit A is true and correct, and has not
been amended, supplemented or otherwise modified. Each Guarantor hereby makes
each of the representations and warranties contained in Clauses 14.5 through
14.8, inclusive, Clause 14.10, and Clauses 14.12 through 14.16, inclusive, of
the Existing Parent Facility, which Clauses, together with all definitions in
the Existing Parent Facility applicable to such Clauses, are hereby incorporated
by reference as if set forth herein in their entirety, provided that, (i) all
references to "Obligor" therein shall mean and be a reference to each
"Guarantor" herein, (ii) all references to the "Agent" therein shall mean and be
a reference to the "Guaranteed Party" herein, (iii) all references to "Material
Adverse Effect" therein shall mean and be a reference to "Material Adverse
Effect" as defined herein, (iv) all references to "Material Subsidiary" therein
shall mean and be a reference to "Guarantor Material Subsidiary" as defined
herein, (v) all references to "subsidiary" therein shall mean and be a reference
to "Subsidiary" as defined herein, and (vi) all references to "this Agreement",
"herein", "hereunder" and words of similar import therein shall mean and be a
reference to this Guaranty. No amendment, modification or supplement to such
representations or warranties or definitions made to the Existing Parent
Facility shall be effective to amend such representations and warranties or
definitions as incorporated by reference herein except as otherwise provided in
Section 2.7(g) of this Guaranty.
2.7 Guarantor Covenants. Each Guarantor covenants and agrees that on and after the date hereof and until the earlier to occur of (i) such time as the Commitments have terminated and the Loans and Notes, together with interest and any fees thereunder, and all Guaranteed Obligations are paid in full or (ii) the Guaranty Fall-Away Date:
(a) Existence. Each Guarantor will, and will cause each of the Guarantor Material Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights, privileges, licenses and franchises material to its business; provided, that neither Guarantor nor any of their respective Guarantor Material Subsidiaries shall be required to preserve any such right, privilege, license or franchise if the Guarantor's board of directors (or similar governing body) shall determine that the preservation thereof is no longer desirable in the conduct of the Guarantor's business taken as a whole, and that the loss thereof is not disadvantageous in any material respect to such Guarantor, the Borrower or the Lenders.
(b) Payment of Taxes and Claims. Each Guarantor will, and will cause each of the Guarantor Material Subsidiaries to, pay all Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings and adequate reserve or other appropriate provision, as shall be required in conformity with GAAP, shall have been made therefor.
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(c) Compliance with Laws. Each Guarantor will, and will cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws), noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(d) Guarantor Contribution; Assignees. The Guarantors shall make the Guarantor Contribution (as such term is defined in the Credit Agreement) on or prior to the day on which the Assurant IPO occurs.
(e) Claims Pari Passu. Each Guarantor shall ensure that at all times the claims of the Beneficiaries under this Guaranty rank at least pari passu with the claims of all of such Guarantor's other senior unsecured creditors, except those creditors whose claims are preferred by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or limiting creditors' rights generally.
(f) Notice of Default. Each Guarantor will promptly inform the Guaranteed Party of the occurrence of any default in the performance of or compliance with any term contained under this Guaranty, or any event which would constitute an Event of Default under Section 7.5(ii) of the Credit Agreement.
(g) Incorporation by Reference. Each Guarantor will comply with each of the covenants contained in Clauses 15.1 through 15.5, inclusive, Clause 16.1, Clause 16.2, Clauses 16.4 through 16.7, inclusive, and Clause 16.10, which such Clauses, together with all definitions in the Existing Parent Facility applicable to such Clauses, are hereby incorporated by reference as if set forth herein in their entirety, provided that:
(i) all references to each "Obligor" therein shall mean and be a reference to each "Guarantor" herein;
(ii) all references to "Finance Parties" therein shall mean and be a reference to "Beneficiaries" herein;
(iii) all references to the "Agent" therein shall mean and be a reference to the "Guaranteed Party" herein;
(iv) all references to the "Lead Arrangers" and "Banks" therein shall mean and be a reference to "Lenders" herein;
(v) all references to "this Agreement", "herein", "hereunder" and words of similar import therein shall mean and be a reference to this Guaranty;
(vi) all references to "Instructing Group" therein shall mean and be a reference to "Requisite Lenders" herein;
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(vii) all references to "Material Adverse Effect" therein shall mean and be a reference to "Material Adverse Effect" as defined herein;
(viii) all references to "Material Subsidiary" therein shall mean and be a reference to "Guarantor Material Subsidiary" as defined herein;
(ix) all references to "subsidiary" therein shall mean and be a reference to "Subsidiary" as defined herein; and
(x) Clause 16.5 (Negative Pledge) of the Existing Parent Facility as incorporated herein by reference shall be deemed to have the phrase "provided, however, that, other than any Encumbrance permitted pursuant to clauses (a) through (f), inclusive, of the definition of "Permitted Encumbrance," all obligations of the Guarantors under this Guaranty shall be secured equally and ratably with the other obligations secured by any such Encumbrance on terms reasonably satisfactory to the Guaranteed Party and the Requisite Lenders" inserted at the end of the first sentence thereof immediately after the phrase "other than a Permitted Encumbrance," appearing therein.
No amendment, modification or supplement to such covenants or definitions made to the Existing Parent Facility, or the termination, refinancing or replacement of the Existing Parent Facility, shall be effective to amend such covenants or definitions as incorporated by reference herein without the prior consent of the Beneficiaries in accordance with Section 3.4; provided, however, that the provisions of Section 2.6(h) hereof and this Section 2.7(g) will be deemed modified (without the consent of any Person) to the extent necessary to incorporate by reference any respective amendment, modification or supplement to the Existing Parent Facility which contains terms and provisions more favorable to the Beneficiaries. In connection with any amendment, modification or supplement to the Existing Parent Facility which will be incorporated herein by reference, the Lenders hereby authorize the Guaranteed Party to enter into an appropriate amendment to this Guaranty to reflect such amendment, modification or supplement.
(h) Notice of Guaranty Fall-Away Date. Each Guarantor will promptly inform the Guaranteed Party of the occurrence of the Guaranty Fall-Away Date.
2.8 Guarantors' Rights of Subrogation, Contribution, etc. Until the earlier to occur of (i) such time that Guaranteed Obligations shall have been paid in full and the Commitments shall have terminated or (ii) the Guaranty Fall-Away Date, each Guarantor hereby waives any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against Borrower or any other Guarantor or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including without limitation (a) any right of subrogation, reimbursement or indemnification that such Guarantor now has or may hereafter have against Borrower with respect to the Guaranteed Obligations, (b)
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any right to enforce, or to participate in, any claim, right or remedy that any Beneficiary now has or may hereafter have against Borrower, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Beneficiary. In addition, until the earlier to occur of (i) such time that the Guaranteed Obligations shall have been paid in full and the Commitments shall have terminated or (ii) the Guaranty Fall-Away Date, each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor (including any other Guarantor) of the Guaranteed Obligations, including, without limitation, any such right of contribution as contemplated by Section 2.2. Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Guarantor may have against Borrower or against any collateral or security, and any rights of contribution such Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights any Beneficiary may have against Borrower, to all right, title and interest any Beneficiary may have in any such collateral or security, and to any right any Beneficiary may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Guaranteed Obligations shall not have been finally and indefeasibly paid in full, such amount shall be held in trust for the Guaranteed Party on behalf of the Beneficiaries and shall forthwith be paid over to the Guaranteed Party for the benefit of the Beneficiaries to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms hereof.
2.9 Subordination of Other Obligations. Until the earlier to occur of (i) such time that the Guaranteed Obligations shall have been paid in full and the Commitments shall have terminated or (ii) the Guaranty Fall-Away Date, any Indebtedness of Borrower or any Guarantor now or hereafter held by any Guarantor (the "Obligee Guarantor") is hereby subordinated in right of payment to the Guaranteed Obligations (including, without limitation, the Existing Intercompany Obligations and any Indebtedness incurred under Section 6.2(v) of the Credit Agreement), and any such indebtedness collected or received by the Obligee Guarantor after a Potential Event of Default or an Event of Default has occurred and is continuing shall be held in trust for the Administrative Agent on behalf of the Beneficiaries and shall forthwith be paid over to the Administrative Agent for the benefit of the Beneficiaries to be credited and applied against the Guaranteed Obligations but without affecting, impairing or limiting in any manner the liability of the Obligee Guarantor under any other provision hereof.
2.10 Expenses. Each Guarantor agrees to pay, or cause to be paid, promptly upon written demand, and to save the Beneficiaries harmless against liability for, any and all reasonable costs and reasonable expenses (including reasonable fees and reasonable disbursements of counsel) incurred or expended by any Beneficiary in connection with the enforcement of or preservation of any rights under this Guaranty.
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2.11 Continuing Guaranty. Except as otherwise provided in this
Section 2.11, this Guaranty is a continuing guaranty and shall remain in effect
until the earlier to occur of (i) such time that the Guaranteed Obligations
shall have been paid in full and the Commitments shall have terminated or (ii)
the Guaranty Fall-Away Date. Each Guarantor hereby irrevocably waives any right
to revoke this Guaranty as to future transactions giving rise to any Guaranteed
Obligations.
2.12 Authority of Guarantors or Borrower. It is not necessary for any Beneficiary to inquire into the capacity or powers of any Guarantor or Borrower or the officers, directors or any agents acting or purporting to act on behalf of any of them.
2.13 Financial Condition of Borrower. Any Credit Extension may be made to Borrower or continued from time to time without notice to or authorization from any Guarantor regardless of the financial or other condition of Borrower at the time of any such grant or continuation. No Beneficiary shall have any obligation to disclose or discuss with any Guarantor its assessment, or any Guarantor's assessment, of the financial condition of Borrower. Each Guarantor has adequate means to obtain information from Borrower on a continuing basis concerning the financial condition of Borrower and its ability to perform its obligations under the Loan Documents, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of Borrower and of all circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary to disclose any matter, fact or thing relating to the business, operations or conditions of Borrower now known or hereafter known by any Beneficiary.
2.14 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any Beneficiary in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Guaranty and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available.
2.15 Bankruptcy.
(a) Until the earlier to occur of (i) such time that the Guaranteed Obligations shall have been paid in full and the Commitments shall have terminated or (ii) the Guaranty Fall-Away Date, no Guarantor shall, without the prior written consent of the Guaranteed Party acting pursuant to the instructions of the Requisite Lenders, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency case or proceeding of or against Borrower or any other Guarantor. The obligations of Guarantors hereunder shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any case or proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Borrower or any other Guarantor or by any defense which Borrower or
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any other Guarantor may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding.
(b) Each Guarantor acknowledges and agrees that any interest on any portion of the Guaranteed Obligations which accrues after the commencement of any case or proceeding referred to in clause (a) above (or, if interest on any portion of the Guaranteed Obligations ceases to accrue by operation of law by reason of the commencement of such case or proceeding, such interest as would have accrued on such portion of the Guaranteed Obligations if such case or proceeding had not been commenced) shall be included in the Guaranteed Obligations because it is the intention of each of the Guarantors and the Beneficiaries that the Guaranteed Obligations which are guaranteed by the Guarantors pursuant hereto should be determined without regard to any rule of law or order which may relieve Borrower of any portion of such Guaranteed Obligations. Each of the Guarantors will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay the Guaranteed Party, or allow the claim of the Guaranteed Party in respect of, any such interest accruing after the date on which such case or proceeding is commenced.
(c) In the event that all or any portion of the Guaranteed Obligations are paid by Borrower, the obligations of each of the Guarantors hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from any Beneficiary as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guaranteed Obligations for all purposes hereunder.
2.16 Set Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Beneficiary is hereby authorized by each Guarantor at any time or from time to time subject to the consent of the Guaranteed Party (such consent not to be unreasonably withheld or delayed), without notice to either Guarantor or to any other Person (other than the Guaranteed Party), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including any Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Beneficiary, to or for the credit or the account of such Guarantor against and on account of any obligations and liabilities of such Guarantor to such Beneficiary under this Guaranty and the other Loan Documents which are then due and payable, including all claims of any nature or description arising out of or connected with this Guaranty or any other Loan Document, irrespective of whether or not (i) such Beneficiary shall have made any demand hereunder or (ii) an Acceleration has occurred, and although said obligations and liabilities, or any of them, may be unmatured.
SECTION 3. MISCELLANEOUS
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3.1 Survival of Warranties. All agreements, representations and warranties made herein shall survive the execution and delivery of this Guaranty and the other Loan Documents and any increase or decrease in the Commitments under the Credit Agreement.
3.2 Notices. All notices and other communications provided for hereunder between any Beneficiary and either Guarantor shall be in writing (including telecopier or electronic mail) and mailed, sent by overnight courier, telecopied, e-mailed, or delivered to, in the case of each of the Guarantors and the Guaranteed Party, at its address set forth on the signature pages hereto, and in the case of any other Beneficiary, at its addresses as set forth in the Credit Agreement, or, as to each party, at such other address or to such other person as shall be designated by such party in a written notice to all other parties. Any notice, request or demand to or upon the Guaranteed Party or either Guarantor shall not be effective until received.
