Exhibit 10.3
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT NO. 2 dated as of March 5, 2004 to the Credit Agreement
dated as of September 10, 2003 (as heretofore amended, the "Credit Agreement")
among CONSECO, INC. (the "Company"), the several financial institutions from
time to time party thereto (the "Banks"), and BANK OF AMERICA, N.A., as Agent
(the "Agent").
W I T N E S S E T H :
WHEREAS, the Company has notified the Agent and the Banks that,
pursuant to a registration statement filed with the SEC on January 29, 2004 (as
the same may be amended from time to time), the Company intends to offer and
sell to the public shares of its common stock and its Class B Mandatorily
Convertible Preferred Stock (the "Proposed Equity Issuances"); and
WHEREAS, the Company has requested the Banks to amend the definitions
of "Conseco Available Cash Flow" and "Conseco EBITDA" as set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1 . Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein that is defined in the Credit Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, after this Amendment becomes effective,
refer to the Credit Agreement as amended hereby.
Section 2 . Amendments.
(a) Clause (k) of the definition of "Conseco Available Cash Flow" in
Section 1.01 of the Credit Agreement is amended by replacing the reference to
"clause (f)" with "clause (g)".
(b) The definition of "Conseco EBITDA" in Section 1.01 of the Credit
Agreement is amended by (i) replacing clause (c) thereof with "(c) depreciation
and amortization of tangible and intangible assets (including any amortization
of premium (or discount) associated with the Company's actively managed fixed
income maturities, which amortization is related to xxxx-to-market adjustments
made on August 31, 2003 pursuant to principles of fresh start accounting)," (ii)
inserting a new clause (d) thereof to read as follows: "(d) to the extent not
capitalized under GAAP, renewal commissions calculated at ultimate commission
rates for those insurance products falling within the guidance of FAS 60," and
(iii)
renumbering clauses (d) through (i) thereof as clauses (e) through (j),
respectively.
(c) Exhibit A attached to the Credit Agreement is deleted and replaced
with Exhibit A attached to this Amendment.
Section 3 . Waivers; Consent.
(a) The Banks party hereto hereby agree that, notwithstanding the
provisions of Sections 2.08(c) and 7.08(c) of the Credit Agreement, the Company
may, within three Business Days after any Net Proceeds are received by or on
behalf of the Company in respect of the Proposed Equity Issuances, deposit into
trust for the equal and ratable benefit of the holders of the New CNC Preferred
Stock to be repurchased or redeemed (with such funds not being revocable until
two years after the proposed redemption date) that portion of such Net Proceeds
that the Company would have been permitted to apply towards such repurchase or
redemption pursuant to the terms of Sections 2.08(c) and 7.08(c) of the Credit
Agreement if such funds had been applied to repurchase or redeem the New CNC
Preferred Stock within the five Business Days period specified therein (the
"Preferred Stock Redemption Amount"); provided that the Company shall (x) within
three Business Days of the consummation of the Proposed Equity Issuances, give a
written notice of redemption (and deliver a copy of such notice to the Agent) of
the New CNC Preferred Stock as provided in the certificate of designations
setting forth the terms of the New CNC Preferred Stock (the "Certificate of
Designations"), which notice shall specify a redemption date no later than 45
days after the date thereof and shall be with respect to the maximum number of
shares of New CNC Preferred Stock that can be redeemed with the Preferred Stock
Redemption Amount (including an amount in respect of all dividends that will
accrue to the redemption date), (y) within five Business Days after any such Net
Proceeds are received by or on behalf of the Company, prepay Borrowings with the
remaining portion of such Net Proceeds to the extent required by Section 2.08(c)
of the Credit Agreement as modified hereby and (z) apply the Preferred Stock
Redemption Amount to the repurchase or redemption of the New CNC Preferred Stock
as required by and pursuant to the terms of the Certificate of Designations.
