Exhibit 4.1
CERTIFICATE OF DESIGNATIONS OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS
OF CLASS A SENIOR CUMULATIVE
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
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Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
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Conseco, Inc. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that, pursuant to authority conferred upon the board of directors of the
Corporation (the "Board of Directors") by its Amended and Restated Certificate
of Incorporation (hereinafter referred to as the "Certificate of
Incorporation"), and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, said Board of Directors, by unanimous
written consent dated as of September 9, 2003, duly approved and adopted the
following resolution (the "Certificate of Designations"):
RESOLVED, that, pursuant to the authority vested in the Board of Directors
by its Certificate of Incorporation, the Board of Directors does hereby create,
authorize and provide for the issuance of Class A Senior Cumulative Convertible
Exchangeable Preferred Stock, par value $0.01 per share, with a stated value of
$25 per share, consisting of 164,537,777 shares, having the designations,
preferences, relative, participating, optional and other special rights and the
qualifications, limitations and restrictions that are set forth in the
Certificate of Incorporation and in this Certificate of Designations as follows:
(a) Designation. There is hereby created out of the authorized and
unissued shares of Preferred Stock of the Corporation a class of Preferred
Stock designated as the "Class A Senior Cumulative Convertible Exchangeable
Preferred Stock." The number of shares constituting such class shall be
164,537,777 and are referred to as the "Convertible Exchangeable Preferred
Stock," of which 34,386,740 shares of Convertible Exchangeable Preferred
Stock shall be initially issued, with an additional 130,151,037 shares
reserved for issuance in accordance with
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paragraph (c)(i) hereof and with the remaining shares issuable as otherwise
permitted hereunder or under applicable law. The liquidation preference of
the Convertible Exchangeable Preferred Stock shall be $25 per share.
(b) Rank. The Convertible Exchangeable Preferred Stock shall, with
respect to dividend distributions and distributions upon the liquidation,
winding-up or dissolution of the Corporation, rank (i) senior to all
classes of Common Stock of the Corporation and to each other class of
Capital Stock of the Corporation or series of Preferred Stock of the
Corporation hereafter established, the terms of which do not expressly
provide that it ranks senior to, or on a parity with, the Convertible
Exchangeable Preferred Stock as to dividend distributions and distributions
upon the liquidation, winding-up or dissolution of the Corporation
(collectively referred to, together with all classes of Common Stock of the
Corporation, as "Junior Securities"); (ii) on a parity with any class of
Capital Stock of the Corporation or series of Preferred Stock of the
Corporation hereafter established, the terms of which expressly provide
that such class or series will rank on a parity with the Convertible
Exchangeable Preferred Stock as to dividend distributions and distributions
upon the liquidation, winding-up or dissolution of the Corporation
(collectively referred to as "Parity Securities"); and junior to each other
class of Capital Stock of the Corporation or series of Preferred Stock of
the Corporation hereafter established, the terms of which expressly provide
that such class or series will rank senior to the Convertible Exchangeable
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up or dissolution of the Corporation (collectively
referred to as "Senior Securities"). The respective definitions of Junior
Securities, Parity Securities and Senior Securities shall also include any
rights, options, warrants or calls exercisable for or convertible into any
of the Junior Securities, Parity Securities and Senior Securities, as the
case may be.
(c) Dividends.
(i) Beginning on the Issue Date, the Holders of the outstanding
shares of Convertible Exchangeable Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, distributions in the form of
dividends on each share of Convertible Exchangeable Preferred Stock,
at a rate per annum equal to 10.5% of the liquidation preference per
share of the Convertible Exchangeable Preferred Stock, payable
semi-annually, which rate per annum will increase to 11% of the
liquidation preference per
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share of Convertible Exchangeable Preferred Stock beginning on the day
after the second anniversary of the Issue Date. All dividends shall
accrue, whether or not declared, on a daily basis from the date of
issuance of the Convertible Exchangeable Preferred Stock and shall be
payable, when, as and if declared, semi-annually in arrears on each
Dividend Payment Date, commencing March 1, 2004. Until the later of
(i) the second anniversary of the Issue Date and (ii) the first day of
the first Fiscal Quarter after the first date on which each of the
Active Material Insurance Subsidiaries has a financial strength rating
of at least "A-" by A.M. Best, dividends declared shall be paid on any
Dividend Payment Date by the issuance of additional shares of
Convertible Exchangeable Preferred Stock (and, at the Corporation's
option, payment of a whole share (after rounding up) or payment of
cash in lieu of a fractional share or issuance of whole shares
representing the fractional shares that would be issuable to all
Holders to an agent who will have the right to either sell all such
shares and remit the proceeds to the Holders or buy or sell fractional
shares on behalf of the Holders (as directed by the Holders)) having
an aggregate liquidation preference equal to the amount of such
dividends. Commencing with the day after the later of (i) the second
anniversary of the Issue Date and (ii) the first day of the first
Fiscal Quarter after the first date on which each of the Active
Material Insurance Subsidiaries has a financial strength rating of at
least "A-" by A.M. Best, dividends declared may be paid, at the
Corporation's option, either in cash, out of funds legally available
therefor, or by the issuance of additional shares of Convertible
Exchangeable Preferred Stock (and, at the Corporation's option,
payment of a whole share (after rounding up) or payment of cash in
lieu of a fractional share or issuance of whole shares representing
the fractional shares that would be issuable to all Holders to an
agent who will have the right to either sell all such shares and remit
the proceeds to the Holders or buy or sell fractional shares on behalf
of the Holders (as directed by the Holders)) having an aggregate
liquidation preference equal to the amount of such dividends. In the
event that dividends are declared and paid through the issuance of
additional shares of Convertible Exchangeable Preferred Stock as
provided in this paragraph, such dividends shall be deemed paid in
full and shall not accumulate. If dividends are not paid in full in
either cash or additional shares of Convertible Exchangeable Preferred
Stock on any Dividend Payment Date as provided in this paragraph,
dividends will accumulate as if dividends had been paid in additional
shares of Convertible Exchangeable Preferred Stock
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and such additional shares were outstanding for succeeding Dividend
Periods. Each dividend shall be payable to the Holders of record as
they appear on the stock books of the Corporation on the Dividend
Record Date immediately preceding the related Dividend Payment Date.
Dividends shall cease to accumulate in respect of the Convertible
Exchangeable Preferred Stock held by any Holder on the earliest to
occur of the Conversion Date, the Exchange Date or the Redemption Date
applicable to the Convertible Exchangeable Preferred Stock held by
such Holder, unless, in the case of the Redemption Date, the
Corporation shall have failed to pay the relevant Optional Redemption
Price (or deposit funds in trust pursuant to paragraph (e)(ii)(C)) on
the Redemption Date.
(ii) All dividends paid with respect to shares of the Convertible
Exchangeable Preferred Stock pursuant to paragraph (c)(i) shall be
paid pro rata to the Holders entitled thereto.
(iii) In the event of any optional redemption pursuant to
paragraph (e)(i), dividends may be declared and paid at such time,
without reference to any regular Dividend Payment Date, to Holders of
record on such date, not more than forty-five (45) days prior to the
payment thereof, as may be fixed by the Board of Directors.
(iv) Dividends payable on the Convertible Exchangeable Preferred
Stock for any period less than a year shall be computed on the basis
of a 360-day year of twelve 30 day months.
(v) The Corporation shall not declare, pay or set apart for
payment any dividends or other distributions on Parity Securities or
Junior Securities or make any payment on account of, or set apart for
payment money for a sinking or other similar fund for, the purchase,
redemption or other retirement of any Parity Securities or Junior
Securities, and shall not permit any corporation or other entity
directly or indirectly controlled by the Corporation to purchase or
redeem any Parity Securities or Junior Securities, unless full
cumulative dividends have been paid on the Convertible Exchangeable
Preferred Stock.
(d) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the affairs of the
Corporation, the Holders of shares of Convertible Exchangeable Preferred
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Stock then outstanding shall be entitled, after payment shall be made or
provision for payment of the debts and other liabilities of the Corporation
and the payment or distribution of the assets of the Corporation (whether
capital or surplus) shall be made to or set apart for payment to holders of
Senior Securities, to be paid out of the assets of the Corporation
available for distribution to its stockholders, an amount in cash equal to
the Total Liquidation Preference for each share as of the date fixed for
liquidation, dissolution or winding-up, before any distribution shall be
made or any assets distributed to the holders of any Junior Securities
including, without limitation, Common Stock of the Corporation. Except as
provided in the preceding sentence, Holders of Convertible Exchangeable
Preferred Stock shall not be entitled to any distribution in the event of
any liquidation, dissolution or winding-up of the affairs of the
Corporation. If upon any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, the amounts payable with respect to the
Convertible Exchangeable Preferred Stock and all other Parity Securities
are not sufficient to pay in full the liquidation payments payable to the
Holders of outstanding shares of the Convertible Exchangeable Preferred
Stock and all Parity Securities, then the holders of all such shares shall
share equally and ratably in such distribution of assets first in
proportion to the full liquidation preference to which each is entitled
until such preferences are paid in full, and then in proportion to their
respective amounts of accumulated but unpaid dividends, plus dividends
accrued for the period from the most recent Dividend Payment Date to the
date fixed for liquidation, dissolution or winding-up.
(e) Redemption.
(i) Optional Redemption.
(A) The Corporation may, at the option of the Board of
Directors, redeem, to the extent of funds legally available
therefor, in whole or in part, in the manner provided for in
paragraph (e)(ii) hereof, any or all of the shares of the
Convertible Exchangeable Preferred Stock, at a redemption price
in cash equal to the Total Liquidation Preference for each share
as of the Redemption Date (the "Optional Redemption Price").
(B) In the event of a redemption pursuant to paragraph
(e)(i)(A) hereof of only a portion of the then outstanding shares
of the Convertible Exchangeable Preferred Stock, the Corporation
shall effect such redemption on a pro rata basis according to the
number of
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shares held by each Holder of the Convertible Exchangeable
Preferred Stock, provided that the Corporation may redeem any or
all such shares held by any Holder of fewer than 100 shares (or
shares held by any Holder who would hold less than 100 shares as
a result of such redemption), as may be determined by the
Corporation.
(ii) Procedures for Redemption.