3.3 Severability of Provisions. Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
3.4 Amendments and Waivers. No amendment, modification, termination (other than pursuant to Section 2.11) or waiver of any provision of this Guaranty, or consent to any departure by or the release of any Guarantor therefrom, shall be effective without the written concurrence of the Lenders and, in the case of any such amendment or modification, either Guarantor; provided, that, notwithstanding the foregoing, any such amendment, modification, termination, waiver or consent (but in no event any release of a Guarantor, other than pursuant to Section 2.11) that has been determined to be immaterial by the Agents, in their sole discretion, shall be effective with the written concurrence of the Requisite Lenders. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given.
3.5 Headings. Section and subsection headings in this Guaranty are included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose or be given any substantive effect.
3.6 APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
3.7 Successors and Assigns. This Guaranty is a continuing guaranty and shall be binding upon each Guarantor and its respective permitted successors and assigns. This Guaranty shall inure to the benefit of the Beneficiaries and their respective successors and assigns. Any Beneficiary may, without notice or consent, assign its interest in this Guaranty in whole or in part. The terms and provisions of this Guaranty shall inure to the benefit of any transferee or assignee of any Loan made in accordance with the terms of
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the Credit Agreement, and in the event of such transfer or assignment the rights and privileges herein conferred upon such Beneficiary shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof.
3.8 CONSENT TO JURISDICTION; SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST EITHER GUARANTOR ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK, OR IN ANY COURT LOCATED IN ITS OWN CORPORATE DOMICILE. BY EXECUTING AND DELIVERING THIS GUARANTY, EACH GUARANTOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE (X) BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 3.2 HEREOF, OR (Y) BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OF ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO FORTIS FINANCIAL SERVICES AS EACH GUARANTOR'S AGENT IN NEW YORK CITY FOR SERVICE OF PROCESS AT ITS ADDRESS AT FORTIS FINANCIAL SERVICES, 520 MADISON AVE., NEW YORK, NY 10022, ATTENTION: ROY ANDERSEN (AND EACH GUARANTOR HEREBY DESIGNATES SUCH ENTITY AS ITS AGENT FOR SERVICE OF PROCESS HEREUNDER) OR AT SUCH ADDRESS OF WHICH THE GUARANTEED PARTY SHALL HAVE BEEN NOTIFIED IN WRITING BY THE BORROWER;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GUARANTOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT EACH BENEFICIARY RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
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(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 3.8
RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO
THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW
SECTION 5-1402 OR OTHERWISE.
3.9 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS GUARANTY HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THE LOAN DOCUMENTS AND THIS GUARANTY OR THE GUARANTEED PARTY/GUARANTOR RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Guaranty, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 3.9 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE THEREUNDER. In the event of litigation, this Guaranty may be filed as a written consent to a trial by the court.
3.10 Special Provisions.
(a) Payment in United States Dollars. The payment obligations of either Guarantor are obligations to make payments in United States dollars, and shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than United States dollars, or any other realization in such other currency, whether as proceeds of set-off, security, guarantee, distributions or otherwise, except to the extent that such tender, recovery or realization shall result in the effective receipt by the Beneficiaries of the full amount of dollars due and payable under any Loan Document, and each Guarantor shall promptly indemnify the Beneficiaries (as an alternative or additional cause of action) for the amount (if any) by which such effective receipt falls short of the full amount of dollars due and payable hereunder.
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(b) Judgment Currency. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due from a Guarantor hereunder in dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Beneficiaries could purchase dollars with such other currency in New York City on the Business Day preceding that on which final judgment is given. The obligations of either Guarantor in respect of any sum due hereunder shall, notwithstanding any judgment in a currency other than dollars, be discharged only to the extent that on the Business Day following receipt by the Beneficiaries of any sum adjudged to be so due in such other currency the Beneficiaries may in accordance with normal banking procedures purchase dollars with such other currency; if the amount of dollars so purchased is less than the sum originally due to the Beneficiaries in dollars, the Guarantors agree, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify the Beneficiaries against such loss, and if the amount of dollars so purchased exceeds the sum originally due to the Beneficiaries, the Beneficiaries shall remit such excess to such Guarantor.
(c) English Language. All information, notices, communications, opinions, reports, records and the like required to be given, kept or maintained by either Guarantor or to be delivered hereunder, if not in the English language, shall be accompanied by a certified English translation; provided, however, that the English version of all such information, notices, communications, opinions, reports, records and other documents, shall govern in the event of any conflict with the non-English version thereof.
(d) Waiver of Immunities. To the extent permitted by applicable law, if a Guarantor has or hereafter may acquire any immunity (sovereign or otherwise) from any legal action, suit or proceeding, from jurisdiction of any court or from set-off or any legal process (whether service or notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) with respect to itself or any of its property, such Guarantor hereby irrevocable waives and agree not to plead or claim such immunity in respect of its obligations hereunder. Each Guarantor agrees that the waivers set forth above shall have the fullest extent permitted under the Foreign Sovereign Immunities Act of 1976 of the United States of America (the "Act") and are intended to be irrevocable and not subject to withdrawal for purposes of such Act.
(e) Foreign Income Taxes. All payments to be made hereunder by a Guarantor shall be made free and clear of any deduction or withholding for any present or future taxes or similar charges imposed by any country (or any political subdivision or taxing authority thereof or therein) other than the United States of America (such non-excluded taxes being called "Foreign Taxes"). If any Foreign Taxes are imposed and required to be withheld from any payment hereunder, the Guarantor shall (a) increase the amount of such payment so that the Beneficiaries will receive a net amount (after deduction of all Foreign Taxes) equal to the amount due hereunder, (b) pay such Foreign Taxes to the appropriate taxing authority for the account of the Beneficiaries, and (c) as
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promptly as possible thereafter send the Guaranteed Party an original receipt (or a copy thereof that has been stamped by the appropriate taxing authority to certify payment) showing payment thereof, together with such additional documentary evidence as the Beneficiaries may from time to time require. If a Guarantor fails to perform its obligations under parts (b) or (c) of the preceding sentence, such Guarantor shall indemnify the Beneficiaries for any incremental taxes, interest or penalties that may become payable by the Beneficiaries as a consequence of such failure.
3.11 No Other Writing. This writing and the provisions of the Existing Parent Facility which are incorporated herein by reference pursuant to the provisions hereof, are intended by each Guarantor and the Beneficiaries as the final expression of this Guaranty and is also intended as a complete and exclusive statement of the terms of their agreement with respect to the matters covered hereby. No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or modify any terms of this Guaranty. Other than as provided herein, there are no conditions to the full effectiveness of this Guaranty.
3.12 Further Assurances. At any time or from time to time, upon the request of the Guaranteed Party, each Guarantor shall execute and deliver such further documents and do such other acts and things as the Guaranteed Party may reasonably request in order to effect fully the purposes of this Guaranty.
3.13 Counterparts; Effectiveness. This Guaranty and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Guaranty shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the Guaranteed Party of written or telephonic notification of such execution and authorization of delivery thereof.
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IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
FORTIS N.V.
By: /s/ Betty Keutgen, /s/ Michel Baise ------------------------------------ Name: Title: Address: Archimedeslaan 6 P.O.Box 2049 3500 GA Utrecht The Netherlands Attn: Monica Roeling Phone: +31 30 257 6568 Fax: +31 30 257 7835 |
FORTIS SA/NV
By: /s/ Betty Keutgen, /s/ Michel Baise ------------------------------------ Name: Title: Address: Rue Royale, 20 1000 Brussels Belgium Attn: Gilbert Mittler Phone: +32 2 510 5206 Fax: +32 2 510 5621 |
BANK ONE, NA
By: /s/ Gerard P. Fogarty ------------------------------------ Name: Gerard P. Fogarty Title: Director |
Address: 1 Bank One Plaza Mail Code: IL1-0325 Chicago, IL 60670 Attn: Gerard Fogarty Phone: 312-325-3197 Fax: 312-325-3190 |
Exhibit 10.24
LEASE AGREEMENT
Between
FORTIS BENEFITS INSURANCE COMPANY
a Minnesota corporation,
as Landlord
And
FORTIS, INC.,
a Nevada corporation,
as Tenant
Dated as of October 1, 2000
TABLE OF CONTENTS
LEASE AGREEMENT
NO. DESCRIPTION PAGE --- ----------- ---- 1. Premises.............................................................. 1 2. Lease Term............................................................ 1 3. Base Rent............................................................. 1 4. Rent Payment.......................................................... 1 5. Late Charge........................................................... 2 6. Partial Payment....................................................... 2 7. Construction of this Agreement........................................ 2 8. Use of Premises....................................................... 2 9. Definitions........................................................... 3 10. Repairs By Landlord................................................... 3 11. Repairs By Tenant..................................................... 3 12. Alterations and Improvements.......................................... 3 13. Operating Expenses.................................................... 4 14. Telecommunications Equipment.......................................... 8 15. Acceptance and Waiver................................................. 8 16. Signs................................................................. 8 17. Advertising........................................................... 8 18. Removal of Fixtures................................................... 9 19. Entering Premises..................................................... 9 20. Services.............................................................. 9 21. Indemnities........................................................... 10 22. Insurance; Waivers.................................................... 11 23. Government Requirements............................................... 13 24. Abandonment of Premises............................................... 13 25. Assignment and Subletting............................................. 13 26. Default............................................................... 14 27. Remedies.............................................................. 14 28. Destruction or Damage................................................. 15 29. Eminent Domain........................................................ 15 30. Renewal Options....................................................... 16 31. Mortgagee's Rights.................................................... 17 32. Tenant's Estoppel..................................................... 18 33. Attorney's Fees....................................................... 18 34. Parking............................................................... 18 35. Storage............................................................... 18 36. Waste Disposal........................................................ 19 37. Surrender of Premises................................................. 19 38. Cleaning Premises..................................................... 19 39. No Estate In Land..................................................... 19 40. Cumulative Rights..................................................... 19 41. Paragraph Titles; Severability........................................ 19 |
NO. DESCRIPTION PAGE --- ----------- ---- 42. Damage or Theft of Personal Property.................................. 20 43. Holding Over.......................................................... 20 44. Termination Right..................................................... 20 45. Rules and Regulations................................................. 20 46. Quiet Environment..................................................... 20 47. Entire Agreement...................................................... 20 48. Limitation of Liability............................................... 20 49. Submission of Agreement............................................... 21 50. Broker Disclosure..................................................... 21 51. Notices............................................................... 21 52. Force Majeure......................................................... 21 |
BASIC LEASE PROVISIONS
The following is a summary of some of the Basic Provisions of the Lease. In the event of any conflict between the terms of these Basic Lease Provisions and the referenced Sections of the Lease, the referenced Sections of the Lease shall control.
1. Building (See Section 1): 500 Bielenberg Drive Woodbury, Minnesota 55125 2. Premises (See Section 1): Suite: 200 Floor: 2nd Floor Rentable Square Feet: Approximately 44,000 3. Term (See Section 2): 10 years 4. Base Rent (See Section 3): $15 per rentable square foot per year 5. Tenant's Share (See Section 13): 13% 6. Notice Address (See Section 51) |
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter called the "Lease") is made and entered into as of the 1st day of October, 2000, by and between Fortis Benefits Insurance Company, a Minnesota corporation (hereinafter called "Landlord"); and Fortis, Inc., a Nevada corporation (hereinafter called "Tenant").
1. PREMISES. Landlord does hereby rent and lease to Tenant and Tenant does hereby rent and lease from Landlord, for use as described in Section 8 below, the following described space (hereinafter called the "Premises"):
Approximately 44,000 rentable square feet of space located on the 2nd floor of a 5-story building (the "Building"), designated as 500 Bielenberg Drive, Woodbury, Minnesota 55125 and located on the real property described in Exhibit "A" attached hereto (the "Property"). The Building and Property are collectively referred to herein as the "Project." Landlord and Tenant acknowledge that the number of rentable square feet described above has been confirmed and conclusively agreed upon by the parties. The Premises are being leased by Landlord to Tenant "as-is, where-is." Tenant is fully aware of the condition of the Premises and accepts them "as-is, where-is." Landlord is not obligated to construct any leasehold improvements or to provide Tenant any improvement allowance.
2. LEASE TERM. Tenant shall have and hold the Premises for a term
("Term") commencing on the date set forth in the introductory paragraph to this
Lease (the "Commencement Date") and shall terminate at midnight on the last day
(the "Expiration Date") of the calendar month in which the tenth (10th)
anniversary of the Commencement Date occurs, unless sooner terminated or
extended as hereinafter provided.
3. BASE RENT. Tenant shall pay to Landlord, at such place as Landlord shall designate in writing to Tenant, annual base rent ("Base Rent") during each Lease Year of Fifteen Dollars ($15.00) per rentable square foot (which is $660,000 in aggregate per Lease Year). The term "Lease Year", as used in the Basic Lease Provisions and throughout this Lease, shall mean each and every consecutive twelve (12) month period during the Term of this Lease, with the first such twelve (12) month period commencing on the Commencement Date; provided, however, if the Commencement Date occurs other than on the first day of a calendar month the first Lease Year shall be that partial month plus the first full twelve (12) months thereafter.
4. RENT PAYMENT. The Base Rent for each Lease Year shall be payable in equal monthly installments, due on the first day of each calendar month, in advance, in legal tender of the United States of America, without abatement, demand, deduction or offset whatsoever, except as may be expressly provided in this Lease. One monthly installment of Base Rent shall be due and payable on the Commencement Date and on or before the first day of each calendar month following the Commencement Date during the Term hereof, provided, that if the Commencement Date should be a date other than the first day of calendar month, the monthly Base Rent installment paid on the Commencement Date by Tenant shall be appropriately prorated. Tenant shall pay, as Additional Rent, all other sums due from Tenant under this Lease (the term "Rent", as used herein, means all Base Rent, Additional Rent and all other amounts payable hereunder from Tenant to Landlord).