(b) The Banks party hereto hereby waive compliance by the Company with
the provisions of Section 7.02 of the Credit Agreement to the extent (but only
to the extent) necessary to permit the Company to deposit the Preferred Stock
Redemption Amount in a trust account solely for the equal and ratable benefit of
the holders of the New CNC Preferred Stock; provided that such account shall be
funded and maintained solely for the purposes of paying amounts payable upon the
repurchase or redemption of the New CNC Preferred Stock.
2
Section 4 . Representations of the Company. The Company represents and
warrants that (i) the representations and warranties of the Company set forth in
Article 5 of the Credit Agreement will be true and correct in all material
respects on and as of the Amendment Effective Date (as defined below) and (ii)
no Default will have occurred and be continuing on such date.
Section 5 . Amendment Fees. By no later than the first Business Day
after the Amendment Effective Date, the Company shall pay the Agent for the
account of each Bank that has evidenced its agreement hereto as provided in
Section 8(a) below by 6:00 p.m., New York City time, on March 5, 2004, an
amendment fee in an amount equal to 0.075% of the aggregate outstanding
principal amount of such Bank's Loans (as outstanding on the opening of business
on the date hereof).
Section 6 . Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
Section 7 . Counterparts. This Amendment may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
Section 8 . Effectiveness. This Amendment shall become effective on
the date when the following conditions are met (the "Amendment Effective Date"):
(a) the Agent shall have received from each of the Required Banks a
counterpart hereof signed by such party or facsimile or other written
confirmation (in form satisfactory to the Agent) that such party has signed a
counterpart hereof;
(d) the Agent shall have received from the Company a counterpart
hereof signed by the Company or facsimile or other written confirmation (in form
satisfactory to the Agent) that the Company has signed a counterpart hereof; and
(e) the Agent shall have received payment of any other costs, fees and
expenses (including reasonable legal fees and expenses for which invoices shall
have been submitted to the Company but excluding, for the avoidance of doubt,
any amendment fees payable pursuant to Section 5) payable on or prior to the
Amendment Effective Date in connection with this Amendment or the Loan
Documents.
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
CONSECO, INC.
By:/s/ Xxxxxx X. Xxxxxx
------------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Senior Vice President
and Treasurer
BANK OF AMERICA, N.A.,
as Agent and as a Bank
By:/s/ Xxxxx XxXxxxxxx
------------------------------------------
Name: Xxxxx XxXxxxxxx
Title: Managing Director
EXHIBIT A
FORM OF COMPLIANCE CERTIFICATE
Financial Statement Date: _______
To: Bank of America, N.A., as Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of [ ],
2003 (as amended, restated, extended, supplemented or otherwise modified in
writing from time to time, the "Agreement"; the terms defined therein being used
herein as therein defined), among Conseco, Inc., a Delaware corporation (the
"Company"), the Banks from time to time party thereto, and Bank of America,
N.A., as Agent.
The undersigned Responsible Officer of the Company hereby certifies as
of the date hereof that he/she is the [insert title] of the Company, and that,
as such, he/she is authorized to execute and deliver this Compliance Certificate
to the Agent on behalf of the Company, and that:
[Use the following paragraph 1 for fiscal year-end financial
statements.]
1. Attached hereto as Schedule 1 are the year-end audited financial
statements required by Section 6.01(a) of the Agreement for the fiscal year of
the Company ended as of the above date, together with the opinion of an
Independent Auditor required by such section.
[or]
[Use the following paragraph 1 for fiscal quarter-end financial
statements.]
1. Attached hereto as Schedule 1 are the unaudited financial
statements required by Section 6.01(b) of the Agreement for the fiscal quarter
of the Company ended as of the above date. Such financial statements fairly
present in all material respects, in accordance with GAAP (subject to the
absence of footnotes and ordinary, good faith year-end and audit adjustments),
the financial position and the results of operations of the Company and its
Subsidiaries as at such date and for such period.