(A) At least thirty (30) days and not more than sixty (60)
days prior to the date fixed for any redemption of the
Convertible Exchangeable Preferred Stock, written notice (the
"Redemption Notice") shall be given by first class mail, postage
prepaid, to each Holder of record on the record date fixed for
such redemption of the Convertible Exchangeable Preferred Stock
at such Holder's address as it appears on the stock books of the
Corporation; provided that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for
the redemption of any shares of Convertible Exchangeable
Preferred Stock to be redeemed except as to the Holder or Holders
to whom the Corporation has failed to give said notice or to whom
such notice was defective. The Redemption Notice shall state:
(1) that the redemption is pursuant to paragraph
(e)(i)(A) hereof;
(2) the Optional Redemption Price;
(3) whether all or less than all the outstanding shares
of the Convertible Exchangeable Preferred Stock are to be
redeemed and the total number of shares of the Convertible
Exchangeable Preferred Stock being redeemed, and in the
event that less than all the outstanding shares of
Convertible Exchangeable Preferred Stock are to be redeemed,
the number of shares to be redeemed from such Holder;
(4) the date fixed for redemption;
(5) that the Holder is to surrender to the Corporation,
in the manner, at the place or
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places and at the price designated, the certificate or
certificates representing the shares of Convertible
Exchangeable Preferred Stock to be redeemed; and
(6) that dividends on the shares of the Convertible
Exchangeable Preferred Stock to be redeemed shall cease to
accumulate on such Redemption Date unless the Corporation
defaults in the payment in full of the Optional Redemption
Price on such date.
(B) Each Holder of Convertible Exchangeable Preferred Stock
shall surrender the certificate or certificates representing such
shares of Convertible Exchangeable Preferred Stock to the
Corporation, duly endorsed (or otherwise in proper form for
transfer, as determined by the Corporation), in the manner and at
the place designated in the Redemption Notice, and on the
Redemption Date the full Optional Redemption Price for such
shares shall be payable in cash to the Person whose name appears
on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be canceled and retired and
the shares represented thereby shall no longer be deemed to be
outstanding. In the event that less than all of the shares
represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(C) On and after the Redemption Date, unless the Corporation
defaults in the payment in full of the Optional Redemption Price,
dividends on the Convertible Exchangeable Preferred Stock called
for redemption shall cease to accumulate on the Redemption Date,
and all rights of the Holders of redeemed shares shall terminate
with respect thereto on the Redemption Date, other than the right
to receive the Optional Redemption Price without interest;
provided, however, that if a notice of redemption shall have been
given as provided in paragraph (ii)(A) above and the funds
necessary for redemption (including an amount in respect of all
dividends that will accrue to the Redemption Date) shall have
been deposited in trust for the equal and ratable benefit of the
Holders of the shares to be redeemed (with
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such funds not being revocable until two years after the proposed
Redemption Date), then, at the close of business on the day on
which such funds are segregated and set aside, the Holders of the
shares to be redeemed shall cease to be stockholders of the
Corporation and shall be entitled only to receive the Optional
Redemption Price, without interest.
(f) Voting Rights.
(i) After the occurrence of a Trigger Event, the Holders of each
share of Convertible Exchangeable Preferred Stock shall be entitled to
vote together with the holders of Common Stock as a single class on
all matters on which the holders of the Common Stock of the
Corporation shall be entitled to vote; provided, however, if such
Trigger Event occurs prior to the first anniversary of the Issue Date
and is not an Immediate Trigger Event, then the Holders of the
Convertible Exchange Preferred Stock shall only be entitled to
exercise the voting rights described in this paragraph (f)(i) as a
result of such Trigger Event if such Trigger Event is continuing on or
occurs after the first anniversary of the Issue Date. Each share of
Convertible Exchangeable Preferred Stock shall be entitled to the
number of votes equal to the number of shares of Common Stock into
which such share of Convertible Exchangeable Preferred Stock could be
converted pursuant to paragraph (h) hereof (assuming such share was
immediately convertible into shares of Common Stock pursuant to
paragraph (h)) at the record date for determination of the
stockholders entitled to vote on such matters, or if no record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited, such votes to be counted together with all
other shares of stock of the Corporation having general voting power
and not counted separately as a class. After the occurrence of a
Trigger Event, Holders of Convertible Exchangeable Preferred Stock
shall be entitled to notice of any stockholders' meeting in accordance
with the Bylaws. At any time (and from time to time) after the voting
rights of the Convertible Exchangeable Preferred Stock described in
this paragraph (f)(i) become exercisable, directors of the Corporation
may be removed with or without cause and a proper officer of the
Corporation may, and upon the written request of the Holders of record
of at least forty percent (40%) of the outstanding shares of
Convertible Exchangeable Preferred Stock addressed to the secretary of
the Corporation shall, call a special meeting of the
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shareholders for the purpose of (i) voting on the removal (with or
without cause) of one or more of the directors of the Corporation and
the filling of any vacancies thereby created, (ii) having the holders
of Common Stock approve the selection of a Non-Voting Observer, who
shall have the right to attend all scheduled meetings of the Board of
Directors of the Corporation as an observer and to whom the
Corporation shall afford the opportunity to participate in the
deliberations of the board of directors of the Corporation at such
scheduled meetings, including through receipt, at the same time as the
board of directors of the Corporation receives the same, of all
written information and material as is distributed to the board of
directors of the Corporation. The Non-Voting Observer shall agree to
keep confidential any such information and materials received and
shall not disclose or make use of any such information for any purpose
other than for the participation in the scheduled meetings of the
board of directors as an observer. The Non-Voting Observer shall be
elected for, and only for, a single term to coincide with the initial
term for which the directors are being nominated pursuant to this
paragraph, and (iii) for any other matter on which holders of Common
Stock are entitled to vote. If such meeting shall not be called by a
proper officer of the Corporation within thirty (30) days after
personal service of said written request upon the secretary of the
Corporation, or within thirty-five (35) days after mailing the same
within the United Sates by certified mail, addressed to the secretary
of the Corporation at its principal executive offices, then the
Holders of record of at least forty percent (40%) of the outstanding
shares of Convertible Exchangeable Preferred Stock may designate one
of their number to call such meeting at the expense of the
Corporation. Any Holder of Convertible Exchangeable Preferred Stock so
designated shall have, and the Corporation shall provide, access to
the lists of stockholders to be called pursuant to the provisions
hereof. The Person so designated may designate any place, either
within or without the State of Delaware, as the place of meeting for
such meeting. If no designation is made, the place of meeting shall be
the principal executive office of the Corporation. Written or printed
notice stating the place, date, time and the purpose or purposes, of
such meeting, shall be given to each stockholder entitled to vote at
such meeting not less than 10 nor more than 60 days before the date of
the meeting. All such notices shall be delivered, either personally or
by mail, and if mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, postage prepaid, addressed
to the stockholder at his,
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her or its address as the same appears on the records of the
Corporation.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at any special meeting called pursuant to the
provisions of this paragraph by any person who was a Holder of record
of Common Stock or Convertible Exchangeable Preferred Stock at the
time of giving of notice provided for in this paragraph, and who shall
have delivered timely notice of such Holder's intent to make such
nomination in writing to the secretary of the Corporation. To be
timely, a Holder's notice shall be delivered to or mailed and received
at the principal executive offices of the Corporation not later than
the close of business on the 10th day following the earlier of the day
on which notice of the date of the meeting was mailed or public
disclosure of the meeting was made. Such Holder's notice shall set
forth (i) as to each person whom the Holder proposes to nominate for
election as a Director at such meeting 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); (ii) as to the
Holder giving the notice (A) the name and address, as they appear on
the Corporation's books, of such Holder and (B) the class and number
of shares of Common Stock or Convertible Exchangeable Preferred Stock
of the Corporation which are beneficially owned by such Holder and
also which are owned of record by such Holder; and (iii) as to the
beneficial owner, if any, on whose behalf the nomination is made, (A)
the name and address of such person and (B) the class and number of
shares of Common Stock or Convertible Exchangeable Preferred Stock of
the Corporation which are beneficially owned by such person.
(ii) So long as any shares of the Convertible Exchangeable
Preferred Stock are outstanding, without the affirmative vote or
consent of Holders of at least a majority of the issued and
outstanding shares of Convertible Exchangeable Preferred Stock, voting
or consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting (unless all shares of the Convertible Exchangeable
Preferred Stock will be redeemed in full in accordance with paragraph
(e) hereof upon the
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occurrence or consummation of any of the following), the Corporation
shall not:
(A) effect or permit any amendment, alteration or repeal (by
merger, consolidation, combination, reclassification or
otherwise) of any provision of the Certificate of Incorporation
or by-laws which would adversely alter, circumvent or otherwise
adversely affect the preferences, rights or powers of the Holders
of Convertible Exchangeable Preferred Stock (including without
limitation the granting of any voting rights to any other holder
of Capital Stock of the Corporation (other than (v) voting rights
to holders of Common Stock no superior than the voting rights to
which holders of Common Stock are entitled on the Issue Date and
(w) voting rights to holders of Preferred Stock of this
Corporation of the type customarily provided to holders of
publicly traded Preferred Stock (whether or not such class of the
Corporation's Preferred Stock being issued is publicly traded),
it being understood that certain of the voting rights granted to
the Convertible Exchangeable Preferred Stock are not customary
for publicly traded Preferred Stock, and in no event shall such
voting rights include voting rights superior to the voting rights
of the Convertible Exchangeable Preferred Stock) or holder of
obligations of the Corporation) and, prior to the second annual
meeting of the Corporation held after the date hereof, Section 1
of Article 10 of the Certificate of Incorporation and Section 1
of Article II of the by-laws, or any provisions of any thereof;
provided that any such amendment that changes (i) the dividend
payable on or the Total Liquidation Preference of the Convertible
Exchangeable Preferred Stock, (ii) the Conversion Price Per
Common Share or (iii) the Exchange Rate shall require the
affirmative vote of the Holder of each share of Convertible
Exchangeable Preferred Stock;
(B) authorize the issuance of or issue (or, in the case of
clause (iii) below, permit any Subsidiary to authorize or issue)
(i) shares of any class of Senior Securities, (ii) any shares of
Capital Stock of the Corporation or series of Preferred Stock of
the Corporation entitled to any mandatory cash redemption
obligation or mandatory cash dividend payments at any
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time when any shares of Convertible Exchangeable Preferred Stock
are outstanding or (iii) any Indebtedness of the Corporation or
any Subsidiary (such shares of Capital Stock and Preferred Stock
and such Indebtedness, together with Senior Securities, "Senior
Debt and Equity Securities") or any securities exchangeable for,
convertible into, or evidencing the right to purchase Senior Debt
and Equity Securities (or amend the provisions of any existing
class of Capital Stock of the Corporation to make such class of
Capital Stock into Senior Debt and Equity Securities), other than
Indebtedness set forth in Schedule D hereto, except to the extent
that 100% of the Net Proceeds thereof are applied to permanently
repay or prepay loans under the Credit Agreement, provided that
the aggregate liquidation preference and aggregate principal
amount, as applicable, of the Senior Debt and Equity Securities
so issued is not greater than the sum of (x) the aggregate
principal amount of the loans under the Credit Agreement so
repaid or prepaid and (y) the reasonable costs and expenses
incurred by the Corporation in connection with the issuance of
such Senior Debt and Equity Securities;
(C) authorize the issuance of or issue additional shares of
any class of Parity Securities and any securities exchangeable
for, convertible into, or evidencing the right to purchase Parity
Securities (or amend the provisions of any existing class of
Capital Stock of the Corporation to make such class of Capital
Stock into Parity Securities) except to the extent that 100% of
the Net Proceeds thereof are applied (x) to redeem shares of
Convertible Exchangeable Preferred Stock pursuant to paragraph
(e)(i) hereof, (y) to otherwise repurchase shares of Convertible
Exchangeable Preferred Stock or (z) to permanently repay or
prepay loans under the Credit Agreement; provided that, in each
case, the aggregate liquidation preference of the Parity
Securities so issued is not greater than the sum of (x) the
aggregate Total Liquidation Preference of the Convertible
Exchangeable Preferred Stock so redeemed as of the date of
redemption or otherwise repurchased by the Corporation, (y) the
aggregate principal amount of loans under the Credit Agreement so
repaid or prepaid and (z) the reasonable costs and expenses
incurred by the
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Corporation in connection with the issuance of such Parity
Securities;
(D) authorize or permit the issuance of any Preferred Stock
by any subsidiary of the Corporation other than to the
Corporation or any of its direct or indirect wholly owned
subsidiaries;
(E) consent to any liquidation, dissolution or winding up of
the Corporation;
(F) sell all or substantially all of the Corporation's
assets; provided however, that the right to vote or consent
pursuant to this paragraph (f)(ii)(F) shall terminate on
September 30, 2005;
(G) effect a merger or consolidation or any other
transaction resulting in the acquisition of the Corporation by
another corporation or entity; provided however, that the right
to vote or consent pursuant to this paragraph (f)(ii)(G) shall
terminate on September 30, 2005;
(H) redeem or otherwise acquire any shares of Junior
Securities except pursuant to any bona fide plan for the benefit
of directors, officers or employees of the Corporation now or
hereafter in effect;
(I) redeem or otherwise acquire any shares of Parity
Securities unless shares of Convertible Exchangeable Preferred
Stock are redeemed, on a pro rata basis pursuant to paragraph
(e)(i)(B);
(J) pay or set apart for payment any cash dividends or
distributions on Junior Securities; or
(K) pay or set apart for payment any cash dividends or
distributions on Parity Securities, unless cash dividends are
paid concurrently on the Convertible Exchangeable Preferred Stock
on a pro rata basis.