5. LATE CHARGE. Other remedies for non-payment of Rent notwithstanding, if any monthly installment of Base Rent or Additional Rent is not received by Landlord on or before the date due, or if any payment due Landlord by Tenant which does not have a scheduled due date is not received by Landlord on or before the tenth (10th) business day following the date Tenant was invoiced, and, in either event, Tenant does not cure such late payment within five (5) business days following Landlord's written notice to Tenant, a late charge of two percent (2%) percent of such past due amount shall be immediately due and payable as Additional Rent and interest shall accrue from the date past due until paid at the lower of twelve percent (12%) per annum or the highest rate permitted by applicable law.
6. PARTIAL PAYMENT. No payment by Tenant or acceptance by Landlord of an amount less than the Rent herein stipulated shall be deemed a waiver of any other Rent due. No partial payment or endorsement on any check or any letter accompanying such payment of Rent shall be deemed an accord and satisfaction, but Landlord may accept such payment without prejudice to Landlord's right to collect the balance of any Rent due under the terms of this Lease or any late charge assessed against Tenant hereunder.
7. CONSTRUCTION OF THIS AGREEMENT. No failure of either party to exercise any power given to it hereunder, or to insist upon strict compliance by the other party of its obligations hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of either party's right to demand exact compliance with the terms hereof. Time is of the essence of this Lease.
8. USE OF PREMISES.
(a) Tenant shall use and occupy the Premises for general office purposes of a type customary for similar office buildings and for no other purpose. The Premises shall not be used for any illegal purpose, nor in violation of any valid regulation of any governmental body, nor in any manner to create any nuisance or trespass, nor in any manner to vitiate the insurance or increase the rate of insurance on the Premises or the Building, nor in any manner inconsistent with the nature of the Building. Tenant's use of the Premises shall include the appurtenant right to use the Premises for purposes complimentary to general office uses including, without limitation, computer rooms, conference rooms, exercise rooms, warming kitchens, break rooms and dining facilities. Landlord acknowledges that Tenant shall have the exclusive right to continue to use the generator which is located on the Property (together with conduit from the generator to the Premises) to provide emergency power to the Premises. Tenant shall maintain such generator in good condition and repair. Tenant may, but shall not be obligated to, at Tenant's expense, remove such generator upon the expiration or termination of this Lease, provided Tenant repairs all damage caused by said removal.
(b) Tenant shall not cause or permit the receipt, storage, use, location or handling on the Property (including the Building and Premises) of any product, material or merchandise which is explosive, highly inflammable, or a "hazardous or toxic material," as that term is hereafter defined. "Hazardous or toxic material" shall include all materials or substances which have been determined to be hazardous to health or the environment, including, without limitation hazardous waste (as defined in the Resource Conservation and Recovery Act); hazardous substances (as defined in the Comprehensive Emergency Response, Compensation
and Liability Act, as amended by the Superfund Amendments and Reauthorization Act); gasoline or any other petroleum product or by-product or other hydrocarbon derivative; toxic substances (as defined by the Toxic Substances Control Act); insecticides, fungicides or rodenticide (as defined in the Federal Insecticide, Fungicide, and Rodenticide Act); asbestos and radon and substances determined to be hazardous under the Occupational Safety and Health Act or regulations promulgated thereunder. Notwithstanding the foregoing, Tenant shall not be in breach of this provision as a result of the presence in the Premises of de minimis amounts of hazardous or toxic materials which are in compliance with all applicable laws, ordinances and regulations and are customarily present in a general office use (e.g., copying machine chemicals and kitchen cleansers).
9. DEFINITIONS. "Landlord," as used in this Lease, shall include the party named in the first paragraph hereof, its representatives, assigns and successors in title to the Premises. "Tenant" shall include the party named in the first paragraph hereof, its heirs and representatives, and, if this Lease shall be validly assigned or sublet, shall also include Tenant's assignees or subtenants, as to the Premises, or portion thereof, covered by such assignment or sublease. "Landlord" and "Tenant" include male and female, singular and plural, corporation, partnership, limited liability company (and the officers, members partners, employees or agents of any such entities) or individual, as may fit the particular parties.
10. REPAIRS BY LANDLORD. Landlord shall not be required, after possession of the Premises has been delivered to Tenant, to make any repairs or improvements to the Premises, except as set forth in this Lease. Except for damage caused by casualty and condemnation (which shall be governed by Sections 28 and 29 below), and subject to normal wear and tear, Landlord shall maintain in good repair the exterior walls, glass, roof, common areas, foundation, all structural portions and the mechanical, electrical, plumbing and HVAC systems of the Building, as well as all common areas, parking areas and driveways located on the Property or serving the Building.
11. REPAIRS BY TENANT. Except as described in Section 10 above and except for damage caused by casualty or condemnation. Tenant shall, at its own cost and expense, maintain the Premises in good repair and in a neat and clean, first-class condition, including making all necessary repairs and replacements.
12. ALTERATIONS AND IMPROVEMENTS. Except for minor, decorative alterations which do not affect the Building structure or systems or are not visible from outside the Premises, Tenant shall not make or allow to be made any alterations, physical additions or improvements in or to the Premises without first obtaining in writing Landlord's written consent for such alterations or additions, which consent shall not be unreasonably withheld, conditioned or delayed. Upon Landlord's request, Tenant will furnish Landlord plans and specifications for any proposed alterations, additions or improvements that require Landlord's consent. Any alterations, physical additions or improvements shall at once become the property of Landlord. Tenant shall not be obligated to remove any alterations, additions or improvements from the Premises upon the expiration or termination of this Lease. All costs of any such alterations, additions or improvements shall be borne by Tenant. All alterations, additions or improvements must be made in a good, first-class, workmanlike manner and in a manner that does not disturb other tenants (i.e., any loud work must be performed during non-business hours) and Tenant must
maintain appropriate liability and builder's risk insurance throughout the construction. Tenant does hereby indemnify and hold Landlord harmless from and against all claims for damages or death of persons or damage or destruction of property arising out of the performance of any such alterations, additions or improvements made by or on behalf of Tenant. Under no circumstances shall Landlord be required to pay, during the Term of this Lease and any extensions or renewals thereof, any ad valorem or Property tax on such alterations, additions or improvements, Tenant hereby covenanting to pay all such taxes when they become due.
13. OPERATING EXPENSES.
(a) Tenant agrees to reimburse Landlord throughout the Term, as Additional Rent hereunder for Tenant's Share (as defined below) of the annual Operating Expenses (as defined below). The term "Tenant's Share" shall mean the percentage determined by dividing the rentable square footage of the Premises by the rentable square footage of the Building. Landlord and Tenant hereby agree that Tenant's Share is thirteen percent (13%). If Tenant does not occupy the Premises during the entire full calendar year in which the Term of this Lease commences or ends, Tenant's Share of Operating Expenses for the applicable calendar year shall be appropriately prorated for the partial year, based on the number of days Tenant has occupied the Premises during that year.
(b) Operating Expenses shall be all those reasonable, customary expenses of operating, servicing, managing, maintaining and repairing the Property, Building, and all parking areas and related common areas in a manner consistent with similar office buildings in the metropolitan Minneapolis, Minnesota area. Operating Expenses shall mean the following:
(1) All taxes and assessments, whether general or special, applicable to the Property and the Building, which shall include real and personal property ad valorem taxes, and any and all reasonable costs and expenses incurred by Landlord in seeking a reduction of any such taxes and assessments. However, Tenant shall not be obligated for taxes on the net income from the operation of the Building, unless there is imposed in the future a tax on rental income on the Building in lieu of the real property ad valorem taxes, in which event such tax shall be deemed an Operating Expense of the Building. In addition, any special assessments payable in installments shall be deemed paid in the maximum number of permissable installments and only the minimum required annual installment may be included in Operating Expenses in any year.
(2) Insurance premiums and deductible amounts, including, without limitation, for commercial general liability, "all risks" property, rent loss and other customary insurance carried by Landlord on the Building and Property.
(3) All utilities, including, without limitation, water, power, heating, lighting, ventilation, sanitary sewer and air conditioning of the Building, but not including those utility charges actually paid by Tenant or other tenants of the Building.
(4) Janitorial and maintenance expenses, including:
(i) Janitorial services and janitorial supplies and other materials used in the operation and maintenance of the Building;
(ii) The cost of, maintenance and service agreements on equipment, window cleaning, grounds maintenance, pest control, security, trash and snow removal, and other similar services or agreements;
(5) Management fees not in excess of three percent (3%) of gross base rentals (or a charge equal to fair market management fees);
(6) The costs, including interest, amortized over its useful life, of any capital improvement made to the Building by or on behalf of Landlord after the date of this Lease which is required under any governmental law or regulation (or any judicial interpretation thereof) that was not applicable to the Building as of the date of this Lease, and of the acquisition and installation of any device or equipment designed to improve the operating efficiency of any system within the Building or which is acquired to improve the safety of the Building or Project.
(7) All services, supplies, repairs, replacements or other expenses directly and reasonably associated with servicing maintaining, managing and operating the Building, including, but not limited to the lobby, vehicular and pedestrian traffic areas and other common use areas.
(8) Wages and salaries of Landlord's employees (not above the level of Building Manager) engaged in the maintenance, operation, repair and services of the Building, including taxes, insurance and customary fringe benefits.
(9) Legal and accounting costs.
(10) Costs to maintain and repair the Building and Property.
(11) Landscaping and security costs unless Landlord hires a third party to provide such services pursuant to a service contract and the cost of that service contract is already included in Operating Expenses as described above.
The following items shall be excluded from Operating Expenses:
(i) Wages and salaries of individual partners of Landlord or if Landlord is a corporation, then wages and salaries of any officers and executives above the level of Building Manager;
(ii) The cost of any items for which Landlord receives reimbursement or is otherwise compensated, such as by insurance proceeds, warranties and condemnation awards;
(iii) The cost of any additions to the Building subsequent to the date of original construction or any alterations or refurbishing of space leased to other tenants of the Building;
(iv) Cost of any work or service performed for any tenant (including Tenant) at such tenant's cost, or to the extent in excess of the services provided to Tenant by Landlord pursuant to the terms of this Lease;
(v) Cost of installing, operating, and maintaining any specialty service such as the dining club, a cafeteria, health club, an observatory, broadcasting facility, retail store, sundry shop, newsstand, or concession and any real estate taxes with respect to any such specialty services, but only to the extent such costs and taxes exceed those which normally would be expected to be incurred had such space been general office space;
(vi) Cost of correcting defects in construction;
(vii) Cost of any repair following a casualty;
(viii) Any payment of whatsoever kind due under the terms of any mortgage, ground lease or other underlying lease;
(ix) Any real estate brokerage commissions or other cost incurred in procuring tenants or any fee in lieu of such commission;
(x) Rental payment for the Building equipment such as HVAC equipment and elevators, and rental payments for equipment not used in the operation or maintenance of the Building;
(xi) Legal expenses, accounting expenses or other professional fees arising out of the ownership or sale of the Building or the construction of the improvements on the Land or the enforcement of the provisions of any lease affecting the Land or the Building, including this Lease, or arising out of any matter whatsoever other than directly in connection with the Operating Expenses or Taxes;
(xii) The cost of operating and maintaining parking facilities if Landlord charges separately for parking;
(xiii) Capital expenses of any kind whatsoever except as expressly permitted above;
(xiv) Costs paid to any affiliates or parties related to Landlord for services or materials in excess of the amount which would be paid to an unrelated third party at market prices for such services or materials;
(xv) Advertising expenses incurred in connection with the marketing of the Building or any rentable space therein;
(xvi) The cost of overtime or other expense to Landlord in curing its defaults;
(xvii) Any amounts payable by Landlord by way of indemnity for damages or which constitute a fine or penalty, including interest or penalties for any later payment; and
(xviii) Repairs or construction necessitated by violations of laws in effect and requiring compliance as of the date of this Lease.
(c) (i) Landlord shall, on or before the Commencement Date and on or before December 20 of each calendar year, provide Tenant a statement of the estimated monthly installments of Tenant's Share of Operating Expenses which will be due for the remainder of the calendar year in which the Commencement Date occurs or for the upcoming calendar year, as the case may be. As soon as practicable after December 31 of each calendar year during the Term of this Lease, Landlord shall furnish to Tenant an itemized statement of the Operating Expenses within the Building for the calendar year then ended. Upon reasonable prior written request given not later than sixty (60) days following the date Landlord's statement is delivered to Tenant Landlord will promptly provide Tenant detailed documentation to support the itemized statement and, if Tenant so elects, Tenant may audit Landlord's books and records. Any such audit will take place in the Building management office during normal business hours on dates reasonably acceptable to both parties. If Tenant does not notify Landlord of any objection to Landlord's itemized statement within thirty (30) days after Landlord makes its books and records available for audit by Tenant as described above, Tenant shall be deemed to have accepted such statements as true and correct and shall be deemed to have waived any right to dispute the excess Operating Expenses due pursuant to that statement. If Tenant does so notify Landlord of an objection, and the parties are unable to resolve the dispute within thirty (30) days after Tenant delivers such notice of objection, the parties shall mutually agree upon one of the so-called "Big Five" accounting firms and shall submit the dispute to that firm for resolution, which resolution shall be final and binding upon both parties.