A-1
2. The undersigned has reviewed and is familiar with the terms of the
Agreement and has made, or has caused to be made under his/her supervision, a
detailed review of the transactions and condition (financial or otherwise) of
the Company during the accounting period covered by the attached financial
statements.
3. A review of the activities of the Company during such fiscal period
has been made under the supervision of the undersigned with a view to
determining whether during such fiscal period the Company performed and observed
all its obligations under the Loan Documents, and to the best knowledge of the
undersigned during such fiscal period,
[Select one:]
[the Company performed and observed each covenant and condition of the
Loan Documents applicable to it.]
[or]
[the following covenants or conditions have not been performed or
observed and the following is a list of each such Default and its nature and
status:]
4. The financial covenant analyses and information set forth on
Schedule 2 attached hereto are true and accurate on and as of the date of this
Compliance Certificate.
A-2
IN WITNESS WHEREOF, the undersigned has executed this Compliance
Certificate in his/her capacity as Responsible Officer of the Company as
of__________, _____.
CONSECO, INC.
By:
------------------------------------------
Name:
Title:
A-3
SCHEDULE 1
TO THE COMPLIANCE CERTIFICATE
A-4
SCHEDULE 2
TO THE COMPLIANCE CERTIFICATE(1)
For the Fiscal Quarter/Year ended __________________ ("Statement Date")
1. Section 2.08(e) -- Conseco Excess Cash Flow and Excess Aggregate RBC Ratio(2)
For most recently ended Excess Cash Calculation Period:
(a) Actual Conseco Excess Cash Flow for such Excess Cash Calculation
Period:
(i) amount determined pursuant to item 9(b)(xv)(B) below:(3) $
---------------
(ii) cash income taxes paid or to be paid by the Company for such period: $
---------------
(iii) cash interest expense paid by the Company and not reflected in the calculation of
Conseco Available Cash Flow for such period: $
---------------
(iv) permanent repayments of Indebtedness by the Company during such period to the extent
permitted under Section 7.10(a) of the Agreement: $
---------------
(A) repayments already reflected in the calculation of Conseco
Available Cash Flow for such period: $
---------------
(B) (a)(iv) minus (a)(iv)(A): $
---------------
(v) sum of (a)(ii) + (a)(iii) + (a)(iv)(B): $
---------------
(vi) (a)(i) minus (a)(v): $
---------------
---------------------
1 In case of any inconsistency between the provisions of this Schedule and
the provisions of the Agreement, the Agreement shall prevail.
2 Only required on an annual basis for most recently ended Excess Cash
Calculation Period.
3 Representing Conseco Available Cash Flow for such Excess Cash Calculation
Period.
A-5
(vii) amount, if any, that any Department has required the Company to reinvest in or
otherwise return to any Insurance Subsidiary to the extent that such amount is included
in the calculation of the amount in item 1(a)(vi) above: $
---------------
(viii) (a)(vi) minus (a)(vii): $
---------------
(b) To the extent that the Aggregate RBC Ratio exceeds 300% as at the end of such Excess
Cash Calculation Period, 100% of the amount in excess of the amount required to maintain an
Aggregate RBC Ratio of 300%: $
---------------
(i) amount, if any, that any Department has prohibited any Insurance Subsidiary from
distributing to the Company to the extent that such prohibited amount is included in the
calculation of the amount in item 1(b) above: $
---------------
(ii) (b) minus (b)(i): $
---------------
(c) Sum of (a)(viii) and (b)(ii): $
---------------
(d) Amount by which the aggregate amount of cash on hand and Cash Equivalents of the
Company and its Subsidiaries (other than the Insurance Subsidiaries) exceeds $50,000,000 at
the time of prepayment: $
---------------
(e) Lesser of (c) and (d): $
---------------
(f) Amount applied to the redemption or repurchase of the New CNC Preferred Stock to the