(iii) The consent or votes required in paragraph (f)(i) and (ii)
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-
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laws. In any case in which the Holders of Convertible Exchangeable
Preferred Stock shall be entitled to vote as one class on any matter
(other than when voting as a single class together with the holders of
the Common Stock pursuant to paragraph (f)(i) hereof), and as one
class together with any other series of Preferred Stock on any matter,
each Holder of Convertible Exchangeable Preferred Stock, and each
holder of any such other series, entitled to vote with respect to such
matter shall be entitled to one vote for each $25 in liquidation
preference plus the amount of any accumulated and unpaid dividends. In
any case in which the Holders of Convertible Exchangeable Preferred
Stock shall be entitled to vote on any matter, whether as one class or
together with any other series or class of capital stock of the
Corporation, such Holders may act by written consent in lieu of a
meeting of the stockholders.
(iv) If at any time dividends on the Convertible Exchangeable
Preferred Stock shall be in arrears for dividend periods (whether or
not consecutive) containing in the aggregate a number of days
equivalent to six calendar quarters, then the Holders of the
Convertible Exchangeable Preferred Stock will be entitled to vote for
the election of two additional directors on the terms set forth below
and until all past dividends accumulated on the Convertible
Exchangeable Preferred Stock have been paid in full. In such case, the
Board of Directors will be increased by two directors, and the Holders
of the Convertible Exchangeable Preferred Stock will have the
exclusive right to elect two directors at the next annual meeting of
stockholders of the Corporation or at a special meeting held in place
thereof, or at a special meeting of the Holders of the Convertible
Exchangeable Preferred Stock called as hereinafter provided. When all
arrears in dividends on the Convertible Exchangeable Preferred Stock
then outstanding have been paid, then the right of the Holders of the
Convertible Exchangeable Preferred Stock to elect such additional two
directors shall cease (but subject always to the same provisions for
the vesting of such voting rights in the case of any similar future
arrearages for dividend periods (whether or not consecutive)
containing in the aggregate a number of days equivalent to six
calendar quarters), and the terms of office of all Persons elected as
directors by the Holders of the Convertible Exchangeable Preferred
Stock shall immediately terminate and the number of directors serving
on the Board of Directors shall be reduced accordingly. At any time
after such voting power has been so vested in the Holders of
Convertible Exchangeable Preferred
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Stock, the secretary of the Corporation may, and upon the written
request of any Holder of Convertible Exchangeable Preferred Stock
(addressed to the secretary at the principal office of the
Corporation) shall, call a special meeting of the Holders of the
Convertible Exchangeable Preferred Stock for the election of the two
directors to be elected by them as herein provided, such call to be
made by notice similar to that provided in the by-laws of the
Corporation for a special meeting of the stockholders or as required
by law. If the secretary does not call a meeting as above provided
within 20 days after receipt of any such request, then any Holder of
Convertible Exchangeable Preferred Stock may call such meeting, upon
the notice above provided, and for that purpose shall have access to
the stock books of the Corporation. The directors elected by the
Holders of Convertible Exchangeable Preferred Stock at any such
meeting shall hold office until the next annual meeting of the
stockholders or special meeting held in lieu thereof if such office
shall not have terminated as above provided. If any vacancy shall
occur among the directors elected by the Holders of the Convertible
Exchangeable Preferred Stock, a successor shall be elected by the
Board of Directors, upon the nomination of the then-remaining director
elected by the Holders of the Convertible Exchangeable Preferred Stock
or the successor of such remaining director, to serve until the next
annual meeting of the stockholders or special meeting held in place
thereof if such office shall not have terminated as provided above. At
any meeting held for the purpose of electing directors pursuant to
this paragraph (f)(iv), the presence in person or by proxy of the
Holders of at least ten percent (10%) of the outstanding shares of
Convertible Exchangeable Preferred Stock shall be required to
constitute a quorum of such Convertible Exchangeable Preferred Stock.
(g) Exchange.
(i) Requirements.
The outstanding shares of Convertible Exchangeable Preferred Stock are
exchangeable, at the option of the Holder, at any time (and from time to
time) on or after the tenth anniversary of the Issue Date, for the
Corporation's Common Stock (the "Exchange Common Stock"). The "Exchange
Rate" shall be equal to the Total Liquidation Preference of the Convertible
Exchangeable Preferred Stock to be exchanged as of the Exchange Date
divided by the Current Market Price Per Common Share; provided that the
maximum number of shares of the Corporation's
15
Common Stock issued pursuant to this paragraph (g) upon the exchange of all
the Convertible Exchangeable Preferred Stock shall not exceed the greater
of (x) 7,840,000,000 shares of the Corporation's Common Stock, which number
of shares shall be reduced proportionately to the extent that any shares of
Convertible Exchangeable Preferred Stock have previously been converted or
exchanged pursuant to the terms hereof(1) and (y) such number of shares of
the Corporation's Common Stock as shall be authorized but unissued pursuant
to paragraph (g)(iii)(B) hereof; and provided further that the Corporation
shall have the right, at its option, to pay cash in an amount equal to the
Total Liquidation Preference of such Convertible Exchangeable Preferred
Stock as of the Exchange Date instead of delivering Exchange Common Stock.
(ii) Procedure for Exchange.
(A) In order to exercise its exchange right hereunder, a
Holder must execute and deliver to the Corporation not less than
10 days nor more than 60 days prior to the Exchange Date a
written notice of election to exchange, with respect to the
shares of Convertible Exchangeable Preferred Stock to be
exchanged. On or prior to the Exchange Date, such Holder shall
surrender the certificate or certificates representing such
shares of Convertible Exchangeable Preferred Stock, at the office
of the transfer agent for the Corporation's securities, or, if
none, the primary business office of the Corporation. Unless the
shares of Common Stock issuable upon exchange are to be issued in
the same name as the name in which such shares of Convertible
Exchangeable Preferred Stock are registered, each share of
Convertible Exchangeable Preferred Stock surrendered for
conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the Holder
or the Holder's duly authorized attorney and an amount sufficient
to pay any transfer or similar tax to the
- ---------------------
1 By way of illustration, if there are 40,000,000 shares of Convertible
Exchangeable Preferred Stock outstanding on a given date and 10,000,000 shares
of Convertible Exchangeable Preferred Stock are converted or exchanged on such
date, then the maximum number of shares of Common Stock issuable upon exchange
of all remaining outstanding shares of Convertible Exchangeable Preferred Stock
outstanding at any time thereafter would be 5,880,000,000 and the maximum number
of shares of Common Stock issuable upon exchange of 50% of the shares of
Convertible Exchangeable Preferred Stock outstanding at any time thereafter
would be 2,940,000,000.
16
extent required below in this paragraph. Upon delivery of the
duly executed notice of election to exchange and certificate or
certificates representing such shares of Convertible Exchangeable
Preferred Stock (the "Exchange Date"), unless the Corporation has
elected to pay cash in an amount equal to the Total Liquidation
Preference of the Convertible Exchangeable Preferred Stock, as of
the Exchange Date, the Holder shall be deemed to be the holder of
record of the whole number of shares of Exchange Common Stock
subject to such exercise, notwithstanding that the stock transfer
books of the Corporation shall then be closed or that
certificates representing such shares of Exchange Common Stock
shall not then be actually delivered to the Holder. The
Corporation shall pay any and all issuance, delivery and transfer
taxes in respect of the issuance or delivery of shares of
Exchange Common Stock. The Corporation shall not, however, be
required to pay any tax in respect of any transfer involved in
the issuance or delivery of shares of Exchange Common Stock in a
name other than that of the Holder of the Convertible
Exchangeable Preferred Stock so exchanged, and no such issuance
or delivery shall be made unless and until the Person requesting
such issuance or delivery has paid to the Corporation the amount
of any such tax or has established to the Corporation's
satisfaction that such tax has been paid. All shares of Exchange
Common Stock will upon delivery be duly and validly issued and
fully paid and non-assessable, free of all liens and charges and
not subject to any preemptive rights. Upon the surrender of
certificates representing shares of Convertible Exchangeable
Preferred Stock, such shares shall no longer be deemed to be
outstanding and all rights of a Holder with respect to such
shares surrendered for exchange shall immediately terminate
except the right to receive Exchange Common Stock and any cash
amounts payable pursuant to this paragraph (g).