(ii) Tenant shall pay to Landlord, together with its monthly payment of Base Rent as provided in Sections 3 and 4 hereinabove, as Additional Rent hereunder, the estimated monthly installment of Tenant's Share of the Operating Expenses for the calendar year in question. At the end of any calendar year if Tenant has paid to Landlord an amount in excess of Tenant's Share of Operating Expenses for such calendar year, Landlord shall reimburse to Tenant any such excess amount (or shall apply any such excess amount to any amount then owing to Landlord hereunder, and if none, to the next due installment or installments of Additional Rent due hereunder, at the option of Landlord). At the end of any calendar year if Tenant has paid to Landlord less than Tenant's Share of excess Operating Expenses for such calendar year, Tenant shall pay to Landlord any such deficiency within thirty (30) days after Tenant receives the annual statement.
(iii) For the calendar year in which this
Lease terminates, and is not extended or renewed, the provisions of this Section
shall apply, but Tenant's Share for such calendar year shall be subject to a pro
rata adjustment based upon the number of days prior to the expiration of the
Term of this Lease. Tenant shall make monthly estimated payments of the pro rata
portion of Tenant's Share for such calendar year (in the manner provided above)
and when the actual prorated Tenant's Share for such calendar year is determined
Landlord shall send a statement to Tenant and if such statement reveals that
Tenant's estimated payments for the prorated Tenant's Share for such calendar
year exceeded the actual prorated Tenant's Share for such calendar year,
Landlord shall include a check for that amount along with the statement. If the
statement reveals that Tenant's estimated payments for the prorated Tenant's
Share for such calendar year were less than the actual prorated Tenant's Share
for such calendar year, Tenant shall pay the shortfall to Landlord within thirty
(30) days of the date Tenant receives Landlord's statement.
(iv) If the Building is less than ninety-five percent (95%) occupied throughout any calendar year of the Term, then the actual Operating Expenses for the calendar year in question shall be increased to the amount of Operating Expenses which Landlord reasonably determines would have been incurred during that calendar year if the Building had been fully occupied throughout such calendar year.
14. TELECOMMUNICATIONS EQUIPMENT. Tenant shall be entitled to install and maintain on the roof of the Building up to three (3) satellite dishes. Each satellite dish may not exceed five (5) feet in diameter. The cost of installing any such satellite dishes shall be borne solely by Tenant. Tenant must obtain the prior approval of Landlord, which shall not be unreasonably withheld, conditioned or delayed, of the exact location and method of installation of any such satellite dishes as well as the method for screening any such satellite dishes. Tenant will cause its satellite dishes not to interrupt or interfere with the operation of any of Landlord's satellite dishes or those of any other tenant. Landlord will ensure that neither its satellite dishes nor those of any other tenant of the Building interrupt or interfere with the operation of Tenant's satellite dishes. Tenant shall remove any and all satellite dishes from the roof of the Building on the expiration or termination of this Lease and shall repair any damage caused to the roof by such removal.
15. ACCEPTANCE AND WAIVER. Landlord shall not be liable to Tenant, its agents, employees, guests or invitees (and, if Tenant is a corporation, its officers, agents, employees, guests or invitees) for any damage caused to any of them due to the Building or any part or appurtenances thereof being improperly constructed or being or becoming out of repair, or arising from the leaking of gas, water, sewer or steam pipes, or from electricity, but Tenant, by moving into the Premises and taking possession thereof, shall accept, and shall be held to have accepted the Premises as suitable for the purposes for which the same are leased, and shall accept and shall be held to have accepted the Building and every appurtenance thereof, and Tenant by said act waives any and all defects therein; provided, however, that this Section shall not apply to any damages or injury caused by or resulting from the negligence or willful misconduct of Landlord.
16. SIGNS. Tenant shall be entitled to keep and maintain a Building standard suite entry sign on the door to the Premises or adjacent to the entry to the Premises and in the elevator lobby on the 2nd floor of the Building. Tenant shall also be entitled to a prominent entry on the Building monument sign located adjacent to the main entry to the Building. Tenant shall be entitled to its proportionate share of the entries in the Building directory located in the main lobby of the Building. Otherwise, Tenant shall not paint or place signs, placards, or other advertisements of any character upon the windows or inside walls of the Premises except with the consent of Landlord, and Tenant shall place no signs upon the outside walls, common areas or the roof of the Building.
17. ADVERTISING. Landlord may advertise the Premises as being "For Rent" at any time following a default by Tenant which remains uncured and at any time within one hundred eighty (180) days prior to the expiration, cancellation or termination of this Lease for any reason and during any such periods may exhibit the Premises to prospective tenants after providing reasonable notice to Tenant and observing Tenant's security procedures.
18. REMOVAL OF FIXTURES. If Tenant is not in default hereunder, Tenant may, but shall not be obligated to, prior to the expiration of the Term of this Lease, or any extension thereof, remove any fixtures and equipment which it has placed in the Premises which can be removed without significant damage to the Premises, provided Tenant repairs all damages to the Premises caused by such removal.
19. ENTERING PREMISES. Landlord may enter the Premises at reasonable hours provided that Landlord's entry shall not unreasonably interrupt Tenant's business operations and provided that at least 24 hours prior notice is given (except in an emergency, when no notice is required): (a) to make repairs, perform maintenance and provide other services described in Section 20 below (no prior notice is required to provide routine services) which Landlord is obligated to make to the Premises or the Building pursuant to the terms of this Lease or to the other premises within the Building pursuant to the leases of other tenants; (b) to inspect the Premises to see that Tenant is complying with all of the terms and conditions of this Lease and with the rules and regulations hereof; and (c) to exercise any other right or perform any other obligation that Landlord has under this Lease. Tenant may require that an employee of Tenant be permitted to accompany Landlord during any such entry.
20. SERVICES.
(a) The normal business hours of the Building shall be from 7:00 A.M. to 7:00 P.M, on Monday through Friday, and 8:00 A.M. to 1:00 P.M. on Saturday, exclusive of the following holidays: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving (and the day after Thanksgiving) and Christmas ("Building Holidays"). Landlord shall furnish the following services during the normal business hours of the Building (except as noted) and all such services shall be provided at levels, in types and amounts at least equal to the level, types and amounts being provided to the Premises as of the date of this Lease and otherwise at least equal to the level, types and amounts reasonable and customary for similar office buildings in the metropolitan Minneapolis, Minnesota area:
(i) Elevator service for passenger and delivery needs, with at least one (1) elevator available 24 hours, 7 days per week;
(ii) Air conditioning, 24 hours per day, 7 days per week, adequate to cool the Premises in warm weather and heat adequate to warm the Premises in cool weather so that the temperature of the Premises remains, at all times, between 68 degrees Fahrenheit and 75 degrees Fahrenheit, as selected by Tenant operating its own thermostat;
(iii) Mens' and womens' restrooms and lavatories on each floor of the Building with at least the number of fixtures located therein and as exist on the date of this Lease, all of which are fully operational;
(iv) Soap, paper towels, and toilet tissue all public restrooms;
(v) Janitorial service Monday through Friday and once on the weekend;
(vi) Custodial, electrical and mechanical maintenance services Monday through Friday;
(vii) Electric power for lighting and outlets not in excess of a total of 7 watts per rentable square foot of the Premise at 100% connected load;
(viii) Replacement of Building standard lamps and ballasts as needed;
(ix) Repairs and maintenance as described in Section 10 of this Lease; and
(x) General management, including supervision, inspections, recordkeeping, accounting, leasing and related management functions.
(b) Tenant shall have no right to any services in excess
of those provided herein except after hours HVAC service which will be provided
by Landlord, upon oral request by 4:00 p.m. weekdays for evening service and by
4.00 p.m. Friday for weekend service. The cost for after-hours HVAC service
shall be $25.00 per hour. If Tenant uses other services in an amount or for a
period in excess of that provided for herein, Landlord reserves the right to:
charge Tenant as Additional Rent hereunder a reasonable sum as reimbursement for
the direct cost of such added services and to charge Tenant for the cost of any
additional equipment or facilities or modifications thereto, necessary to
provide the additional services.
(c) Landlord shall not be liable for any damages directly or indirectly resulting from the interruption in any of the services described above, nor, except as set forth below, shall any such interruption entitle Tenant to any abatement of Rent. Landlord shall use all reasonable efforts to furnish uninterrupted services as required above. Notwithstanding anything to the contrary set forth hereinabove, if any of the essential services to the Premises (electricity, water, sanitary sewer, HVAC or elevator service) are interrupted and Tenant's use of the Premises is materially, adversely affected by such interruption, and the interruption continues for three (3) or more consecutive business days, the Rent due under this Lease shall be abated, in proportion to the material adverse effect, beginning on the fourth (4th) business day of such interruption and continuing until the applicable service is fully restored. This rent abatement shall not apply if the interruption in service is caused by the negligence or willful misconduct of Tenant, its agents, employees or contractors.
21. INDEMNITIES. Tenant does hereby indemnify and save harmless Landlord against all claims for damages to persons or property which are caused anywhere in the Building or on the Property caused by the negligence or willful misconduct of Tenant, its agents or employees or which occur in the Premises (or arise out of actions taking place in the Premises) unless such damage is caused by the negligence or willful misconduct of Landlord, its agents, or employees. Landlord does hereby indemnify and hold Tenant harmless against all claims for damaged persons or property if caused by the negligence or willful misconduct of Landlord, its agents or employees. The indemnities set forth hereinabove shall include the application to pay reasonable expenses incurred by the indemnified party, including, without limitation, reasonable, actually
incurred attorney's fees. The indemnities contained herein do not override the waivers contained in Section 22(d) below.
22. INSURANCE; WAIVERS.
(a) Tenant further covenants and agrees that from and after the date of delivery of the Premises from Landlord to Tenant, Tenant will carry and maintain, at its sole cost and expense, the following types of insurance, in the amounts specified and in the form hereinafter provided for:
(i) Liability Insurance in the
Commercial General Liability form (or reasonable equivalent thereto) covering
the Premises and Tenant's use thereof against claims for personal injury or
death, property damage and product liability occurring upon, in or about the
Premises, such insurance to be written on an occurrence basis (not a claims made
basis), to be in combined single limits amounts not less than $3,000,000 and to
have general aggregate limits of not less than $5,000,000 for each policy year.
The insurance coverage required under this Section 22(a)(i) shall, in addition,
extend to any liability of Tenant arising out of the indemnities provided for in
Section 21 and, if necessary, the policy shall contain a contractual endorsement
to that effect. The general aggregate limits under the Commercial General
Liability insurance policy or policies must apply separately to the Premises and
to Tenant's use thereof (and not to any other location or use of Tenant) and
such policy shall contain an endorsement to that effect. The certificate of
insurance evidencing the Commercial General Liability form of policy shall
specify all endorsements required herein and shall specify on a face thereof
that the limits of such policy applies separately to the Premises.
(ii) Insurance covering all of the items included in Tenant's leasehold improvements, heating, ventilating and air conditioning equipment maintained by Tenant, trade fixtures, merchandise and personal property from time to time in, on or upon the Premises, and alterations, additions or changes made by Tenant pursuant to Section 10, in an amount not less than one hundred percent (100%) of their full replacement value from time to time during the Term, providing protection against perils included within the standard form of "all-risks" fire and casualty insurance policy, together with insurance against sprinkler damage, vandalism and malicious mischief.
(iii) Workers' Compensation and Employer's Liability insurance affording statutory coverage and containing statutory limits.
(b) All policies of the insurance provided for in Section 22(a) shall be issued by insurance companies with a rating and financial size of not less than A-X in the most current available "Best's Insurance Reports", and licensed to do business in the state of Minnesota. Each and every such policy:
(i) shall name Landlord as an additional insured (as well as any mortgagee of Landlord and any other party reasonably designated by Landlord) and the coverage in (ii) and (iii) shall also name Landlord as loss payee.
(ii) shall (and a certificate thereof shall be delivered to Landlord at or prior to the execution of the Lease) be delivered to each of Landlord and any such
other parties in interest within thirty (30) days after delivery of possession of the Premises to Tenant and thereafter within thirty (30) days prior to the expiration of each such policy, and, as often as any such policy shall expire or terminate. Renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent;
(iii) shall contain a provision that the
insurer will give to Landlord and such other parties in interest at least thirty
(30) days notice in writing in advance of any material change, cancellation,
termination or lapse, or the effective date of any reduction in the amounts of
insurance; and
(iv) shall be written as a primary policy which does not contribute to and is not in excess of coverage which Landlord may carry.
(c) Any insurance provided for in Section 22(a) may be maintained by means of a policy or policies of blanket insurance, covering additional items or locations or insureds, provided, however, that:
(i) Landlord and any other parties in interest from time to time designated by Landlord to Tenant shall be named as an additional insured thereunder as its interest may appear;
(ii) the coverage afforded Landlord and any such other parties in interest will not be reduced or diminished by reason of the use of such blanket policy of insurance;
(iii) any such policy or policies except any covering the risks referred to in Section 22(a) shall specify therein (or Tenant shall furnish Landlord with a written statement from the insurers under such policy specifying) the amount of the total insurance allocated to the Tenant's improvements and property more specifically detailed in Section 22(a); and
(iv) the requirements set forth in this
Section 22 are otherwise satisfied.