extent permitted by Section 2.08(e) of the Agreement:(4) $
---------------
(g) (e) minus (f): $
---------------
------------------
4 Such amount not to exceed 50% of the amount in item 1(e) above.
A-6
2. Section 6.15(c) -- Exclusions from cash and Cash Equivalents to be maintained
in Collateral Accounts
------------------------------------------------------------------------ ---------------------- ----------------------
Actual
Maximum (measured
Permitted as of the
Item (at any time) Statement Date)
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(a) Aggregate amount of cash and Cash Equivalents maintained in
any account of CCM so long as such account is funded to satisfy CCM's
obligations under expense reimbursement agreements to which CCM is a
party: $2,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(b) Aggregate amount of cash and Cash Equivalents maintained in
all trust accounts: $2,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(c) Aggregate amount of cash and Cash Equivalents maintained in
accounts(maintained to satisfy qualified professional asset manager
requirements under ERISA) of Obligors which are investment advisers
registered under the Investment Advisers Act of 1940 (including CCM): $2,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(d) Aggregate amount of cash and Cash Equivalents maintained in
accounts (maintained to satisfy minimum net regulatory capital
requirements imposed by NASD regulations pursuant to the Exchange Act)
of Obligors which are broker-dealers registered under the Exchange Act
and members of the NASD (including Conseco Equity Sales, Inc.): $10,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(e) Aggregate amount of cash and Cash Equivalents in other
accounts: $1,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
A-7
3. Section 7.01 -- Limitation on Indebtedness; Certain Capital Stock
------------------------------------------------------------------------ ---------------------- ----------------------
Maximum Actual
Permitted (measured
(at any time as of the
Item outstanding) Statement Date)
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(a) Aggregate principal amount of Capitalized Lease Liabilities
and Purchase Money Debt: $25,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(b) Aggregate principal amount of intercompany Indebtedness of
Excluded Subsidiaries: $5,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(c) Aggregate principal amount of other secured Indebtedness
under Section 7.01(a)(xiii) of the Agreement: $10,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(d) Aggregate principal amount of other unsecured Indebtedness
under Section 7.01(a)(xiv) of the Agreement: $50,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
4. Section 7.02 -- Liens
------------------------------------------------------------------------ ---------------------- ----------------------
Maximum Actual
Permitted (measured
(at any time as of the
Item outstanding) Statement Date)
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(a) Aggregate amount of Indebtedness and other obligations
secured by Liens under Section 7.02(o) of the Agreement: $10,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
A-8
5. Section 7.03 -- Disposition of Assets
------------------------------------------------------------------------ ---------------------- ----------------------
Maximum
Permitted Actual
(for the (measured
Item period indicated) as indicated)
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(a) Aggregate amount of intercompany Dispositions in the ordinary
course of business to Excluded Subsidiaries:
$
$5,000,000 --------------
during the term of through the
the Agreement Statement Date
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(b) Aggregate statutory profit and/or gains on insurance policy
sales or other portfolio transfers resulting from all Dispositions by
the Company or any of its Subsidiaries pursuant to a Reinsurance
Agreement consummated after the Effective Date under clause (ii) of
Section 7.03(e) of the Agreement, subject to the provisos in clauses
(x) and (y) of such Section:
$
$250,000,000 --------------
during the term through the
of the Agreement Statement Date