(B) From the date of delivery by a Holder of Convertible
Exchangeable Preferred Stock of such notice of election to
exchange, in lieu of dividends on such Convertible Exchangeable
Preferred Stock pursuant to paragraph (c), such Convertible
Exchangeable Preferred Stock shall participate equally and
ratably with the
17
holders of Common Stock in all dividends paid on Common Stock as
if such shares of Convertible Exchangeable Preferred Stock had
been exchanged for shares of Common Stock at the time of such
delivery.
(C) Upon delivery to the Corporation by a Holder of
Convertible Exchangeable Preferred Stock of a notice of election
to exchange, the right of the Corporation to redeem such shares
of Convertible Exchangeable Preferred Stock shall terminate,
regardless of whether a notice of redemption has been mailed.
(iii) (A) The Corporation shall, subject to paragraph (g)(i), at
all times reserve and keep available, free from preemptive rights,
such number of its authorized but unissued shares of Common Stock as
may be required to effect exchanges of the Convertible Exchangeable
Preferred Stock.
(B) The Corporation shall use its best efforts to reserve
and keep available, free from preemptive rights, not less than
98% of its authorized shares of Common Stock as unissued for
purposes of effecting exchanges of the Convertible Exchangeable
Preferred Stock; provided that any shares of Common Stock issued
upon the conversion or exchange of Convertible Exchangeable
Preferred Stock pursuant to the terms hereof shall be deemed to
be unissued for purposes of this paragraph (g)(iii)(B).
(C) Prior to the delivery of any securities that the
Corporation is obligated to deliver upon exchange of the
Convertible Exchangeable Preferred Stock, the Corporation shall
comply with all applicable federal and state laws and regulations
which require action by the Corporation.
(iv) In connection with the exchange of any shares of Convertible
Exchangeable Preferred Stock, no fractions of shares of Common Stock
shall be issued. In lieu thereof the Corporation shall, at its option,
issue a whole share in respect of any fraction of a share or pay a
cash adjustment in respect of such fractional interest in an amount
equal to such fractional interest multiplied by the Current Market
Price Per Common Share on the Exchange Date.
18
(h) Conversion
(i) Subject to the provisions of this paragraph (h), each Holder
of Convertible Exchangeable Preferred Stock has the right, at any time
(and from time to time) on or after September 30, 2005, at such
Holder's option, to convert any or all outstanding shares of
Convertible Exchangeable Preferred Stock, in whole or in part, into
fully paid and non-assessable shares of Common Stock. The number of
shares of Common Stock deliverable upon conversion of a share of
Convertible Exchangeable Preferred Stock, adjusted as provided herein,
is the "Conversion Ratio." The Conversion Ratio shall be a number
equal to the Total Liquidation Preference as of the Conversion Date
divided by the then applicable Conversion Price Per Common Share. The
"Conversion Price Per Common Share" will initially be equal to the
greater of (x) the Daily Price Per Common Share for each of the
Trading Days in the 60 calendar day period immediately preceding
January 8, 2004 and (y) $0.15 per share of Common Stock, and will be
subject to adjustment from time to time pursuant to paragraph
(h)(vii). The Corporation will promptly notify the Holders of the
Convertible Exchangeable Preferred Stock of the initial Conversion
Price Per Common Share following its determination. In the event of
any call for redemption pursuant to paragraph (e), the right to
convert shares so called for redemption shall terminate at the close
of business on the date immediately prior to the Redemption Date
unless the Corporation defaults in paying the amount payable upon such
redemption.
(ii) (A) In order to exercise the conversion right, the Holder of
the shares of Convertible Exchangeable Preferred Stock to be converted
shall surrender the certificate representing such shares at the office
of the transfer agent for the Corporation's securities or, if none,
the primary business office of the Corporation, with a written notice
of election (which notice shall be delivered not less than 10 days nor
more than 60 days prior to the proposed Conversion Date) to convert
completed and signed by such Holder of such Holder's duly authorized
attorney, specifying the number of shares of Convertible Exchangeable
Preferred Stock to be converted and the proposed Conversion Date.
Unless the shares of Common Stock issuable on conversion are to be
issued in the same name as the name in which such shares of
Convertible Exchangeable Preferred Stock are registered, each share
surrendered for conversion shall be
19
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the Holder or the Holder's duly
authorized attorney and an amount sufficient to pay any transfer or
similar tax to the extent required by paragraph (h)(v) hereof.
(B) As promptly as practicable after the surrender by the
Holder of the certificates for shares of Convertible Exchangeable
Preferred Stock for conversion pursuant to this paragraph (h),
the Corporation shall issue and deliver to such Holder or, on the
Holder's written order, to the Holder's transferee a certificate
or certificates for the whole number of shares of Common Stock
issuable upon conversion.
(C) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which
the certificates for shares of Convertible Exchangeable Preferred
Stock were surrendered and notice of conversion was received by
the Corporation (the "Conversion Date"). The Person in whose name
or names any certificate or certificates for shares of Common
Stock are issuable upon such conversion shall be deemed to have
become the holder of record of the shares of Common Stock
represented thereby at such time on such date, and such
conversion shall be into a number of shares of Common Stock equal
to the product of the number of shares of Convertible
Exchangeable Preferred Stock surrendered multiplied by the
Conversion Ratio in effect at such time on such date. All shares
of Common Stock delivered upon conversion of the Convertible
Exchangeable Preferred Stock will upon delivery be duly and
validly issued and fully paid and non-assessable, free of all
liens and charges and not subject to any preemptive rights. Upon
the surrender of certificates representing shares of Convertible
Exchangeable Preferred Stock, such shares shall no longer be
deemed to be outstanding and all rights of a Holder with respect
to such shares surrendered for conversion shall immediately
terminate except the right to receive Common Stock and other
amounts payable pursuant to this paragraph (h).
(iii) (A) Upon delivery to the Corporation by a Holder of
Convertible Exchangeable Preferred Stock of a notice of
20
election to convert, the right of the Corporation to redeem such
shares of Convertible Exchangeable Preferred Stock shall terminate,
regardless of whether a notice of redemption has been mailed.
(B) From the date of delivery by a Holder of Convertible
Exchangeable Preferred Stock of such notice of election to
convert, in lieu of dividends on such Convertible Exchangeable
Preferred Stock pursuant to paragraph (c), such Convertible
Exchangeable Preferred Stock shall participate equally and
ratably with the holders of Common Stock in all dividends paid on
Common Stock as if such shares of Convertible Exchangeable
Preferred Stock had been converted to shares of Common Stock at
the time of such delivery.
(C) If a Holder of Convertible Exchangeable Preferred Stock
delivers to the Corporation a notice of election to convert prior
to or after receipt by such Holder of a notice of redemption,
such shares of Convertible Exchangeable Preferred Stock shall
cease to accumulate dividends pursuant to paragraph (c) but shall
continue to be entitled to receive all accumulated and unpaid
dividends that such Holder is entitled to receive pursuant to
paragraph (c) through the date of delivery of such notice of
election to convert together with pro rata accrued but unpaid
dividends such Holder is entitled to receive for the period from
the last Dividend Payment Date to the date of delivery of the
notice of election to convert in preference to and in priority
over any dividends on Common Stock. Such accumulated and unpaid
dividends shall be payable to such Holder when, as and if
declared by the Board of Directors, out of funds legally
available for the payment of dividends, as provided in paragraph
(c).
(D) Except as provided above and in paragraph (h)(vii), the
Corporation shall make no payment or adjustment for accumulated
and unpaid dividends on shares of Convertible Exchangeable
Preferred Stock, whether or not in arrears, on conversion of such
shares or for dividends in cash on the shares of Common Stock
issued upon such conversion.
21
(iv) (A) The Corporation shall at all times reserve and keep
available, free from preemptive rights, such number of its authorized
but unissued shares of Common Stock as may be required to effect
conversions of the Convertible Exchangeable Preferred Stock.
(B) Prior to the delivery of any securities that the
Corporation is obligated to deliver upon conversion of the
Convertible Exchangeable Preferred Stock, the Corporation shall
comply with all applicable federal and state laws and regulations
which require action by the Corporation.
(v) The Corporation shall pay any and all issuance, delivery and
transfer taxes in respect of the issuance or delivery of shares of
Common Stock on conversion of the Convertible Exchangeable Preferred
Stock pursuant hereto. The Corporation shall not, however, be required
to pay any tax in respect of any transfer involved in the issuance or
delivery of shares of Common Stock in a name other than that of the
Holder of the Convertible Exchangeable Preferred Stock so converted,
and no such issuance or delivery shall be made unless and until the
Person requesting such issuance or delivery has paid to the
Corporation the amount of any such tax or has established to the
Corporation's satisfaction that such tax has been paid.
(vi) In connection with the conversion of any shares of
Convertible Exchangeable Preferred Stock, no fractions of shares of
Common Stock shall be issued. In lieu thereof the Corporation shall,
at its option, issue a whole share in respect of any fraction of a
share or pay a cash adjustment in respect of such fractional interest
in an amount equal to such fractional interest multiplied by the
Conversion Price Per Common Share on the Conversion Date.
(vii) If the Corporation at any time after the date of issue of
the Convertible Exchangeable Preferred Stock (1) declares a dividend
or makes a distribution on Common Stock payable in Common Stock (or
securities convertible into Common Stock), (2) subdivides or splits
the outstanding Common Stock, (3) combines or reclassifies the
outstanding Common Stock into a smaller number of shares, (4) issues
any shares of its Capital Stock in a reclassification of Common Stock
(including any such reclassification in connection with a
consolidation or merger in
22
which the Corporation is the continuing corporation), or (5)
consolidates with, merges with or into or is converted into any other
Person, the Conversion Price Per Common Share in effect at the time of
the record date for such dividend or distribution or of the effective
date of such subdivision, split, combination, consolidation,
conversion, merger or reclassification shall be adjusted so that the
conversion of the Convertible Exchangeable Preferred Stock after such
time shall entitle the Holder to receive the aggregate number of
shares of Common Stock or other securities of the Corporation (or
shares of any security into which such shares of Common Stock have
been combined, consolidated, converted, merged or reclassified
pursuant to paragraphs (h)(vii)(A)(3), (4) or (5)) which, if the
Convertible Exchangeable Preferred Stock had been converted
immediately prior to such time, such Holder would have owned upon such
conversion and been entitled to receive by virtue of such dividend,
distribution, subdivision, split, combination, consolidation,
conversion, merger or reclassification, assuming such holder of Common
Stock (x) is not a Person with which the Corporation consolidated or
into which the Corporation merged or which merged into the Corporation
or to which such recapitalization, sale or transfer was made, as the
case may be ("constituent Person"), or an affiliate of a constituent
Person and (y) failed to exercise any rights of election as to the
kind or amount of securities, cash and other property receivable upon
such reclassification, change, consolidation, conversion, merger,
recapitalization, sale or transfer (provided, that if the kind or
amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, conversion, merger,
recapitalization, sale or transfer is not the same for each share of
Common Stock held immediately prior to such reclassification, change,
consolidation, conversion, merger, recapitalization, sale or transfer
by other than a constituent Person or an affiliate thereof and in
respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purpose of this paragraph
(h)(vii) the kind and amount of securities, cash and other property
receivable upon such reclassification, change, consolidation,
conversion, merger, recapitalization, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares). In
any such event referred to in paragraph (h)(vii)(A)(5), effective
provisions shall be made in the certificate or articles of
incorporation of the resulting or surviving corporation, in any
contract, sale, conveyance, lease or transfer or otherwise so that the
provisions
23
set forth herein for the protection of the conversion rights of the
Convertible Exchangeable Preferred Stock shall thereafter continue to
be applicable. Any such resulting or surviving corporation shall
expressly assume the obligation to deliver, upon conversion, such
shares of stock, of securities, cash or property. Such adjustment
shall be made successively whenever any event listed above shall
occur.