(d) At all times during the Term of this Lease, Landlord shall maintain in full force and effect (1) all risks property insurance covering one hundred percent (100%) of the full replacement cost of the entire Building and including an agreed amount endorsement so that Landlord has no co-insurance obligations, (ii) Commercial General Liability insurance in types and amounts reasonable and customary for landlords of similar office buildings in the metropolitan Minneapolis, Minnesota area and, in any event with limits at least equal to those required to be carried by Tenant and (iii) Workers' Compensation Insurance with statutorily required coverages and limits. All such insurance shall be maintained by Landlord with insurance companies meeting the requirements set forth in Section 22(b) above. The cost of all such insurance may be included by Landlord in Operating Expenses.
(e) Notwithstanding anything to the contrary set forth hereinabove, Landlord and Tenant do hereby waive any and all claims against one another for damage to or destruction of real or personal property to the extent such damage or destruction can be covered by "all
risks" property insurance, Each party shall also be responsible for the payment of any deductible amounts required to be paid under the applicable "all risks" fire and casualty insurance carried by the party whose property is damaged. These waivers shall apply if the damage would have been covered by a customary "all risks" insurance policy, even if the party fails to obtain such coverage. The intent of this provision is that each party shall look solely to its insurance with respect to property damage or destruction which can be covered by "all risks" insurance of the type described in Section 22(a)(ii). To further effectuate the provisions of this Section 22(e), Landlord and Tenant both agree to provide copies of this Lease (and in particular, these waivers) to their respective insurance carriers and to require such insurance carriers to waive all rights of subrogation against the other party with respect to property damage covered by the applicable "all risks" fire and casualty insurance policy.
23. GOVERNMENT REQUIREMENTS. Tenant shall, at its own expense, promptly comply with all requirements of any legally constituted governmental or public authority made necessary by reason of Tenant's unique or particular type of use or occupancy of the Premises, including, without limitation, the Americans with Disabilities Act, Landlord shall be obligated to comply with all laws and requirements of general applicability to all occupied space in the Building.
24. ABANDONMENT OF PREMISES. If Tenant abandons or vacates the Premises for more than one hundred eighty (180) days without notifying Landlord that Tenant or a permitted assignee or subtenant will reoccupy within one (1) year, Landlord may terminate this Lease, by written notice to Tenant at any time prior to Tenant reoccupying the Premises, but such termination shall not entitle Landlord to pursue any other remedies unless an uncured Event of Default then exists, in which case Landlord may pursue any and all remedies provided by this Lease, at law or in equity.
25. ASSIGNMENT AND SUBLETTING. Tenant may not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed, assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Consent to one assignment or sublease shall not destroy or waive this provision, and all later assignments and subleases shall likewise be made only upon the prior written consent of Landlord. Subtenants or assignees shall become liable to Landlord for all obligations of Tenant hereunder, without relieving Tenant's liability hereunder and, in the event of any default by Tenant under this Lease, Landlord may, at its option, but without any obligation to do so, elect to treat such sublease or assignment as a direct Lease with Landlord and collect rent directly from the subtenant. If Tenant desires to assign or sublease, Tenant must provide written notice to Landlord describing the proposed transaction in reasonable detail and providing reasonably detailed information concerning the proposed assignee or subtenant, so that Landlord can reasonably evaluate the proposed transaction. Landlord shall notify Tenant within twenty (20) days of its receipt of such notice whether Landlord consents to the requested assignment or sublease. If Landlord fails to respond within such twenty (20) day period, Landlord will be deemed to have consented to the assignment or sublease. If Landlord does consent to any assignment or sublease request and the assignee or subtenant pays to Tenant an amount in excess of the Rent due under this Lease (after deducting all of Tenant's expenses in obtaining such assignment or sublease, amortized in equal monthly installments over the then remainder of the Term), Tenant shall pay 50% of such excess to Landlord as and when the monthly payments are received by Tenant. Notwithstanding anything to the contrary set forth
hereinabove, Tenant shall be entitled to assign this Lease or sublet all or any portion of the Premises to any entity which is owned by Tenant, which is owned under common control with Tenant or into which or with which Tenant is merged or which acquires all or substantially all of the stock or assets of Tenant and the preceding sentence of this Section 25 (concerning profit sharing) shall not apply to any such assignment or sublease. Although the consent of Landlord shall not be required with respect to any such transaction, Tenant shall provide written notice of any such assignment or sublease to Landlord within thirty (30) days after such assignment or sublease occurs.
26. DEFAULT. If Tenant shall default in the payment of Rent herein
required when due and fails to cure such default within ten (10) business days
after written notice of such default is given to Tenant by Landlord; or if
Tenant shall be in default in performing any of the terms or provisions of this
Lease other than the provisions requiring the payment of Rent, and fails to cure
such default within thirty (30) days after written notice of such default is
given to Tenant by Landlord or, if such default cannot be cured within thirty
(30) days, Tenant shall not be in default if Tenant promptly commences and
diligently pursues the cure to completion as soon as possible; or if Tenant is
adjudicated a bankrupt; or if a permanent receiver is appointed for Tenant's
property and such receiver is not removed within sixty (60) days after written
notice from Landlord to Tenant to obtain such removal; or if, whether
voluntarily or involuntarily, Tenant takes advantage of any debtor relief
proceedings under any present or future law, whereby the Rent or any part
thereof, is, or is proposed to be, reduced or payment thereof deferred; or if
Tenant's effects should be levied upon or attached and such levy or attachment
is not satisfied or dissolved within thirty (30) days after written notice from
Landlord to Tenant to obtain satisfaction thereof; then, and in any of said
events, Landlord, at its option, may exercise any or all of the remedies set
forth in Section 27 below.
27. REMEDIES. Upon the occurrence of any default set forth in
Section 26 above which is not cured by Tenant within the applicable cure period
provided therein, if any, Landlord may exercise all or any of the following
remedies:
(a) terminate this Lease by giving Tenant written notice of termination, in which event this Lease shall terminate on the date specified in such notice and all rights of Tenant under this Lease shall expire and terminate as of such date, Tenant shall remain liable for all obligations under this Lease up to the date of such termination and Tenant shall surrender the Premises to Landlord on the date specified in such notice, and if Tenant fails to so surrender, Landlord shall have the right, without notice, to enter upon and take possession of the Premises and to expel and remove Tenant and its effects without being liable for prosecution or any claim of damages therefor;
(b) terminate this Lease as provided in the immediately
preceding subsection and recover from Tenant all damages Landlord may incur by
reason of Tenant's default, including without limitation, the then present value
of (i) the total Rent which would have been payable hereunder by Tenant for the
period beginning with the day following the date of such termination and ending
with the Expiration Date of the Term as originally scheduled hereunder, minus
(ii) the aggregate reasonable rental value of the Premises for the same period
(as determined by a real estate broker licensed in the State of Minnesota, who
has at least ten (10) years experience, immediately prior to the date in
question evaluating commercial office space,
taking into account all relevant factors including, without limitation, the length of the remaining Term, the then current market conditions in the general area, the likelihood of reletting for a period equal to the remainder of the Term, net effective rates then being obtained by landlords for similar type space in similar buildings in the general area, vacancy levels in the general area, current levels of now construction in the general area and how that would affect vacancy and rental rates during the period equal to the remainder of the Term and inflation), plus (iii) the costs of recovering the Premises, and all other expenses incurred by Landlord due to Tenant's default, including, without limitation, reasonable attorneys' fees, plus (iv) the unpaid Rent earned as of the date of termination, plus interest, all of which sum shall be immediately due and payable by Tenant to Landlord;
(c) without terminating this Lease, and without notice to Tenant, Landlord may in its own name, but as agent for Tenant enter into and take possession of the Premises and relet the Premises, or a portion thereof, as agent of Tenant, upon any terms and conditions as Landlord may deem necessary or desirable (Landlord shall have no obligation to attempt to re-let the Premises or any part thereof). Upon any such re-letting, all rentals received by Landlord from such re-letting shall be applied first to the costs incurred by Landlord in accomplishing any such re-letting, and thereafter shall be applied to the Rent owed by Tenant to Landlord during the remainder of the Term of this Lease and Tenant shall pay any deficiency between the remaining Rent due hereunder and the amount received by such re-letting as and when due hereunder; or
(d) pursue such other remedies as are available at law or equity.
28. DESTRUCTION OR DAMAGE.
(a) If the Building or the Premises are destroyed by
storm, fire, earthquake, or other casualty, or damaged to the extent that the
damage cannot be restored within one hundred eighty (180) days of the date
Landlord provides Tenant written notice of a qualified, licensed architect's
reasonable estimate of the time necessary to restore the damage, or if the
damage results from a cause not covered by standard "all risks" property
insurance, both Landlord and Tenant shall have the right to terminate this Lease
effective as of the date of such destruction or damage by written notice to the
other party on or before thirty (30) days following Landlord's notice described
in the next sentence and Rent shall be accounted for as between Landlord and
Tenant as of that date. Landlord shall provide Tenant with notice within sixty
(60) days following the date of the damage of the estimated time needed to
restore (as evidenced by the certification of an independent qualified, licensed
architect) and whether the loss is covered by standard all-risks property
insurance coverage.
(b) If the Premises are damaged by any such casualty or casualties but this Lease is not terminated as provided in subparagraph (a) above, this Lease shall remain in full force and effect, Rent shall abate as to any portion of the Premises which is not usable, and Landlord shall restore the Premises to substantially the same condition as before the damage occurred as soon as practicable, whereupon full Rent shall recommence.
29. EMINENT DOMAIN. If the whole of the Property, Building or Premises, or such portion thereof as will make the Property, Building or Premises unusable in the reasonable judgment of either Landlord or Tenant for their intended purposes, is condemned or taken by any
legally constituted authority for any public use or purpose, then in either of said events, either party may terminate this Lease by written notice to the other party and the Term hereby granted shall cease from that time when possession thereof is taken by the condemning authorities, and Rent shall be accounted for as between Landlord and Tenant as of that date. If this Lease is not terminated, as described above, this Lease shall continue in full force and effect and the Rent shall be reduced pro rata in proportion to the amount of the Premises so taken. Tenant shall have no right or claim to any part of any award made to or received by Landlord for such condemnation or taking, and all awards for such condemnation or taking shall be made solely to Landlord. Tenant shall, however, have the right to pursue any separate award that does not reduce the award to which Landlord is entitled. Landlord will restore the Property, Building and Premises to a complete architectural unit as nearly identical as possible to that which existed prior to the condemnation.
30. RENEWAL OPTIONS. Provided no default exists at the time of exercise or as of the commencement date of the applicable Renewal Term (as defined below) for which Tenant has been given notice and the applicable cure period has expired, Tenant shall have the right to extend the term of this Lease for two (2) successive periods of five (5) years each ("Renewal Terms") with respect to all or any portion of the Premises, upon all of the following terms and conditions:
a. Tenant must provide Landlord notice of its intent to exercise of the option for the applicable Renewal Term not less than one hundred eighty (180) days prior to the expiration date of the Term or the first Renewal Term, as the case may be. Tenant may not exercise the option for the second Renewal Term unless it exercised the option for, and occupied for the Premises for, all of the first Renewal Term.
b. The Base Rent for both the first and the second Renewal Terms shall be the Market Rental Rate (as defined below). The term "Market Rental Rate" shall mean the then prevailing market rental rate, as of the date of Tenant's notice, on a per rentable square foot basis, taking into account all relevant factors, including, without limitation, size of space, age, location and quality of building, length of term, method of paying operating costs, services provided, and taking into account improvement allowances, brokerage commissions and other concessions then being provided as part of a market rate transaction.
(i) If Tenant exercises its renewal option for either the first or second Renewal Terms by written notice to Landlord as provided above ("Notice Date"), Landlord and Tenant shall meet promptly and shall negotiate, in good faith, to reach agreement on the Market Rental Rate within thirty (30) days following the Notice Date.
(ii) If Landlord and Tenant are unable to agree on the Market Rental Rate, then, within sixty (60) days of the Notice Date, Landlord and Tenant shall mutually agree upon a commercial real estate broker who has at least ten (10) years experience, immediately prior to the date in question, evaluating Market Rental Rates for similar real estate in the metropolitan Minneapolis, Minnesota suburban market and who has not been employed
by either Landlord or Tenant. If the parties are unable to agree on a broker the parties shall ask the commercial division of the Minneapolis Board of Realtors to designate a broker. The broker agreed upon or so designated is hereinafter referred to as the "Broker". Within ten (10) business days after the Broker has been agreed upon or appointed, Landlord and Tenant shall each deliver to Broker in writing their respective written determinations of the Market Rental Rate. Within thirty (30) days after receipt of the final written determinations, the Broker shall select Landlord's determination or Tenant's determination, but no other amount, as the Market Rental Rate. The Broker shall promptly notify Landlord and Tenant which party's determination of the Market Rental Rate has been selected. The fees and expenses of the Broker shall be borne equally by Landlord and Tenant.
(iii) The determination of the Market Rental Rate as provided above shall be final, binding and conclusive on both Landlord and Tenant, shall be considered a final award pursuant to the rules of the American Arbitration Association and any applicable state or federal law and judgment may be had on the award in any court of competent jurisdiction.