$
$100,000,000 --------------
in any for the
Fiscal Year Fiscal Year
through the
Statement Date
------------------------------------------------------------------------ ---------------------- ----------------------
A-9
6. Section 7.09 -- Investments and Acquisitions
------------------------------------------------------------------------ ---------------------- ----------------------
Maximum
Permitted Actual
(for the (measured
Item period indicated) as indicated)
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(a) Aggregate amount expended for intercompany Investments in
Excluded Subsidiaries in the ordinary course of business:
$
$5,000,000 ---------------
during the term of through the
the Agreement Statement Date
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(b) Aggregate amount expended for Acquisitions (other than
Acquisitions that constitute Investments permitted by Section 7.09(f)
or 7.09(m) of the Agreementand other than Acquisitions financed with
Capital Stock of the Company) underSection 7.09(l) of the Agreement,
subject to the provisos in clauses (x) and (y) of such Section:
$
$250,000,000 --------------
during the term through the
of the Agreement Statement Date
$
$75,000,000 --------------
in any for the
Fiscal Year Fiscal Year
through the
Statement Date
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(c) Aggregate amount expended for Investments under Section
7.09(m) of the Agreement: $
$25,000,000 ---------------
in any for the
Fiscal Year Fiscal Year
through the
Statement Date
------------------------------------------------------------------------ ---------------------- ----------------------
A-10
7. Section 7.10 -- Prepayments of Indebtedness; Modifications of Certain
Agreements; Synthetic Purchase Agreements
------------------------------------------------------------------------ ---------------------- ----------------------
Maximum
Permitted Actual
(during the term (through the
Item of the Agreement) Statement Date)
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(a) Aggregate amount expended for prepayments under Section $
7.10(a)(iv) of the Agreement: $20,000,000 ------------
------------------------------------------------------------------------ ---------------------- ----------------------
8. Section 7.11 -- Debt to Total Capitalization Ratio
(a) Maximum permitted: :1.0
----
(b) Actual (measured as of the Statement Date):
(i) the principal amount of and accrued but unpaid interest on all Indebtedness of the
Company outstanding on such date: $
------------
(A) Indebtedness owing to any Subsidiary Guarantor: $
------------
(B) all obligations of the Company in respect of Swap Contracts: $
------------
(C) sum of (b)(i)(A) + (b)(i)(B): $
------------
(D) (b)(i) minus (b)(i)(C): $
------------
(ii) Total Capitalization:
(A) Total Shareholders' Equity of the Company: $
------------
(B) sum of (b)(i)(D) + (b)(ii)(A): $
------------
(iii) ratio of (b)(i)(D) to (b)(ii)(B): :1.0
----
9. Section 7.12-- Interest Coverage Ratio
Calculation Period: [Four] Fiscal Quarters ended ,
----- -----
(a) Minimum required: :1.0
----
A-11
(b) Actual Conseco Available Cash Flow for the Calculation Period, without duplication:
(i) dividends paid in cash to the Company by any Subsidiary: $
------------
(ii) interest paid in cash to the Company by any Subsidiary pursuant to any
intercompany Indebtedness owing by such Subsidiary to the Company: $
------------
(iii) interest or principal paid in cash to the Company with respect to any Surplus
Debenture: $
------------
(iv) amounts paid in cash to the Company under the Tax Sharing Agreement: $
------------
(v) management and other similar fees received by the Company under servicing
agreements or otherwise from any Subsidiary: $
------------
(vi) amounts paid in cash to the Company pursuant to a loan made to it by any
Subsidiary: $
------------
(vii) the Company's Investment Income received in cash: $
------------
(viii) sum of (b)(i) through (b)(vii): $
------------
(ix) cash operating expenses of the Company: $
------------
(x) Capital Expenditures of the Company made in cash: $
------------
(xi) amounts, if any, paid by the Company in respect of interest on or in