(B) Prior to September 30, 2005, if the Corporation issues
or sells any Common Stock (other than Common Stock issued upon
conversion of the Convertible Exchangeable Preferred Stock, upon
exercise or conversion of any security the issuance of which
caused an adjustment under paragraphs (h)(vii)(C) (D) or (E)),
(3) pursuant to any bona fide plan for the benefit of employees
or directors of the Corporation now or hereafter in effect, in an
amount not to exceed 10,000,000 shares of Common Stock, (4) upon
conversion of shares of Convertible Exchangeable Preferred Stock
issued as payment of dividends pursuant to paragraph (c)(ii), or
(5) upon exercise of warrants issued pursuant to the Warrant
Agreement), for a consideration per share (the "Issue Price Per
Common Share") less than the then Conversion Price Per Common
Share, the Conversion Price Per Common Share to be in effect
after such issuance or sale shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion
Price Per Common Share in effect immediately prior to such
issuance or sale by a fraction the numerator of which shall equal
the number of shares of Common Stock outstanding on the date of
such issuance or sale, immediately prior to such issuance or
sale, plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered
would purchase at the Conversion Price Per Common Share in effect
immediately prior to such issuance or sale and the denominator
shall equal the number of shares of Common Stock outstanding on
the date of such issuance or sale, immediately prior to such
issuance or sale, plus the number of additional shares of Common
Stock which are to be issued or sold.
On or after September 30, 2005, if the Corporation issues or
sells any Common Stock (other than (x) Common
24
Stock issued as described in paragraph (h)(vii)(B)(1), (2), (3),
(4) or (5) above or (y) in a bona fide public offering pursuant
to a firm commitment underwriting at a price per share to the
public of not less than 95% of the Closing Price Per Common Share
calculated as of the date the underwriting agreement for such
offering is entered into) for a consideration per share less than
the then Current Market Price Per Common Share, the Conversion
Price Per Common Share to be in effect after such issuance or
sale shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price Per Common Share
in effect immediately prior to such issuance or sale by a
fraction the numerator of which shall equal the number of shares
of Common Stock outstanding on the date of such issuance or sale,
immediately prior to such issuance or sale, plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares so offered would purchase at the Current
Market Price Per Common Share and the denominator shall equal the
number of shares of Common Stock outstanding on the date of such
issuance or sale, immediately prior to such issuance or sale,
plus the number of additional shares of Common Stock which are to
be issued or sold.
If any portion of the Issue Price Per Common Share is in a form
other than cash, the fair market value of such noncash
consideration shall be utilized in the foregoing computation.
Such fair market value shall be determined by the Board of
Directors of the Corporation. The Holders shall be notified
promptly of any consideration other than cash to be received by
the Corporation and furnished with a description of the
consideration and the fair market value thereof, as determined by
the Board of Directors.
(C) Prior to September 30, 2005, if the Corporation fixes a
record date for the issuance of, or issues or sells, rights,
options or warrants entitling the Holders thereof to subscribe
for or purchase shares of Common Stock (or securities convertible
into shares of Common Stock) or convertible securities (other
than (1) pursuant to any bona fide plan for the benefit of
employees or directors of the Corporation now or
25
hereafter in effect, in an amount not to exceed 10,000,000 shares
of Common Stock, (2) shares of Convertible Exchangeable Preferred
Stock issued as payment of dividends pursuant to paragraph
(c)(ii) or (3) warrants issued pursuant to the Warrant
Agreement), at a price per share of Common Stock (including, in
the case of rights, options or warrants, the price at which they
may be exercised, or in the case of convertible securities, the
conversion price per share of Common Stock) (such price per share
being the "New Option Price Per Common Share") less than the then
Conversion Price Per Common Share on such record date or date of
issuance or sale, the Conversion Price Per Common Share shall be
adjusted so that the same shall equal the price determined by
multiplying the Conversion Price Per Common Share in effect
immediately prior to such issuance or sale by a fraction the
numerator of which shall be the number of shares of Common Stock
outstanding on the date of such issuance or sale, immediately
prior to such issuance or sale, plus the number of shares of
Common Stock which the aggregate offering price of the total
number of shares so offered (including the aggregate exercise
price of any rights, options or warrants) would purchase at the
Conversion Price Per Common Share in effect immediately prior to
such issuance or sale (determined by multiplying such total
number of shares by the exercise price of such rights, warrants
or options and dividing the product so obtained by the Conversion
Price Per Common Share in effect immediately prior to such
issuance or sale) and the denominator shall be the number of
shares of Common Stock outstanding on the date of such issuance
or sale, immediately prior to such issuance or sale, plus the
number of additional shares of Common Stock which are to be
issued or sold.
(D) On or after September 30, 2005, if the Corporation fixes
a record date for the issuance of, or issues or sells, rights,
options or warrants entitling the holders thereof to subscribe
for or purchase shares of Common Stock (or securities convertible
into shares of Common Stock) or convertible securities (other
than (1) pursuant to any bona fide plan for the benefit of
employees or directors of the Corporation now or hereafter in
effect, in an amount not to exceed 10,000,000
26
shares of Common Stock, (2) shares of Convertible Exchangeable
Preferred Stock issued as payment of dividends pursuant to
paragraph (c)(ii), or (3) warrants issued pursuant to the Warrant
Agreement), at a New Option Price Per Common Share less than the
then Current Market Price Per Common Share, the Conversion Price
Per Common Share to be in effect after such issuance or sale
shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price Per Common Share
in effect immediately prior to such issuance or sale by a
fraction the numerator of which shall equal the number of shares
of Common Stock outstanding on the date of such issuance or sale,
immediately prior to such issuance or sale, plus the number of
shares of Common Stock which the aggregate offering price
(including the aggregate exercise price of any rights options or
warrants) of the total number of shares so offered would purchase
at the Current Market Price Per Common Share and the denominator
shall equal the number of shares of Common Stock outstanding on
the date of such issuance or sale, immediately prior to such
issuance or sale, plus the number of additional shares of Common
Stock which are to be issued or sold.
If any portion of the New Option Price Per Common Share is in a
form other than cash, the fair market value of such noncash
consideration shall be determined as set forth in paragraph
(h)(vii)(B). Such adjustment shall be made successively whenever
such record date is fixed or whenever such rights, options,
warrants or convertible securities are issued or sold; and if
such rights, options, warrants or convertible securities are not
so issued or expire unexercised, or if there is a change in the
number of shares of Common Stock to which the Holders of such
rights, options, warrants or convertible securities are entitled
(other than pursuant to adjustment provisions therein comparable
to those contained in this paragraph (h)(vii)), the Conversion
Price Per Common Share shall again be adjusted to be the
Conversion Price Per Common Share which would then be in effect
if such record date had not been fixed or such rights, options,
warrants or convertible securities not so issued, in the former
event, or the Conversion Price Per Common Share which would then
be in effect if such Holder had initially been entitled
27
to such changed number of shares of Common Stock, in the latter
event. No adjustment of the Conversion Price Per Common Share
shall be made pursuant to this paragraph (h)(vii)(C) upon the
issuance or sale of any rights, options, warrants or convertible
securities to the extent that the Conversion Price Per Common
Share has already been adjusted upon the setting of any record
date relating to such rights, options, warrants or convertible
securities and such adjustment fully reflects the number of
shares of Common Stock to which the holders of such rights,
options, warrants or convertible securities are entitled and the
price payable therefor.
(E) If the Corporation fixes a record date for a
distribution to holders of Common Stock (including any such
distribution made in connection with a consolidation or merger in
which the Corporation is the continuing corporation) of evidences
of indebtedness, assets or other property (other than dividends
payable in Common Stock or rights, options or warrants referred
to in, and for which an adjustment is made pursuant to, paragraph
(h)(vii)(C)), the Conversion Price Per Common Share to be in
effect after such record date shall be reduced by the fair market
value (determined as set forth in paragraph (h)(vii)(B)) of the
portion of the assets, other property or evidence of indebtedness
so to be distributed which is applicable to one share of Common
Stock. Such adjustments shall be made successively whenever such
a record date is fixed; and if such distribution is not so made,
the Conversion Price Per Common Share shall again be adjusted to
be the Conversion Price Per Common Share which would then be in
effect if such record date had not been fixed.
(F) No adjustment to the Conversion Price Per Common Share
pursuant to any of paragraphs (h)(vii)(B), (C), (D) or (E) shall
be required unless such adjustment would require an adjustment of
at least 1% in the Conversion Price Per Common Share; provided
that any adjustments which by reason of this paragraph
(h)(vii)(F) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All
calculations under this paragraph (h)(vii) shall be made to the
nearest four decimal points.
28
(G) If, at any time as a result of the provisions of this
paragraph (h)(vii), Holders of Convertible Exchangeable Preferred
Stock upon subsequent conversion shall become entitled to receive
any shares of capital stock of the Corporation other than Common
Stock, the number of such other shares so receivable upon
conversion of the Convertible Exchangeable Preferred Stock shall
thereafter be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the
provisions contained herein.
All adjustments pursuant to this paragraph (h) shall be notified to the Holders
of Convertible Exchangeable Preferred Stock, and such notice shall be
accompanied by a schedule of computations of the adjustments.
(i) Reissuance of Convertible Exchangeable Preferred Stock. Shares of
Convertible Exchangeable Preferred Stock that have been issued and
reacquired in any manner, including shares purchased or redeemed or
exchanged, shall (upon compliance with any applicable provisions of the
laws of Delaware) have the status of authorized and unissued shares of
Preferred Stock undesignated as to series and may be redesignated and
reissued as part of any series of Preferred Stock, provided that any
issuance of such shares as Convertible Exchangeable Preferred Stock must be
in compliance with the terms hereof.