31. MORTGAGEE'S RIGHTS.
(a) Landlord represents and warrants that the Property is
not subject to any Security Documents (as defined below). Tenant agrees that
this Lease shall be subject and subordinate (i) to any mortgage, deed to secure
debt or other security interest which any owner of the Property may hereafter,
at any time, elect to place on the Property; (ii) to any assignment of
Landlord's interest in the leases and rents from the Building or Property which
any owner of the Property may hereafter, at any time, elect to place on the
Property; and (iii) to any Uniform Commercial Code Financing Statement covering
the personal property rights of Landlord or any owner of the Property which any
owner of the Property may hereafter, at any time, elect to place on the
foregoing personal property (all of the foregoing instruments set forth in (i),
(ii) and (iii) above being hereafter collectively referred to as "Security
Documents"); provided, however, that Tenant's agreement to subordinate shall be
subject, in all cases, to the condition precedent that Landlord must obtain from
the holder of any Security Documents ("Holder"), a fully-executed Subordination
Non-Disturbance and Attornment Agreement, in form and substance satisfactory to
Tenant ("SNDA"), Tenant agrees, upon request of any Holder, to hereafter execute
a SNDA in form reasonably acceptable to Tenant.
(b) In the event of a foreclosure pursuant to any Security Documents, Tenant shall at the election of the Landlord, but only in accordance with an executed SNDA, thereafter remain bound pursuant to the terms of this Lease as if a new and identical Lease between the purchaser at such foreclosure ("Purchaser"), as landlord, and Tenant, as tenant, had been entered into for the remainder of the Term hereof and Tenant shall attorn to the Purchaser upon such foreclosure sale and shall recognize such Purchaser as the Landlord under the Lease. Such attornment shall be effective and self-operative without the execution of any further instrument on the part of any of the parties hereto. Tenant agrees, however, to execute and deliver at any time and from time to time, upon the request of Landlord or of Holder, an SNDA.
(c) Tenant hereby acknowledges that if the interest of Landlord hereunder is covered by an assignment of Landlord's interest in Lease, Tenant shall pay all Rent due and payable under the Lease directly to the Holder of the assignment of Landlord's interest in Lease upon notification of the exercise of the rights thereunder by the Holder thereof.
(d) Notwithstanding anything to the contrary set forth in this Section 31, the Holder of any Security Documents shall have the right, at any time, to elect to make this Lease superior and prior to its Security Document. No documentation, other than written notice to Tenant, shall be required to evidence that the Lease has been made superior and prior to such Security Documents, but Tenant hereby agrees to execute any documents reasonably requested by Landlord or Holder to acknowledge that the Lease has been made superior and prior to the Security Documents.
32. TENANT'S ESTOPPEL. Tenant shall, from time to time, upon not less than fifteen (15) business days prior written request by Landlord, execute, acknowledge and deliver to Landlord a written statement certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), the dates to which the Rent has been paid, that Tenant is not in default hereunder and has no offsets or defenses against Landlord under this Lease, and whether or not to the best of Tenant's knowledge Landlord is in default hereunder (and if so, specifying the nature of the default), it being intended that any such statement delivered pursuant to this paragraph may be relied upon by a prospective purchaser of Landlord's interest or by a mortgagee of Landlord's interest or assignee of any security deed upon Landlord's interest in the Premises.
33. ATTORNEY'S FEES. In the event of any action or litigation between Landlord and Tenant to interpret or enforce the terms, provisions and conditions of this Lease, the losing party shall be obligated to reimburse the prevailing party for all reasonable, actual attorneys' fees, costs and expenses incurred in connection with such action. Any arbitrator or court who has jurisdiction over any such proceeding is hereby directed to determine which of the two parties should be required to pay the attorneys' fees, costs and expenses.
34. PARKING. Tenant shall be entitled to the use of its proportionate share of the parking spaces in the parking facilities located on the Property. All such parking spaces provided to Tenant (and any parking spaces used by Landlord or which Landlord makes available to other tenants or occupants) shall be unreserved (except for spaces reserved for handicapped persons) and are to be used by Tenant, its employees and invitees in common with the other tenants of the Building and their employees and invitees on a first-come, first-served basis (subject to Landlord's obligation to regulate usage so that Tenant has access, at all times, to its proportionate share of the spaces). The use of the parking spaces is provided by Landlord to Tenant without additional charge throughout the Term.
35. STORAGE. If Landlord makes available to Tenant any storage space outside the Premises, anything stored therein shall be wholly at the risk of Tenant, and Landlord shall have no responsibility or liability for the items stored therein.
36. WASTE DISPOSAL.
(a) All normal trash and waste (i.e., waste that does not require special handling pursuant to subparagraph (b) below) shall be disposed of through the janitorial service.
(b) Tenant shall be responsible for the removal and disposal of any waste deemed by any governmental authority having jurisdiction over the matter to be hazardous or infectious waste or waste requiring special handling, such removal and disposal to be in accordance with any and all applicable governmental rules, regulations, codes, orders or requirements. Tenant agrees to separate and mark appropriately all waste to be removed and disposed of through the janitorial service pursuant to (a) above and hazardous, infectious or special waste to be removed and disposed of by Tenant pursuant to this subparagraph (b). Tenant hereby indemnifies and holds harmless Landlord from and against any loss, claims, demands, damage or injury Landlord may suffer or sustain as a result of Tenant's failure to comply with the provisions of this subparagraph (b).
37. SURRENDER OF PREMISES. Whenever under the terms hereof Landlord is entitled to possession of the Premises, Tenant at once shall surrender the Premises and the keys thereto to Landlord in the same condition as on the Commencement Date hereof, natural wear and tear only excepted, and Tenant shall remove all of its personalty therefrom and shall have the right, but not the obligation, to remove all trade fixtures. Tenant shall not be obligated to remove any leasehold improvements. Landlord may forthwith re-enter the Premises and repossess itself thereof and remove all persons and effects therefrom, using such force as may be necessary without being guilty of forcible entry, detainer, trespass or other tort. Tenant's obligation to observe or perform these covenants shall survive the expiration or other termination of the Term of this Lease. If the last day of the Term of this Lease or any renewal falls on Sunday or a legal holiday, this Lease shall expire on the business day immediately preceding.
38. CLEANING PREMISES. Upon vacating the Premises, Tenant agrees to return the Premises to Landlord broom clean and in the same condition when Tenant's possession commenced, natural wear and tear excepted.
39. NO ESTATE IN LAND. This contract shall create the relationship of landlord and tenant between Landlord and Tenant; no estate shall pass out of Landlord; Tenant has only a usufruct, not subject to levy or sale, and not assignable by Tenant except with Landlord's consent.
40. CUMULATIVE RIGHTS. All rights, powers and privileges conferred hereunder upon the parties hereto shall be cumulative but not restrictive to those given by law.
41. PARAGRAPH TITLES; SEVERABILITY. The paragraph titles used herein are not to be considered a substantive part of this Lease, but merely descriptive aids to identify the paragraph to which they refer. Use of the masculine gender includes the feminine and neuter, and vice versa, where necessary to impart contextual continuity. If any paragraph or provision herein is held invalid by a court of competent jurisdiction, all other paragraphs or severable provisions of this Lease shall not be affected thereby, but shall remain in full force and effect.
42. DAMAGE OR THEFT OF PERSONAL PROPERTY. All personal property brought into the Premises shall be at the risk of the Tenant only and Landlord shall not be liable for theft thereof or any damage thereto occasioned by any acts of co-tenants, or other occupants of the Building, or any other person, except, with respect to damage to the Premises, as may be occasioned by the negligent or willful act of the Landlord, its employees and agents.
43. HOLDING OVER. In the event Tenant remains in possession of the Premises after the expiration of the Term hereof, Tenant shall be a tenant at will and such tenancy shall be subject to all the provisions hereof, except that the monthly rental shall be at 125% of the Rent due during the last month of the Term. There shall be no renewal of this Lease by operation of law or otherwise. Nothing in this Section shall be construed as a consent by Landlord for any holding over by Tenant after the expiration of the Term hereof.
44. TERMINATION RIGHT. Provided no Event of Default then exists
under this Lease, Tenant shall have the right, at any time during the Term of
this Lease, to terminate this Lease upon not less than one hundred eighty (180)
days prior written notice to Landlord. If Tenant exercises this termination
right, Tenant shall return the Premises to Landlord on or before the termination
date specified in Tenant's notice in the condition and in the manner required by
Section 37 of this Lease.
45. RULES AND REGULATIONS. The rules and regulations in regard to the Building, annexed hereto, and all reasonable rules and regulations which Landlord may hereafter, from time to time, adopt and promulgate for the government and management of said Building, are hereby made a part of this Lease as of fifteen (15) business days after Landlord provides a copy thereof to Tenant and shall, so long as they do not materially adversely affect Tenant's use and enjoyment of, or access to, the Premises during the said Term, be observed and performed by Tenant, his agents, employees and invitees.
46. QUIET ENVIRONMENT. So long as no uncured Event of Default exists under this Lease, Tenant shall peaceably and quietly have, hold and enjoy the Premises during the Term hereof. Landlord shall protect and defend Tenant's right to possession of the Premises, in accordance with the terms of this Lease, against the claims of all parties claiming by, through or under Landlord.
47. ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties and no representations, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect.
48. LIMITATION OF LIABILITY. Landlord's obligations and liability with respect to this Lease shall be limited solely to Landlord's interest in the Building, as such interest is constituted from time to time and to any casualty insurance proceeds, condemnation awards, net income from the Building and any sales proceeds, and, except with respect to the items expressly described above, neither Landlord nor any partner of Landlord, or any officer, director, shareholder, or partner of any partner of Landlord, shall have any personal liability whatsoever with respect to this Lease.
49. SUBMISSION OF AGREEMENT. Submission of this Lease to Tenant for signature does not constitute a reservation of space or an option to acquire a right of entry. This Lease is not binding or effective until execution by and delivery to both Landlord and Tenant.
50. BROKER DISCLOSURE. Landlord represents that it has dealt with no broker in connection with this Lease. Landlord agrees that, if any other broker makes a claim for a commission based upon the actions of Landlord, Landlord shall indemnify, defend and hold Tenant harmless from any such claim. Tenant represents that it has dealt with no broker in connection with this Lease. Tenant agrees that, if any other broker makes a claim for a commission based upon the actions of Tenant, Tenant shall indemnify, defend and hold Landlord harmless from any such claim.
51. NOTICES. Any notice or statement which is required or permitted to be given by either party under this Lease shall be in writing and must be given only by certified mail, return receipt requested, by hand delivery or by nationally recognized overnight courier service at the addresses set forth below. Any such notice shall be deemed given on the date sent or deposited for delivery in accordance with one of the permitted methods described above. The time period for responding to any such notice shall begin on the date the notice is actually received, but refusal to accept delivery or inability to accomplish delivery because the party can no longer be found at the then current notice address, shall be deemed receipt. Either party may change its notice address by notice to the other party in accordance with the terms of this Section 51. The following are the initial notice addresses for each party:
Landlord's Notice Address: Fortis Benefits Insurance Company 300 Bielenberg Drive Woodbury, MN 55125 Attention: Facilities Manager Tenant's Notice Address: Fortis, Inc. One Chase Manhattan Plaza New York. NY 10005 Attention: James J. Brinkerhoff With a copy to: Fortis, Inc. One Chase Manhattan Plaza New York, NY 10005 Attention: Jerome A. Atkinson |
52. FORCE MAJEURE. In the event of a strike, lockout, labor trouble, civil commotion, an act of God, or any other event beyond Landlord's control (a "force majeure event") which results in either party being unable to timely perform its obligations hereunder so long as such party diligently proceeds to perform such obligations after the end of the force majeure event, that party shall not be in breach hereunder and this Lease shall not terminate.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals, the day and year first above written.
LANDLORD:
FORTIS BENEFITS INSURANCE
COMPANY, a Minnesota corporation
By: /s/ Robert B. Pollock -------------------------------- Title: President |
(CORPORATE SEAL)
TENANT:
FORTIS, INC., a Nevada corporation
By: /s/ Robert B. Pollock -------------------------------- Title: EVP & CFO |
(CORPORATE SEAL)
RULES AND REGULATIONS
1. The sidewalks, entry passages, corridors, halls, elevators and stairways shall not be obstructed by Tenants or used by them for any purpose other than those of ingress and egress. The floors, skylights and windows that reflect or admit light into any place in said building shall not be covered or obstructed by Tenants. The toilets, drains and other water apparatus shall not be used for any other purpose than those for which they were constructed and no sweepings, rubbish or other obstructing substances shall be thrown therein.
2. No advertisement or other notice shall be inscribed, painted or affixed on any part of the outside or inside of said building, except upon the doors, and of such order, size and style, and at such places, as shall be approved and designated by Landlord. Interior signs on doors will be ordered for Tenants by Landlord, the cost thereof to be charged to and paid for by Tenants.