repayment of any loan made to it by any Subsidiary: $
------------
(xii) solely for any Calculation Period ending on or prior to March 31, 2005,
cash charges not exceeding $20,000,000 in the aggregate related to the Reorganization
Transactions and incurred on or prior to June 30, 2004: $
------------
(A) charges, if any, that payment of which was reserved by the Company
prior to the Calculation Period and such reserve is reflected in
the business plan prepared by the Company in connection with the
Reorganization Transactions:
$
------------
(B) (b)(xii) minus (b)(xii)(A): $
------------
A-12
(xiii) amounts paid in cash by the Company to any Insurance Subsidiary in respect
of any overpayment by such Insurance Subsidiary of amounts required to be paid by such
Insurance Subsidiary to the Company under the Tax Sharing Agreement: $
------------
(xiv) Sum of (b)(ix) + (b)(x)+ (b)(xi)+ (b)(xii)(B)+ (b)(xiii): $
------------
(xv) (b)(viii) minus (b)(xiv): $
------------
(A) amounts, if any, received by the Company or any of its
Subsidiaries and required to be applied to prepay the Borrowings
pursuant to Section 2.08 (other than pursuant to Section 2.08(e))
of the Agreement, to the extent otherwise included in Conseco
Available Cash Flow for any Calculation Period:
$
------------
(B) (b)(xv) minus (b)(xv)(A): $
------------
(c) Actual Cash Interest Expense for the Calculation Period:
(i) total interest expense, to the extent paid or payable in cash, of the Company and
its Subsidiaries determined on a consolidated basis in accordance with GAAP, excluding
interest paid or, without duplication, accrued but unpaid by any Insurance Subsidiary to
the extent otherwise included in total interest expense in this item: $
------------
(ii) total dividends paid or payable in cash on any preferred stock issued by
the Company to the extent the terms of such preferred stock require payment of cash
dividends: $
------------
(iii) sum of (c)(i) and (c)(ii): $
------------
(d) Ratio of (b)(xv)(B) to (c)(iii): :1.0
----
10. Section 7.13 -- Conseco EBITDA
Calculation Period: [Four] Fiscal Quarters ended ,
---- ----
(a) Minimum required: $
------------
(b) Consolidated Net Income of the Company for the Calculation Period: $
------------
(c) Without duplication and to the extent reflected as a charge in the statement of such
consolidated Net Income for the Calculation Period, all as determined on a consolidated basis:
A-13
(i) income tax expense: $
------------
(ii) interest expense, including, to the extent included as interest expense in
accordance with GAAP, amortization or write off of debt discount and debt issuance costs
and commissions, discounts and other fees and charges associated with Indebtedness: $
------------
(iii) depreciation and amortization of tangible and intangible assets (including
any amortization of premium (or discount) associated with the Company's
actively managed fixed income maturities, which amortization is related to
xxxx-to-market adjustments made on August 31, 2003 pursuant to principles of
fresh start accounting): $
------------
(iv) to the extent not capitalized under GAAP, renewal commissions calculated at
ultimate commission rates for those insurance products falling within the guidance of FAS 60: $
------------
(v) losses on sales of assets outside of the ordinary course of business: $
------------
(vi) realized or unrealized losses, if any, on Investments of Insurance Subsidiaries: $
------------
(vii) solely for any Calculation Period ending on or prior to March 31, 2005, cash
charges (details of which are included in a Schedule attached hereto) not exceeding
$20,000,000 in the aggregate and other non-cash charges, in each case related to the
Reorganization Transactions and incurred on or prior to June 30, 2004: $
------------
(viii) any other non-recurring cash charges (not to exceed $25,000,000 in the aggregate
for all Calculation Periods and details of which are included in a Schedule attached hereto)
and non-recurring non-cash charges (not to exceed $50,000,000 in the aggregate for all
Calculation Periods) taken by any Insurance Subsidiary arising out of the restructuring,
consolidation, severance or discontinuance of any portion of the operations, employees