(j) Business Day. If any payment, redemption or exchange shall be
required by the terms hereof to be made on a day that is not a Business
Day, such payment, redemption or exchange shall be made on the immediately
succeeding Business Day.
(k) Definitions. As used in this Certificate of Designations, the
following terms shall have the following meanings (with terms defined in
the singular having comparable meanings when used in the plural and vice
versa), unless the context otherwise requires:
"Active Material Insurance Subsidiary" means Bankers Life and
Casualty Company, Conseco Life Insurance Company, Conseco Annuity
Assurance Company, Conseco Health Insurance Company and any other
Insurance Subsidiary which, on a stand-alone basis (excluding any
equity ownership in its Subsidiaries), has in excess of 5% of New
Annualized Premiums of the Conseco Insurance Group.
29
"Aggregate RBC Ratio" means the Risk-Based Capital Ratio for all
Insurance Subsidiaries taken as a whole.
"A.M. Best" means A.M. Best Company, together with any Person
succeeding thereto by merger, consolidation or acquisition of all or
substantially all of its assets, including substantially all of its
business of rating insurance companies.
"Annual Statement" means the annual statutory financial statement
of any Insurance Subsidiary required to be filed with the insurance
commissioner (or similar authority) of its jurisdiction of
incorporation, which statement shall be in the form required by such
Insurance Subsidiary's jurisdiction of incorporation or, if no
specific form is so required, in the form of financial statements
permitted by such insurance commissioner (or such similar authority)
to be used for filing annual statutory financial statements and shall
contain the type of information permitted or required by such
insurance commissioner (or such similar authority) to be disclosed
therein, together with all exhibits or schedules filed therewith.
"Bankers Life Group" means Bankers Life and Casualty Company,
Bankers Life Insurance Company of Illinois and Colonial Penn Life
Insurance Company.
"Board of Directors" shall have the meaning set forth in the
introductory paragraph of this Certificate of Designations.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The
Borough of Manhattan, The City of New York, New York are authorized or
obligated by law or executive order to close.
"Calculation Period" means, with respect to any ratio or
calculation, the period for which such ratio or calculation is being
calculated.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of any association or business entity, any and
all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock and (iii) in the case of a
partnership, partnership interests (whether general or limited).
30
"Capitalized Lease Liabilities" means, with respect to any
Person, all monetary obligations of such Person under any leasing or
similar arrangement which, in accordance with GAAP, would be
classified as a capitalized lease, and, for purposes of this
Certificate of Designations, the amount of such obligations shall be
the capitalized amount thereof, determined in accordance with GAAP,
and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Certificate of Incorporation" shall have the meaning set forth
in the introductory paragraph of this Certificate of Designations.
"Closing Price Per Common Share" means (A) if the shares of such
class of Common Stock are listed and traded on the NYSE, the closing
price per share of Common Stock on such day as reported on the NYSE
Consolidated Tape; (B) if the shares of such class of Common Stock are
not listed and traded on the NYSE, the closing price per share of
Common Stock on such day as reported by the principal national
securities exchange on which the shares are listed and traded; (C) if
the shares of such class of Common Stock are not listed and traded on
any such securities exchange and are reported on Nasdaq, the closing
price per share of Common Stock on such day on Nasdaq; or (D) if the
shares of such class of Common Stock are not traded on Nasdaq, the
average of the last reported bid and last reported asked price not
identified as having been reported late, on such day as reported by
Nasdaq. If on any determination date the shares of such class of
Common Stock are not quoted by any such organization, the Closing
Price Per Common Share shall be the fair market value of such shares
on such determination date as determined by the Board of Directors.
"Combined Statutory Statement" means a statement combining the
Quarterly Statements or Annual Statements, as applicable, of all the
Insurance Subsidiaries.
"Common Stock" of any Person means Capital Stock of such Person
that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding-up of such Person, to shares of Capital Stock
of any other class of such Person.
31
Unless otherwise specified, "Common Stock" means Common Stock of the
Corporation.
"Conseco EBITDA" means, for any Calculation Period, the
consolidated Net Income of the Corporation for such period plus,
without duplication and to the extent reflected as a charge in the
statement of such consolidated Net Income for such period, the sum of
(a) income tax expense, (b) 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, (c)
depreciation and amortization expense of tangible and intangible
assets, (d) any losses on sales of assets outside of the ordinary
course of business, (e) any realized or unrealized losses on
Investments of Insurance Subsidiaries, (f) solely for any Calculation
Period ending on or prior to March 31, 2005, cash charges 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, (g) any other non-recurring cash charges
(not to exceed $25,000,000 in the aggregate for all Calculation
Periods) 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, (h)
non-cash charges reflecting the cumulative effect of changes in GAAP
to the extent such charges relate to any prior Calculation Period and
(i) non-cash charges taken to write off any goodwill included in the
Corporation's balance sheet on the Issue Date to the extent such
charges are required by FAS 142, and minus, without duplication and to
the extent reflected as a gain in the statement of such consolidated
Net Income for such period, the sum of (a) any gains on sales of
assets outside of the ordinary course of business and (b) realized or
unrealized gains on Investments of Insurance Subsidiaries, all as
determined on a consolidated basis for such Calculation Period.
"Conseco Insurance Group" means all Insurance Subsidiaries of the
Corporation from time to time, other than any Insurance Subsidiary
that is part of the Bankers Life Group.
"Contingent Obligation" means, without duplication, any
agreement, undertaking or arrangement by which any Person
32
guarantees, endorses or otherwise becomes or is contingently liable
upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest
in, a debtor, or otherwise to assure a creditor against loss) the
debt, obligation or other liability of any other Person (other than by
endorsements of instruments in the course of collection), or
guarantees the payment of dividends or other distributions upon the
shares of any other Person; provided, that the obligations of any
Person under Reinsurance Agreements or in connection with Investments
of Insurance Subsidiaries permitted by the applicable Department shall
not be deemed Contingent Obligations of such Person. The amount of any
Contingent Obligation of any Person shall (subject to any limitation
set forth therein) be deemed to be an amount equal to the stated or
determinable amount of the related primary obligation, or portion
thereof, in respect of which such Contingent Obligation is made or, if
not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good
faith.
"Conversion Date" has the meaning set forth in paragraph
(h)(ii)(C) hereof.
"Conversion Price Per Common Share" has the meaning set forth in
paragraph (h)(i) hereof.
"Conversion Ratio" has the meaning set forth in paragraph (h)(i)
hereof.
"Convertible Exchangeable Preferred Stock" shall have the meaning
set forth in paragraph (a) hereof.
"Corporation" has the meaning set forth in the introductory
paragraph of this Certificate of Designations.
"Credit Agreement" means the Credit Agreement dated on or about
the Issue Date among the Corporation, the lenders party thereto, and
Bank of America, N.A. as agent, as amended, restated or refinanced and
in effect from time to time.
"Current Market Price Per Common Share" means the volume weighted
arithmetic mean of the Daily Price Per Common Share for the ten
consecutive Trading Days ending on the date of the event giving rise
to such calculation.
33
"Daily Price Per Common Share" means (A) if the shares of such
class of Common Stock are listed and traded on the NYSE, the volume
weighted average price per share of Common Stock on such day as
reported on the NYSE Consolidated Tape; (B) if the shares of such
class of Common Stock are not listed and traded on the NYSE, the
volume weighted average price per share of Common Stock on such day as
reported by the principal national securities exchange on which the
shares are listed and traded; (C) if the shares of such class of
Common Stock are not listed and traded on any such securities exchange
and are reported on the Nasdaq, the volume weighted average price per
share of Common Stock on such day on Nasdaq; or (D) if the shares of
such class of Common Stock are not traded on Nasdaq, the average of
the highest reported bid and lowest reported asked price not
identified as having been reported late, on such day as reported by
Nasdaq. If on any determination date the shares of such class of
Common Stock are not quoted by any such organization, the Daily Price
Per Common Share shall be the fair market value of such shares on such
determination date as determined by the Board of Directors.
"Department" means, with respect to any Insurance Subsidiary, the
Governmental Authority of such Insurance Subsidiary's state of
domicile with which such Insurance Subsidiary is required to file its
Annual Statement.
"Dividend Payment Date" means March 1 and September 1 of each
year.
"Dividend Period" means the Initial Dividend Period and,
thereafter, each semi-annual period commencing on a Dividend Payment
Date and ending one day before the next Dividend Payment Date.
"Dividend Record Date" means February 15 and August 15 of each
year.
"Exchange Common Stock" has the meaning set forth in paragraph
(g)(i).
"Exchange Date" has the meaning set forth in paragraph
(g)(ii)(A).
"Exchange Rate" has the meaning set forth in paragraph (g)(i).
34
"Fiscal Quarter" means a fiscal quarterly period of the
Corporation.
"GAAP" means generally accepted accounting principles set forth
from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date
of determination.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing, including any
board of insurance, insurance department or insurance commissioner.
"Holder" means a holder of shares of Convertible Exchangeable
Preferred Stock as reflected in the stock books of the Corporation.
"Immaterial Subsidiary" means any Non-Insurance Subsidiary that
(a) has assets with an aggregate fair market value less than
$1,000,000, (b) has aggregate revenues less than $1,000,000 for the
period of four consecutive Fiscal Quarters most recently ended, (c)
has no Indebtedness (other than intercompany Indebtedness permitted
under clause (ix) of Schedule D hereto and other Indebtedness in an
aggregate principal amount not exceeding at any time one-half of the
fair market value of the assets of such Subsidiary at such time), (d)
is not integral to the business or operations of the Corporation or
its Subsidiaries (other than Immaterial Subsidiaries), (e) has no
Subsidiaries (other than Immaterial Subsidiaries) and (f) is not a
guarantor of the obligations of the Corporation under the Credit
Agreement; provided that each of CNC Entertainment Nevada, Inc. and
Conseco Risk Management, Inc. shall be deemed to be an Immaterial
Subsidiary for so long as such Person meets all the requirements set
forth above other than, prior to the end of the
35
fourth full Fiscal Quarter after the Issue Date, the requirements of
clause (b) above.
"Immediate Trigger Event" means any of the events described in
clauses (i) through (iv) under the definition of Trigger Event hereof.