3. No Tenant shall do or permit to be done in his Premises, or bring or keep anything therein, which shall in any way increase the rate of insurance carried by Landlord on the Building, or on the Property, or obstruct or interfere with the rights of other Tenants or in any way injure or annoy them, or violate any applicable laws, codes or regulations. Tenants, agents, employees or invitees shall maintain order in the Premises and the Building, shall not make or permit any improper noise in the Premises or the Building or interfere in any way with other Tenants, tenants or those having business with them. Nothing shall be thrown by Tenants, their clerks or servants, out of the windows or doors, or down the passages or skylights of the Building. No rooms shall be occupied or used as sleeping or lodging apartments at any time. No part of the Building shall be used or in any way appropriated for gambling, immoral or other unlawful practices, and no intoxicating liquor or liquors shall be sold in the Building.
4. Tenants shall not employ any persons other than the janitors of Landlord (who will be provided with pass-keys into the offices) for the purpose of cleaning or taking charge of the Premises, except as may be specifically provided otherwise in the Lease.
5. No animals, birds, bicycles or other vehicles shall be allowed in the offices, halls, corridors, elevators or elsewhere in the Building, without the approval of Landlord.
6. No painting shall be done, nor shall any alterations be made to any part of the Building or the Premises by putting up or changing any partitions, doors or windows, nor shall there be any nailing, boring or screwing into the woodwork or plastering, nor shall any connection be made in the electric wires or gas or electric fixtures, without the consent in writing on each occasion of Landlord. All glass, locks and trimmings in or upon the doors and windows of the Building shall be kept whole and, when any part thereof shall be broken by Tenant or Tenant's agent, the same shall be immediately replaced or repaired by Tenant (subject to Tenant's compliance with Section 12 of the Lease) and put in order under the direction and to the satisfaction of Landlord, or its agents, and shall be kept whole and in good repair. Tenants shall not injure, overload, or deface the Building, the woodwork or the walls of the Premises, nor carry on upon the Premises any noxious, noisy or offensive business.
7. A reasonable number of keys will be furnished to Tenants without charge. No additional locks or latches shall be put upon any door without the written consent of Landlord.
Tenants, at the termination of their Lease, shall return to Landlord all keys to doors in the Building.
8. Landlord in all cases retains the power to prescribe the weight and position of iron safes or other heavy articles. Tenants must make arrangements with the superintendent of the Building when the elevator is required for the purpose of the carrying of any kind of freight.
9. The use of burning fluid, camphene, benzine, kerosene or anything except gas or electricity, for lighting the Premises, is prohibited. No offensive gases or liquids will be permitted.
10. If Tenants desire blinds, coverings or drapes over the windows, they must be of such shape, color and material as may be prescribed by Landlord, and shall be erected only with Landlord's consent and at the expense of the Tenant desiring them. No awnings shall be placed on the Building.
11. All wiring and cabling work shall be done only by contractors approved in advance by Landlord and Landlord shall have the right to have all such work supervised by Building engineering/maintenance personnel.
12. At Landlord's discretion, Landlord may hire security personnel for the Building, and every person entering or leaving the Building may be questioned by such personnel as to the visitor's business in the Building and shall sign his or her name on a form provided by the Building for so registering such persons. Landlord shall have no liability with respect to breaches of the Building security, if any.
EXHIBIT "A"
PROPERTY
The following property located in Washington County, Minnesota:
The East half (E-1/2) of the Northwest quarter (NW-1/4) of Section 5, Township 28 North, Range 21 West, except the North 507 feet of the West 133 feet and the North 190 feet of the East 58 feet of the West 191 feet thereof.
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is dated as of April 1, 2001, and is by and between HARTFORD LIFE AND ANNUITY INSURANCE COMPANY, a Connecticut corporation ("Landlord"), and FORTIS, INC., a Nevada corporation ("Tenant").
RECITALS
A. Pursuant to a Lease Agreement dated as of October 1, 2000, Fortis Benefits Insurance Company ("Fortis Benefits"), a Minnesota corporation, and Tenant entered into a certain lease (the "Lease") for space consisting of approximately 44,000 rentable square feet (the "Premises") on the second floor of a building commonly known as 500 Bielenberg Drive, Woodbury, Minnesota.
B. Effective as of April 1, 2001, Fortis Benefits conveyed to Landlord the real estate of which the Premises are a part. Pursuant to a separate Assignment and Assumption Agreement, Landlord assumed all the obligations of the landlord under the Lease arising from and after the date of the assignment.
C. The parties hereto wish to amend the terms of the Lease, as provided herein.
NOW THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements herein contained, the sufficiency and receipt of which is hereby acknowledged, the parties hereto represent and agree as follows:
1. DEFINITIONS. All capitalized terms used herein and not otherwise defined shall have the same meanings afforded them in the Lease.
2. AMENDMENT OF ARTICLE 1. The following additional paragraphs shall be added to Article 1:
"The Premises shall be deemed to include all space within which the Halon fire suppression system is located and shall also include certain space located in the small building attached to the rear of the Building in which the existing UPS/battery system is located ("UPS Facility"). The Premises on the second floor are located as shown on the floor plan attached hereto as Exhibit A-1 and hereby made a part hereof and the UPS Facility is located as shown on the Site Plan attached hereto as Exhibit A-2 and hereby made a part hereof."
"Tenant shall also have the non-exclusive use of: (i) the cafeteria operated in the Building (but only for so long as Landlord operates such a cafeteria) during the normal and customary business hours for such cafeteria as established by Landlord and at the same rates charged to Landlord's employees; (ii) the loading dock and delivery cage at the Building, at times and upon rules and regulations reasonably established by Landlord, at no additional charge; (iii) the basement
floor conference rooms (pursuant to reasonable rules and regulations and schedules established by Landlord, but at no additional charge); and (iv) a mail room pick-up area (of a size reasonably agreed upon by Landlord and Tenant) and at places and times reasonably designated by Landlord, at no additional charge. Tenant understands and agrees that Landlord will accept general mail delivery only for Tenant during normal business hours and that it shall have no obligation to provide any other services related thereto or to delivery of such items to Tenant in Tenant's Premises. Landlord will, however, permit Tenant's mail and package deliveries to be made directly to the Premises during normal business hours and to the guard station at other times, subject to reasonable Building security procedures. Tenant shall have no right of use of, or access to, any health center located in the Building nor to the services of any nurse employed or engaged from time to time by Landlord."
"Landlord acknowledges that the PBX system which serves the remainder of the Building and certain computer servers which serve the remainder of the Building are located in the Premises (collectively "Landlord's System"). All of the servers included in Landlord's Systems (which are more particularly described as being owned by Landlord ("H" in ownership column) in Schedule 3.16 of the Asset Purchase Agreement between, inter alia, Landlord and Tenant of even date herewith, will be relocated from the Premises at Landlord's expense and as soon as reasonably practicable but not later than December 31, 2001; provided, however, that Landlord may leave such servers in the Premises later than December 31, 2001 if the only reason therefor is that Landlord has experienced delays in obtaining the necessary building permits from local government authorities and that Landlord has used its commercially reasonable efforts to obtain such permits as soon as practicable; and provided, further, that in any event such servers shall be removed from the Premises not later than April 1, 2002. During the time that Landlord's Systems remain in the Premises, Landlord shall be solely responsible for the repair and maintenance of Landlord's Systems. Upon reasonable prior notice from Landlord to Tenant, Tenant will provide Landlord access to the Premises to perform the maintenance and repair of the Landlord's Systems. Upon the removal of the Landlord's Systems in accordance with the Transition Services Agreement, Landlord will repair any and all damages caused to the Premises or to Tenant's remaining equipment located in the Premises. Landlord hereby waives and releases Tenant, its agents, officers, directors, and employees from any and all claims, damages, liabilities, or costs or any kind or nature arising out of or related to the maintenance or lack of maintenance of the Landlord's Systems, or any loss or damage thereto, unless such loss or damage was caused by the gross negligence or willful misconduct of Tenant."
"Landlord agrees that it shall, at its sole expense and as soon as reasonably practical, wall off the existing telephone switching room located within the Premises. Tenant agrees that neither the definition of Premises nor Tenant's Share shall be amended as a result."
3. AMENDMENT OF ARTICLE 8. Subsection (a) shall be amended by deleting the last three sentences and replacing them with the following: "During the Term, Tenant shall have the nonexclusive right, along with Landlord (and other tenants of the Building), to use Tenant's pro rata share of the capacity of the emergency generators which serve the Building, but such generators will be the property of Landlord and will remain on the Property upon the expiration or termination of the Lease. Landlord agrees that Tenant may inspect the generators, upon reasonable prior notice, to insure that they are in proper working order (which shall include a right to run a 24-hour load test once per year)."
4. AMENDMENT OF ARTICLE 10. The following sentences are added:
"Landlord's obligation to maintain and repair the Building Systems shall include the Building sprinkler system and the Building fire suppression system, as well as the Building emergency generators. Notwithstanding the foregoing, Landlord shall not be responsible for maintenance of: (1) the UPS/Battery system; (2) the Halon fire suppression system that serves the Premises exclusively, (3) the pre-action sprinkler system; (4) the fiber optic cable system running within and from the Building which serves Tenant's space in the adjacent Gateway Building; and (5) any other systems subsequently determined to serve the Premises exclusively (collectively "Tenant's Systems"). Tenant hereby waives and releases Landlord, its agents, officers, directors, and employees from any and all claims, damages, liabilities or costs of any kind or nature arising out of or related to the maintenance or lack of maintenance of such systems or any loss or damage thereto unless such loss or damage was caused by the gross negligence or willful misconduct of the Landlord. Notwithstanding the foregoing, upon Tenant's written request, Landlord will undertake normal repair and replacement obligations (but only such obligations) for the UPS/Battery system, but all costs related thereto, whether of replacement or repair, shall be billed directly to Tenant and shall not be treated as Operating Expenses for purposes of this Lease."
5. AMENDMENT OF ARTICLE 11. The following paragraphs are hereby added:
"Subject to the provisions of Article 10 above, Tenant shall be solely responsible for maintenance of Tenant's Systems and for procuring whatever licenses or permits may be required in order to maintain or operate such systems. Landlord makes no representations or warranties whatsoever as the permissibility of any such systems under local ordinances or regulations, or their adequacy or fitness to operate for their intended purposes. ALL ASPECTS OF ALL TENANT'S SYSTEMS ARE ENTIRELY THE RESPONSIBILITY OF TENANT. Tenant shall indemnify, defend and save the Landlord, its officers, employees, directors, and agents harmless from and against any and all claims, damages, costs, liabilities or causes of action of any kind or nature arising out of or related to Tenant's Systems. This indemnity shall survive the expiration or termination of the Lease.
Unless Landlord directs otherwise in writing, Tenant shall remove, at its sole expense, all of Tenant's Systems at the expiration or termination of this Lease and
shall repair and restore any damage arising from such removal. In the event Tenant fails to do so, Landlord may remove all such systems at its expense, all such amounts expended being deemed rent hereunder, and charge Tenant for such amounts which shall be immediately reimbursed to Landlord. Tenant's reimbursement obligations hereunder shall also survive the expiration or termination of this Lease."
6. AMENDMENT OF ARTICLE 13. The following subparagraphs should be added to the end:
"(d) Notwithstanding the foregoing, all costs and expenses incurred with Tenant's Systems shall be borne exclusively by the Tenant and not be treated as Operating Expenses hereunder.
(e) The maintenance and repair of the generator systems in the Building shall be performed by Landlord, but shall not be treated as Operating Expenses, but rather shall be shared between Landlord, Tenant, and any other tenant in the Building based on their respective usage of such generators. All such expenses shall constitute additional rent and shall be immediately reimbursable to Landlord upon its presentation of invoices therefor.
(f) To the extent that Landlord subsidizes the costs of the items sold in the cafeteria, all such subsidies shall be treated as Operating Expenses (in addition to the normal expenses incurred by the Landlord in connection with the operation of such cafeteria; provided, however, Tenant shall have the right to discontinue using such cafeteria, in which case, all such subsidies will, thereafter, not be included in Operating Expenses.
(g) Certain specific charges related to parking or Building security, such as the issuance of automobile identification or Building security badges may be directly assessed against Tenant on a per user or per employee basis."
7. AMENDMENT OF ARTICLE 14. The following should be added at the end of the paragraph:
"Should Tenant not remove such satellite dishes as and when required, Tenant hereby authorizes Landlord to remove and dispose of such dishes and Tenant shall be responsible for all reasonable costs and expenses incurred by Landlord in so doing, all such amounts expended being deemed rent hereunder, and which shall be immediately reimbursed to Landlord, Tenant's reimbursement obligations hereunder shall also survive the expiration or termination of this Lease.
Anything in this section to the contrary notwithstanding, Landlord, at its sole option, may require Tenant at any time prior to the expiration of the Term, to terminate the operation of a dish if it is causing physical damage to the structural integrity of the Building, Landlord may at any time elect by notice to Tenant to relocate the satellite dish(es) provided that such relocation is solely at Landlord's
expense and does not unreasonably interfere with Tenant's use of such dishes. Any and all licensing and/or governmental approvals required for the construction, operation or maintenance of such dishes is solely the responsibility of Tenant. Tenant shall operate such dishes in accordance with all applicable laws and shall maintain them at its sole risk and expense. Tenant hereby agrees to indemnify, defend and save the Landlord, its officers, employees, directors, and agents harmless from and against any and all claims, damages, costs, liabilities or causes of action of any kind or nature arising out of or related to the satellite dishes. This indemnity shall survive the expiration or termination of the Lease. The satellite dishes shall be used solely for Tenant's business purposes."