and/or management of such Insurance Subsidiary or any businesses thereof:(5) $
------------
(ix) non-cash charges reflecting the cumulative effect of changes in GAAP to the
extent such charges relate to any prior Calculation Period: $
------------
---------------
5 See item 10(g) below.
A-14
(x) non-cash charges taken to write off any goodwill included in the Company's
balance sheet on the Effective Date to the extent such charges are required by FAS 142: $
------------
(xi) sum of (c)(i) through (c)(x): $
------------
(d) Without duplication and to the extent reflected as a gain in the statement of such
consolidated Net Income for the Calculation Period, all as determined on a consolidated basis:
(i) gains, if any, on sales of assets outside of the ordinary course of business: $
------------
(ii) realized or unrealized gains on Investments of Insurance Subsidiaries: $
------------
(iii) sum of (d)(i) and (d)(ii): $
------------
(e) (c)(xi) minus (d)(iii): $
------------
(f) Sum of (b) and (e): $
------------
(g)
------------------------------------------------------------------------ ---------------------- ----------------------
Maximum Actual
Permitted (in the aggregate
(during the term of through the
Item the Agreement) Statement Date)
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(i) Aggregate amount for all Calculation Periods of
non-recurring cash charges taken by any Insurance Subsidiary
pursuant to clause (h) of the definition of Conseco EBITDA in the
Agreement: $25,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
------------------------------------------------------------------------ ---------------------- ----------------------
(ii) Aggregate amount for all Calculation Periods of
non-recurring non-cash charges taken by any Insurance Subsidiary
pursuant to clause (h) of the definition of Conseco EBITDA in
the Agreement: $50,000,000 $
------------
------------------------------------------------------------------------ ---------------------- ----------------------
11. Section 7.14 -- Aggregate RBC Ratio
(a) Minimum required: %
----
A-15
(b) Actual (measured as of the Statement Date):
(i) aggregate Total Adjusted Capital (as defined by each relevant
Insurance Subsidiary's Department) for all Insurance Subsidiaries taken as a whole: $
-----------
(ii) aggregate Authorized Control Level Risk-Based Capital (as defined by each
relevant Insurance Subsidiary's Department) for all Insurance Subsidiaries taken as
a whole: $
-----------
(iii) ratio of (b)(i) to (b)(ii) (expressed as a percentage): %
----
(iv) one half of the ratio in (b)(iii) (expressed as a percentage): %
----
12. Section 7.15 -- Individual Risk-Based Capital Ratio(6)
(a) Minimum required:
(i) Bankers Life and Casualty Company %
----
(ii) Conseco Life Insurance Company %
----
(iii) Conseco Annuity Assurance Company %
----
(iv) Conseco Health Insurance Company %
----
(v) each other Active Material Insurance Subsidiary %
----
(b) Actual for [name of Insurance Subsidiary] (measured as of the Statement Date)
[repeat for each Insurance Subsidiary listed under item 12(a)]:
(i) aggregate Total Adjusted Capital (as defined by the relevant Insurance
Subsidiary's Department) for such Insurance Subsidiary: $
----------
(ii) aggregate Authorized Control Level Risk-Based Capital (as defined by
the relevant Insurance Subsidiary's Department) for such Insurance Subsidiary: $
----------
(iii) ratio of (b)(i) to (b)(ii) (expressed as a percentage): %
----
-----------
6 Only required as at the end of each Fiscal Year.
A-16
(iv) one half of the ratio in (b)(iii) (expressed as a percentage): %
----
13. Section 7.16-- Combined Statutory Capital and Surplus Level
(a) Minimum Statutory Capital and Surplus required (measured as of the Statement Date):
(i) 85% of the Combined Statutory Capital and Surplus of the Insurance
Subsidiaries as of the last day of the Fiscal Quarter most recently ended prior
to the Effective Date: $
-----------
(ii) Statutory Net Income (if positive) of the Insurance Subsidiaries for each
Fiscal Quarter after the Effective Date and ending on or prior to the Statement Date: $
-----------
(A) portion, if any, of Statutory Net Income attributable to the
Existing Reinsurance Transactions and separately deducted from
Combined Statutory Capital and Surplus:
$
-----------
(B) (a)(ii) minus (a)(ii)(A): $
-----------
(C) 50% of (a)(ii)(B): $
-----------
(iii) aggregate principal amount of Surplus Debentures issued by the Insurance
Subsidiaries during the period from the Effective Date to the Statement Date: $
-----------
(iv) sum of (a)(i) + (a)(ii)(C) + (a)(iii): $
-----------
(v) the aggregate amount of dividends paid and principal amount of Surplus
Debentures paid or prepaid directly or indirectly in cash to the Company by the Insurance
Subsidiaries during the period from the Effective Date to the Statement Date: $
-----------
(vi) the aggregate amount of cash applied to the prepayment, repayment, repurchase or
redemption of the Loans or the New CNC Preferred Stock during the period from the
Effective Date to the Statement Date: $
-----------
(vii) the lesser of (a)(v) and (a)(vi): $
-----------
(viii) (a)(iv) minus (a)(vii): $
-----------
(b) Combined Statutory Capital and Surplus (measured as of the Statement Date):
A-17
(i) amount shown on the Combined Statutory Statement of the Insurance Subsidiaries
on p.3, line 38: $
-----------
(ii) amount shown on the Combined Statutory Statement of the Insurance Subsidiaries
on p.3, line 24.1: $
-----------
(iii) sum of (b)(i) and (b)(ii): $
-----------
14. Section 7.17-- Investment Portfolio Requirement
Measured as of the Statement Date:
(a) Aggregate fair market value of all Investments held by the Insurance
Subsidiaries: $
-----------
(b) Aggregate fair market value of all Investments of the Insurance Subsidiaries
that are not Investment Grade Assets: $
-----------
(i) maximum permitted ratio of (b) to (a) (expressed as a percentage): 10%
(ii) actual ratio of (b) to (a) (expressed as a percentage): %
----
(c) Aggregate fair market value of all Investments of the Insurance Subsidiaries that
are non-NAIC rated: $
-----------
(i) maximum permitted ratio of (c) to (a) (expressed as a percentage): 6%
(ii) actual ratio of (c) to (a) (expressed as a percentage): %
----
(d) Aggregate fair market value of all Investments of the Insurance Subsidiaries that
consist of Capital Stock: $
-----------
(i) maximum permitted ratio of (d) to (a) (expressed as a percentage): 1%
(ii) actual ratio of (d) to (a) (expressed as a percentage): %
----
A-18
SCHEDULE 3
TO THE COMPLIANCE CERTIFICATE
Report of Independent Auditors
To Bank of America, N.A., as Agent:
We have audited, in accordance with auditing standards generally accepted in the
United States of America, the balance sheet of Conseco, Inc. ("Conseco") and
subsidiaries as of [date] and the related statements of operations, of
shareholders' equity and of cash flows for the year then ended, and have issued
our report thereon dated [date].
In connection with our audit, nothing came to our attention that caused us to
believe that Conseco failed to comply with the terms, covenants, provisions,
conditions or other matters set forth in Schedule 2 of the Compliance
Certificate dated as of [date] delivered pursuant to Section 6.02(a) of the
Credit Agreement dated [date] with Bank of America, N.A., as Agent, and the
other financial institutions party thereto (the "Lenders") insofar as they
relate to accounting matters. However, our audit was not directed primarily
toward obtaining knowledge of such noncompliance. For purposes of Section 7.13
of the Credit Agreement, the "non-recurring cash charges" and "non-recurring
non-cash charges" are defined by Conseco as set forth on Exhibit 1 attached
hereto and we make no comment with respect to such definitions.
This report is intended solely for the information and use of Bank of America,
N.A., as Agent, the Lenders and the board of directors and management of Conseco
and is not intended to be and should not be used by anyone other than these
specified parties.
Independent Public Accounting Firm
[Date of Report on Audited Financial Statements]
A-19
Exhibit 1
Non-Recurring Cash Charges
[Conseco to provide]
Non-Recurring Non-Cash Charges
[Conseco to provide]
The definition of non-recurring cash and non-cash charges has been determined by
Conseco.
A-20