"Indebtedness" means, with respect to any Person, without
duplication: (a) all obligations of such Person for borrowed money or
in respect of loans or advances; (b) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments;
(c) all obligations in respect of letters of credit, whether or not
drawn, and bankers' acceptances and letters of guaranty issued for the
account or upon the application or request of such Person; (d) all
Capitalized Lease Liabilities of such Person; (e) all obligations of
such Person in respect of Swap Contracts; (f) all obligations of such
Person to pay the deferred purchase price of property or services
which are included as liabilities in accordance with GAAP (other than
accrued expenses incurred and trade accounts payable in each case in
the ordinary course of business), and all obligations secured by a
Lien on property owned or being purchased by such Person (including
obligations arising under conditional sales or other title retention
agreements); (g) any obligations of a partnership of the kind referred
to in clauses (a) through (f) above or clause (h) below in which such
Person is a general partner; and (h) all Contingent Obligations of
such Person in connection with Indebtedness or obligations of others
of the kinds referred to in clauses (a) through (g) above.
"Initial Dividend Period" means the dividend period commencing on
the Issue Date and ending on March 1, 2004.
"Insurance Subsidiary" means any Subsidiary which is required to
be licensed as an insurer or reinsurer.
"Investment" means any advance, loan, extension of credit (by way
of guaranty or otherwise) or capital contribution to, or purchase
(including purchases financed with equity) of any Capital Stock,
bonds, notes, debentures or other debt securities of, or any other
investment in, any Person.
"Issue Date" means September 10, 2003.
"Junior Securities" shall have the meaning set forth in paragraph
(b)(i) hereof.
36
"License" means any license, certificate of authority, permit or
other authorization which is required to be obtained from any
Governmental Authority in connection with the operation, ownership or
transaction of insurance business.
"Lien" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by, any conditional sale
or other title retention agreement, the interest of a lessor under a
capital lease or any financing lease having substantially the same
economic effect as any of the foregoing) and any contingent or other
agreement to provide any of the foregoing, but not including the
interest of a lessor under an operating lease.
"Material Adverse Regulatory Effect" means a material adverse
change in, or a material adverse effect upon, the business,
properties, condition (financial or otherwise) or prospects of the
Corporation or the Corporation and its Subsidiaries taken as a whole.
"Material Adverse Regulatory Event" means the occurrence of any
of the following events: (a) the applicable Department of any Material
Insurance Subsidiary or a court of competent jurisdiction finds that
any Material Insurance Subsidiary (x) is in hazardous financial
condition, if such finding, together with all other such findings,
could reasonably be expected to have a Material Adverse Regulatory
Effect or (y) is insolvent, (b) any Material Insurance Subsidiary is
required to comply with any letter, bulletin or order of a state
insurance regulator materially restricting its operations or business,
or enters into an agreement (whether oral or written) with any state
insurance regulator for substantially the same purpose, and such
event, together with all other such events, could reasonably be
expected to have a Material Adverse Regulatory Effect; (c) any
Material Insurance Subsidiary becomes subject to orders of
supervision, conservation, rehabilitation or liquidation, by agreement
or otherwise, or has a receiver or supervisor appointed or (d) any
material License of any Material Insurance Subsidiary is suspended or
revoked and such suspension or revocation continues for 30 days, or
any renewal application by any Material Insurance Subsidiary for any
material License is disapproved or ultimately fails to be approved,
and such event, together with all other such events, could reasonably
be
37
expected to have a material adverse effect upon the business,
properties, condition (financial or otherwise) or prospects of such
Material Insurance Subsidiary.
"Material Insurance Subsidiary" means (i) any Active Material
Insurance Subsidiary and (ii) any other Insurance Subsidiary having
assets as determined pursuant to SAP greater than or equal to 10% of
the aggregate assets as determined pursuant to SAP of all Insurance
Subsidiaries as determined as of the date of the most recently
prepared Combined Statutory Statement.
"Nasdaq" means the National Association of Securities Dealers,
Inc. Automated Quotation Market System.
"Net Income" means, for any Person for any Calculation Period,
the net income (or loss) of such Person for such period as determined
in accordance with GAAP.
"Net Proceeds" means, with respect to any issuance of Capital
Stock of, or capital contribution to, the Corporation or any
Subsidiary, or any incurrence of Indebtedness by the Corporation or
any of its Subsidiaries, the proceeds thereof in the form of cash and
cash equivalents, minus the costs and expenses paid or payable within
60 days of incurrence (so long as, if any such amount is not paid
within such period, it shall become "Net Proceeds" on the last day of
such period) by the Corporation or any of its Subsidiaries to third
parties in connection therewith (including legal fees, notarial fees,
accountants fees, investment banking fees, underwriting discounts and
commissions and other customary fees and expenses incurred in
connection therewith) and required to be paid in cash or deducted from
the proceeds of such issuance, contribution or incurrence.
"New Annualized Premiums" means, with respect to any Insurance
Subsidiary, the aggregate annualized first year insurance premiums of
such Insurance Subsidiary; provided that (x) if such Insurance
Subsidiary is part of the Conseco Insurance Group, New Annualized
Premiums on any single premium annuity issued by such Insurance
Subsidiary shall be calculated as 1/15th of such premium and (y) if
such Insurance Subsidiary is part of the Bankers Life Group, New
Annualized Premiums on any single premium annuity issued by such
Insurance Subsidiary shall be calculated as 6% of such premium.
38
"Non-Insurance Subsidiary" means any Subsidiary which is not an
Insurance Subsidiary.
"Non-Voting Observer" means a person selected by the holders of
the shares of Common Stock on the same basis as if such selection was
for the election of a director pursuant to Delaware law, which
Non-Voting Observer may be a director, officer or employee of any such
holder.
"NYSE" means the New York Stock Exchange, Inc.
"Optional Redemption Price" shall have the meaning set forth in
paragraph (e)(i)(A) hereof.
"Parity Securities" shall have the meaning set forth in paragraph
(b)(ii) hereof.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock
corporation, trust, estate, unincorporated organization or government
or any agency or political subdivision thereof.
"Plan of Reorganization" means the Corporation's Joint Plan of
Reorganization dated as of March 12, 2003, as amended through the
Issue Date.
"Preferred Stock," as applied to the Capital Stock of any Person,
means Capital Stock of such Person of any class or classes (however
designated) that ranks prior, as to the payment of dividends or as to
the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding-up of such Person, to shares of
Capital Stock of any other class of such Person.
"Quarterly Statement" means the quarterly statutory financial
statement of any Insurance Subsidiary required to be filed with the
insurance commissioner (or similar authority) of its jurisdiction of
incorporation or, if no specific form is so required, in the form of
financial statements permitted by such insurance commissioner (or such
similar authority) to be used for filing quarterly statutory financial
statements and shall contain the type of financial information
permitted by such insurance commissioner (or such similar authority)
to be disclosed therein, together with all exhibits or schedules filed
therewith.
39
"Redemption Date," with respect to any shares of Convertible
Exchangeable Preferred Stock, means the date on which such shares of
Convertible Exchangeable Preferred Stock are redeemed by the
Corporation.
"Redemption Notice" shall have the meaning set forth in paragraph
(e)(ii)(A) hereof.
"Reinsurance Agreements" means any agreement, contract, treaty,
certificate or other arrangement by which any Insurance Subsidiary
agrees to transfer or cede to another insurer all or part of the
liability assumed or assets held by it under one or more insurance,
annuity, reinsurance or retrocession policies, agreements, contracts,
treaties, certificates or similar arrangements. Reinsurance Agreements
shall include, but not be limited to, any agreement, contract, treaty,
certificate or other arrangement which is treated as such by the
applicable Department.
"Reorganization Transactions" means the transactions contemplated
by the Plan of Reorganization to occur upon the effective date
thereof.
"Risk-Based Capital Ratio" means, with respect to any Insurance
Subsidiary or the Insurance Subsidiaries taken as a whole, on any date
of determination, one-half of the ratio (expressed as a percentage) of
(a) the aggregate Total Adjusted Capital (as defined by the relevant
Insurance Subsidiary's Department) for such Insurance Subsidiary or
Insurance Subsidiaries to (b) the aggregate Authorized Control Level
Risk-Based Capital (as defined by the relevant Insurance Subsidiary's
Department) for such Insurance Subsidiary or Insurance Subsidiaries.
"SAP" means, with respect to any Insurance Subsidiary, the
statutory accounting practices prescribed or permitted by the
insurance commissioner (or other similar authority) in the
jurisdiction of such Insurance Subsidiary for the preparation of
annual statements and other financial reports by insurance companies
of the same type as such Insurance Subsidiary, which are applicable to
the circumstances as of the date of filing of such statement or
report.
"Senior Debt and Equity Securities" shall have the meaning set
forth in paragraph (b)(iii) hereof.
40
"Senior Securities" shall have the meaning set forth in paragraph
(b)(iii) hereof.
"Subsidiary" of a Person means any corporation, partnership,
limited liability company, limited liability partnership, joint
venture, trust, association or other unincorporated organization of
which or in which such Person and such Person's Subsidiaries own
directly or indirectly more than 50% of (a) the combined voting power
of all classes of stock having general voting power under ordinary
circumstances to elect a majority of the board of directors, if it is
a corporation, (b) the voting or managing interests (which shall mean
the general partner in the case of a partnership), if it is a
partnership, joint venture or similar entity, (c) the beneficial
interest, if it is a trust, association or other unincorporated
organization or (d) the membership interest, if it is a limited
liability company; provided that none of Paladin Entertainment
Holdings, LLC ("Paladin"), 767 LLC or Resortport Investment
Partnership shall be considered a Subsidiary for any purpose of this
Certificate of Designations for so long as (w) such Person has no
Indebtedness other than intercompany Indebtedness and non-recourse
Indebtedness, (x) the aggregate principal amount of Indebtedness of
such Person (other than intercompany Indebtedness) does not exceed 85%
of the fair market value of the assets of such Person, (y) such Person
is not integral to the business or operations of the Corporation or
any Subsidiary and (z) in the case of Paladin, the accounts thereof
are not consolidated or are not required pursuant to GAAP to be
consolidated with those of the Corporation in the Corporation's
consolidated financial statements. Unless otherwise specified,
"Subsidiary" means a Subsidiary of the Corporation.
"Swap Contract" means any agreement, whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward
rate transaction, commodity swap, commodity option, equity or equity
index swap or option, bond, note or bill option, interest rate option,
forward foreign exchange transaction, cap, collar or floor
transaction, currency swap, cross-currency rate swap, swaption,
currency option or any other similar transaction (including any option
to enter into any of the foregoing) or any combination of the
foregoing, and, unless the context otherwise clearly requires, any
master agreement relating to or governing any or all of the foregoing.
41
"Total Liquidation Preference" means, with respect to any share
of Convertible Exchangeable Preferred Stock and as of any date, the
liquidation preference for such share plus, without duplication, an
amount equal to accumulated and unpaid dividends thereon (whether or
not declared) to such date, plus an amount equal to a prorated
dividend for the period from the last Dividend Payment Date to such
date.