8. AMENDMENT OF ARTICLE 18. Section 18 is hereby deleted and the following inserted in its place:
"At the expiration or termination of this Lease, at the written direction of Landlord, Tenant shall remove (i) all trade fixtures and equipment (but Tenant shall have no obligation whatsoever to remove any leasehold improvements) which it has placed on the Premises, and (ii) any subsequent leasehold improvements made by Tenant and which are, as a precondition to Landlord's consent thereto, required to be removed at the expiration or termination of the Term or any extended Term. Tenant shall repair and replace all damages to the Premises caused by such removal. If Tenant fails to so remove, title to all equipment shall be deemed to have passed to the Landlord as though by bill of sale, and Landlord may remove and sell all such trade fixtures and equipment, and repair and restore the Premises all for the account of Tenant. All such sums expended by Landlord shall be deemed additional rent hereunder, and shall be immediately due and payable to the Landlord. All of Tenant's reimbursement obligations hereunder shall survive the expiration or termination of this Lease."
9. AMENDMENT TO ARTICLE 19. Section 19 is amended by adding the phrase "or to make such repairs, perform maintenance and provide other services to Landlord's space in the Building" after the word "tenants" in the seventh line.
10. AMENDMENT TO ARTICLE 20. Subsection (c) is amended by deleting the phrase "three (3)" in the seventh line and replacing it with "seven (7)".
11. AMENDMENT TO ARTICLE 21. Article 21 is amended by adding the phrase "or which arise out of Tenant's use of any Hazardous or toxic material" after the parenthetical phrase in the fourth line. It is further amended by replacing the reference to Section 22(d) with one to Section 22(e).
12. AMENDMENT TO ARTICLE 22. Article 22 is hereby amended as follows: subsection a(ii) is modified to provide that Tenant's responsibility for insuring the HVAC System is replaced by Tenant's obligation to insure Tenant's Systems; subsection b(ii) is modified to provide that Tenant shall only be obligated to provide certificates of insurance, not the actual policies; and subsection b(iii) is modified to provide that Tenant's insurer shall only be obligated
to give Landlord thirty (30) days advance notice of any cancellation, termination, or lapse of coverage.
13. AMENDMENT TO ARTICLE 26. Article 26 is amended by adding the following phrase after the word "Landlord" in the third line; "provided however that Landlord need give no more than two notices of monetary default within any given calendar year."
Article 26 is further amended by adding the phrase "but in all events within ninety (90) days" after the phrase "thirty (30) days" in the sixth line.
14. AMENDMENT TO ARTICLE 32. Article 32 is amended by adding the phrase "and such other factual matters regarding the status of the Lease that Landlord may reasonably request" following the second parenthetical phrase of the article.
15. AMENDMENT TO ARTICLE 34. Article 34 is amended by adding the following at the end of the article:
"provided however that Tenant shall be responsible for any amounts assessed or required to be paid to any governmental authority on account of the parking of motor vehicles for spaces provided to Tenant. If Landlord institutes an automobile identification procedure, Tenant shall cooperate with Landlord's reasonable requirements therefor. Landlord reserves the right to reserve a reasonable number of parking spaces for itself and its business invitees, the location of which will not unreasonably interfere with Tenant's enjoyment of the Premises."
16. AMENDMENT TO ARTICLE 37. Article 37 is amended by deleting (a) the balance of the first sentence after the word "therefrom," and (b) the second sentence.
17. AMENDMENT TO ARTICLE 46. Article 46 is amended by adding the phrase "subject to the terms hereof at the end of the first sentence.
18. AMENDMENT OF ARTICLE 52. Article 52 is amended by adding the following at the end of the clause:
"provided however that nothing contained in this Section shall be deemed to excuse or permit any delay in the payment of Rent or any delay in the cure of any default which may be cured by the payment of money. Neither Landlord nor Tenant shall be entitled to rely upon an event of Force Majeure unless such party shall give the other party notice of the existence of any Force Majeure preventing its performance of its obligation hereunder within five (5) days after the commencement of the Force Majeure."
19. NEW ARTICLE 53. A new Article 53 is added as follows:
"Landlord shall notify Tenant prior to commencing any excavation or landscaping on the Property in the vicinity of the fiber optic cables which Tenant is entitled to install on the Property pursuant to Article 54 so that Tenant can mark the location of such fiber optic cables. Landlord will conduct any such excavation
in the vicinity of the fiber optic cables in accordance with the provisions of the Fiber Optic Agreement (as defined in Article 54)."
20. NEW ARTICLE 54. A new Article 54 is added as follows:
"Landlord acknowledges that a series of fiber optic cables run from the Building and service an adjacent building known as the Gateway Building, in which Tenant leases space. Landlord hereby grants Tenant a license to maintain such existing fiber optic cables, and to install new fiber optic cables, on the terms and conditions set forth in Exhibit B attached hereto and made a part hereof ("Fiber Optic Agreement").
21. NEW ARTICLE 55. A new Article 55 is added as follows:
"Landlord reserves the right to reconfigure the Building (excluding the Premises) for security or other reasons so long as there is no unreasonable interference with Tenant's operations on the Premises and Tenant's access is not materially, adversely affected. For example, but not by way of limitation, Landlord may wish to install a separate entrance to the second floor."
[SIGNATURES ON NEXT PAGE]
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the date first above written.
HARTFORD LIFE AND ANNUITY INSURANCE
COMPANY, a Connecticut corporation
By: /s/ Craig R. Raymond ----------------------------------- Its: Senior VP & Chief Actuary |
FORTIS, INC., a Nevada corporation
By: /s/ William D. Greiter ----------------------------------- Its: Senior Vice President |
STATE OF Georgia ) ) SS COUNTY OF Fulton ) |
I, the undersigned, a Notary Public, in and for the County and State aforesaid, DO HEREBY CERTIFY that Craig R. Raymond, personally known to me to be the Senior VP and Chief Actuary of HARTFORD LIFE AND ANNUITY INSURANCE COMPANY, a Connecticut corporation, and personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person and acknowledged that as such Senior VP and Chief Actuary he/she signed and delivered the said instrument pursuant to authority given under the Board of Directors of said corporation as his/her free and voluntary act, and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 1st day of April 2001.
/s/ Linda V. Lutz -------------------- Notary Public Notary Public, Gwinnett County, Georgia My Commission Expires Aug. 6, 2001 |
STATE OF Georgia ) ) SS COUNTY OF Fulton ) |
I, the undersigned, a Notary Public, in and for the County and State aforesaid, DO HEREBY CERTIFY that William D. Greiter, personally known to me to be the Senior VP of FORTIS INC., a Nevada corporation, and personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person and acknowledged that as such Senior VP he/she signed and delivered the said instrument pursuant to authority given under the Board of Directors of said corporation as his/her free and voluntary act, and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 1st day of April 2001.
/s/ Linda V. Lutz --------------------- Notary Public |
EXHIBIT B
FIBER OPTIC AGREEMENT
In consideration of the rent paid by Tenant under the Lease to which this Fiber Optic Agreement ("Agreement") is attached, and for other good and valuable consideration, the receipt of which is hereby acknowledged, Landlord grants to Tenant and Tenant accepts from Landlord a license to use the Licensed Area, shown on Exhibit 1 attached hereto. Any term used herein and not otherwise defined shall have the same meaning given to it in the Lease.
The use of the Licensed Area shall be subject to the terms and conditions set forth in the Lease for use of the Premises to the extent applicable and except as may otherwise be set forth below.
The duration of this License (License Period) shall be from the Commencement Date of the Lease to the earlier of: (a) the Expiration Date of the Lease (as such date may be extended or sooner terminated pursuant to the terms of the Lease), or (b) or the date on which Tenant's lease in the Gateway Building, Woodbury, Minnesota is terminated; provided however that Tenant may terminate this License for any reason, by notice to Landlord specifying when, not sooner than 30 days after the receipt of such notice, the termination shall be effective.
Tenant has installed certain fiber optic cables for the sole use of the named Tenant herein in its business operations within the Licensed Area. Detailed plans and specifications are attached hereto as Exhibit 2 showing such existing fiber optic cables. Tenant shall have the right to install additional fiber optic cables in the Licensed Area, subject to the terms and conditions hereinafter set forth. The existing fiber optic cables and any new fiber optic cables installed by Tenant pursuant to this Agreement are hereinafter collectively referred to as "Fiber Line." The plans and specifications for any new Fiber Line, as well as the modification of any existing Fiber Line, shall be subject to Landlord's prior approval, which approval shall not be unreasonably withheld, conditioned or delayed; except that if any such new lines or any such modification shall materially increase the nature or size of the Fiber Line, or its use or consumption of services from that currently existing or shall materially interfere with the use of the Land by Landlord, then Landlord may withhold its approval to such new lines or such modification in its sole discretion. Tenant represents that the Fiber Line was (or will be) installed strictly in accordance with the approved plans and specifications. To the extent that Tenant desires to install new Fiber Line or to modify the existing Fiber Line, such new installations or modifications shall be done, at Tenant's expense, by a contractor approved by Landlord, which approval shall not be unreasonably withheld, conditioned, or delayed, and Tenant shall provide Landlord with evidence of the contractor's liability insurance coverage which shall be reasonably satisfactory to Landlord. Tenant agrees to perform any and all excavation work to the extent reasonably possible, during weekends. Tenant shall be obligated to restore the land (and any landscaping) to its previous condition and to repair any damage to the Premises, Building, or Licensed Area caused by such installation. Subject to Landlord's reasonable requirements and conditions, Tenant shall be permitted use of those Building shafts and Common Areas, so long as this Agreement remains in effect, to the extent reasonably necessary to install the Fiber Line and connect it to the Premises.
Tenant shall be responsible for procuring whatever licenses or permits may be required from third parties for the use or operation of the Fiber Line, and Landlord makes no warranties or representations as to the permissibility of the Fiber Line under applicable Laws or its adequacy or ability to function as required by Tenant. The Fiber Line shall not unreasonably interfere with the operations of Landlord or other tenants occupying the Building or the project in which the Building is located. Tenant shall operate and maintain the Fiber Line at its sole risk and expense and in accordance with all Laws and shall indemnify Landlord against all costs, claims, losses, liabilities and expenses (including reasonable attorneys' fees) arising out of the installation, operation, maintenance and removal of the Fiber Line. Such indemnity shall survive the Term. Tenant, at its expense, shall procure the satisfaction or discharge of record of all liens and encumbrances filed in connection with the same within 10 business days after Tenant is notified of the filing thereof. Landlord shall have the right to perform maintenance in the Licensed Area and shall use all commercially reasonable efforts to avoid disruption of the Fiber Line. Landlord shall give Tenant notice, at least 24 hours prior to doing any excavation work in the Licensed Area, so that Tenant can mark the location of the Fiber Line, Landlord agrees to perform any and all excavation work, to the extent reasonably possible, during weekends. Landlord will use all commercially reasonable efforts to avoid damaging the Fiber Line, in any way, as a result of such excavation work. Landlord hereby agrees to reimburse Tenant for all costs necessary to repair any damage caused by Landlord or its contractors or agents to the Fiber Line. The Fiber Line shall remain Tenant's Property and Tenant may, but shall not be obligated, at its sole cost and expense, to remove the Fiber Line on or before the Expiration Date. If Tenant elects to remove the Fiber Line, Tenant shall be obligated to repair any damage to the Premises, Building, Licensed Area or Land caused by such removal, and such removal shall otherwise be conducted in accordance with Landlord's reasonable requirements. If Tenant does not elect to remove the Fiber Line, Tenant hereby authorizes the Landlord to remove and dispose of the Fiber Line.
Anything in this Schedule I to the contrary notwithstanding, Landlord,
at its sole option, may require Tenant at any time prior to the expiration of
the Term, to terminate the operation of the Fiber Line if it is causing physical
damage to the structural integrity of the Building, interfering with any other
service provided by the Building or interfering with any other occupant of the
Building's business; provided, however, Tenant shall have the right to correct
the damage or interference caused by the Fiber Line to Landlord's reasonable
satisfaction within 30 days and, if Tenant does so, Tenant may restore the
operation of the Fiber Line, at Tenant's expense. If the damage or interference
is not corrected within 30 days, Landlord, at its sole option, may require that
Tenant remove the Fiber Line at Tenant's expense, Landlord may, at any time,
upon not less than 30 days prior notice to Tenant elect to relocate the Fiber
Line, provided that: (i) such relocation shall be at Landlord's sole expense,
(ii) the work shall be done during non-business hours, at a time mutually agreed
upon by Landlord and Tenant, and (iii) such relocation shall not unreasonably
interfere with Tenant's use or operation of the Fiber Line. Landlord shall have
no responsibility for performing any maintenance or repair of the Fiber Line,
nor shall Tenant be entitled to any services with respect to the Fiber Line.
We hereby consent to the use in this Registration Statement on Amendment No. 2 of Form S-1 of Assurant, Inc. of our reports dated March 28, 2003, except as to Note 23 as to which the date is October 20, 2003 relating to the consolidated financial statements and financial statement schedules of Fortis, Inc. as of December 31, 2002 and 2001 and for each of the years in the three-year period ended December 31, 2002, which appear in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP New York, New York January 13, 2004 |
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Amendment No. 2 to Form S-1 of our report dated December 5, 2003, except as to Note 4 as to which the date is January 9, 2004 relating to the financial statement of Assurant, Inc. which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP New York, New York January 13, 2004 |