"Trading Day" means a day on which the specified securities
exchange or quotation system is open for trading or quotation;
provided, however, if no closing price, sale price or bid or asked
price, as the case may be, is reported by such securities exchange or
quotation system in respect of the Common Stock for such Trading Day,
such day or days will be disregarded in any relevant calculation and
will be deemed not to have existed when ascertaining any period of
consecutive Trading Days.
"Trigger Event" means any of (i) a reduction in the claims pay
rating assigned to any Active Material Insurance Subsidiary by A.M.
Best to a level (counting any "+" or "-" modifier as a separate level)
below the level prevailing on September 10, 2003 or by two or more
levels (counting any "+" or "-" modifier as a separate level) in any
six-month period, (ii) the occurrence of an Event of Default (as
defined in the Credit Agreement) with respect to any payment of
principal or interest under the Credit Agreement which Event of
Default is continuing, (iii) the occurrence of any Material Adverse
Regulatory Event with respect to any Material Insurance Subsidiary,
(iv) the Convertible Exchangeable Preferred Stock becoming convertible
in accordance with the provisions of paragraph (h) hereof, (v) Conseco
EBITDA as of the end of any Fiscal Quarter set forth in Schedule A
hereto for the four Fiscal Quarters then ended (or, if less, the
number of full fiscal Quarters commencing after the Issue Date) being
less than the amount set forth in such Schedule for such Fiscal
Quarter, (vi) the Risk-Based Capital Ratio for any Active Material
Insurance Subsidiary set forth in Schedule B hereto as at the end of
any fiscal year of the Corporation ending after the Issue Date being
less than the ratio set forth in such Schedule for such Active
Material Insurance Subsidiary as at the end of such fiscal year and
(vii) the Aggregate RBC Ratio as at the end of any Fiscal Quarter set
forth in Schedule C hereto being less than the ratio set forth in such
Schedule for such Fiscal Quarter.
42
"Warrant Agreement" means the warrant agreement dated the Issue
Date between the Corporation and the Warrant Agent named therein.
43
SCHEDULE A
CONSECO EBITDA
---------------------------------------------- ------------------------
--------------------------------------------- ------------------------
Fiscal Quarter Ending Amount
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------
June 30, 2004 $632,000,000
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------
September 30, 2004 $877,000,000
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------
December 31, 2004 $878,000,000
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------
March 31, 2005 $878,000,000
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------
June 30, 2005 $879,000,000
---------------------------------------------- ------------------------
44
SCHEDULE B
MINIMUM RISK-BASED CAPITAL RATIO
------------- --------------- --------------- ---------------- --------------- ---------------
Each other
Conseco Conseco Active
Bankers Life Conseco Life Annuity Health Material
and Casualty Insurance Assurance Insurance Insurance
Fiscal Year Company Company Company Company Subsidiary
------------- --------------- --------------- ---------------- --------------- ---------------
------------- --------------- --------------- ---------------- --------------- ---------------
2003 125% 125% 125% 165%* 175%
------------- --------------- --------------- ---------------- --------------- ---------------
------------- --------------- --------------- ---------------- --------------- ---------------
2004 145% 150% 152% 152% 175%
------------- --------------- --------------- ---------------- --------------- ---------------
* If the proposed merger of Conseco Life Insurance Company with and into
Conseco Health Insurance Company shall have been consummated on or prior to
December 31, 2003, the relevant ratio for 2003 shall instead be 145%.
45
SCHEDULE C
AGGREGATE RISK-BASED CAPITAL RATIO
---------------------------------------------- ------------------------
Fiscal Quarter Ending Ratio
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------
March 31, 2004 157%
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------
June 30, 2004 165%
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------
September 30, 2004 174%
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------
December 31, 2004 182%
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------
March 31, 2005 185%
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------
June 30, 2005 188%
---------------------------------------------- ------------------------
46
SCHEDULE D
PERMITTED INDEBTEDNESS
The Corporation and its Subsidiaries shall be permitted to incur the
following Indebtedness:
(i) Indebtedness under the Credit Agreement in an aggregate
principal amount not to exceed $1,400,000,000 at any time outstanding;
(ii) any Surplus Debentures issued by any Insurance Subsidiary to
the Corporation or any of its Subsidiaries that remain outstanding on
the Issue Date, and extensions, renewals or replacements thereof;
(iii) Permitted Transactions entered into by Insurance
Subsidiaries;
(iv) Permitted Swap Obligations;
(v) Indebtedness existing on the Issue Date, and extensions,
renewals or replacements thereof, provided that no such extension,
renewal or replacement shall increase the principal amount thereof,
except to the extent the increase would otherwise be permitted under
this Schedule, or result in an earlier maturity date or decreased
average weighted life;
(vi) non-recourse Indebtedness of Insurance Subsidiaries incurred
in the ordinary course of business resulting from the sale or
securitization of non-admitted assets, policy loans, CBOs and CMOs;
(vii) Capitalized Lease Liabilities and Purchase Money Debt in an
aggregate principal amount not to exceed $50,000,000 at any time
outstanding;
(viii) intercompany Indebtedness (including Surplus Debentures)
among the Corporation and its Subsidiaries (other than Excluded
Subsidiaries) and among the Subsidiaries (other than Excluded
Subsidiaries);
(ix) intercompany Indebtedness of Excluded Subsidiaries in an
aggregate principal amount not to exceed $10,000,000 at any time
outstanding;
47
(x) Indebtedness in respect of letters of credit issued in
connection with reinsurance transactions entered into in the ordinary
course of business;
(xi) Indebtedness in respect of surety and other similar bonds in
the ordinary course of business and consistent with past practice;
(xii) other secured Indebtedness in an aggregate principal amount
not to exceed the greater of (A) $10,000,000 and (B) the lesser of (x)
2% of Modified Total Adjusted Capital and (y) $50,000,000 at any time
outstanding;
(xiii) other unsecured Indebtedness in an aggregate principal
amount not to exceed the greater of (A) $50,000,000 and (B) the lesser
of (x) 10% of Modified Total Adjusted Capital and (y) $250,000,000 at
any time outstanding; and
(xiv) Contingent Obligations in respect of Indebtedness permitted
under (vii), (xii) or (xiii).
"Capital and Surplus" means, as to any Insurance Subsidiary, as of any
date, the total amount shown on line 38, page 3, column 1 of the Annual
Statement of such Insurance Subsidiary, or an amount determined in a consistent
manner for any date other than one as of which an Annual Statement is prepared.
"CBOs" means notes or other instruments (other than CMOs) secured by
collateral consisting primarily of debt securities and/or other types of debt
obligations, including loans.
"CMOs" means notes or other instruments secured by collateral consisting
primarily of mortgages, mortgage-backed securities and/or other types of
mortgage-related obligations.
"Excluded Subsidiary" means any Subsidiary that is a Foreign Subsidiary,
non-Wholly-Owned Subsidiary or Immaterial Subsidiary.
"Foreign Subsidiary" means a Subsidiary (which may be a corporation,
limited liability company, partnership or other legal entity) organized under
the laws of a jurisdiction outside the United States, and conducting
substantially all its operations outside the United States, other than any such
entity that is (whether as a matter of law, pursuant to an election by such
entity or otherwise) treated as a partnership in which any Subsidiary is a
partner or as a branch of any Subsidiary for United States income tax purposes.
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"Modified Total Adjusted Capital" means, at any date, the aggregate Total
Adjusted Capital (as defined by each relevant Insurance Subsidiary's Department)
of the Insurance Subsidiaries taken as a whole, as determined as of such date;
provided that not more than $150,000,000 of anticipated future benefit of tax
loss carry-forwards may be included for purposes of determining Modified Total
Adjusted Capital at any date.
"Permitted Swap Obligations" means all obligations (contingent or
otherwise) of the Corporation or any Subsidiary existing or arising under Swap
Contracts, provided that each of the following criteria is satisfied: (a) such
obligations are (or were) entered into by such Person in the ordinary course of
business for the purpose of directly mitigating risks associated with
liabilities, commitments or assets held by such Person, or changes in the value
of securities issued by such Person in conjunction with a securities repurchase
program not otherwise prohibited under the Credit Agreement, and not for
purposes of speculation or taking a "market view;" and (b) such Swap Contracts
do not contain any provision ("walk-away" provision) exonerating the
non-defaulting party from its obligation to make payments on outstanding
transactions to the defaulting party.
"Permitted Transactions" means (a) mortgage-backed security transactions in
which an investor sells mortgage collateral, such as securities issued by the
Government National Mortgage Association and the Federal Home Loan Mortgage
Corporation for delivery in the current month while simultaneously contracting
to repurchase "substantially the same" (as determined by the Public Securities
Association and GAAP) collateral for a later settlement, (b) transactions in
which an investor lends cash to a primary dealer and the primary dealer
collateralizes the borrowing of the cash with certain securities, (c)
transactions in which an investor lends securities to a primary dealer and the
primary dealer collateralizes the borrowing of the securities with cash
collateral, (d) transactions in which an investor makes loans of securities to a
broker-dealer under an agreement requiring such loans to be continuously secured
by cash collateral or United States government securities and (e) transactions
in which a federal home loan mortgage bank (a "FHLMB") makes loans to an
Insurance Subsidiary, which are sufficiently secured by appropriate assets of
such Insurance Subsidiary consisting of government agency mortgage-backed
securities, in accordance with the rules, regulations and guidelines of such
FHLMB for its loan programs.
"Purchase Money Debt" means Indebtedness incurred by a Person in connection
with the purchase of fixed or capital assets by such Person, in which such
assets the seller or financier thereof has taken or retained a Lien therein;
provided that (x) any such Lien attaches to such assets concurrently with or
within 120 days after the purchase thereof by such Person and (y) at the time of
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incurrence of such Indebtedness, the aggregate principal amount of such
Indebtedness shall not exceed the costs of the assets so purchased plus fees and
expenses reasonably related thereto.
"Surplus Debentures" means, as to any Insurance Subsidiary, debt securities
of such Insurance Subsidiary issued to the Corporation or any other Subsidiary
the proceeds of which are permitted to be included, in whole or in part, as
Capital and Surplus of such Insurance Subsidiary as approved and permitted by
the applicable Department.
"United States" and "U.S." each means the United States of America.
"Wholly-Owned Subsidiary" means any corporation in which (other than
directors' and national citizen qualifying shares required by law) 100% of the
capital stock of each class having ordinary voting power, and 100% of the
capital stock of every other class, in each case (or, in the case of Persons
other than corporations, membership interests or other equity interests), at the
time as of which any determination is being made, is owned, beneficially and of
record, by the Corporation, or by one or more of the other Wholly-Owned
Subsidiaries, or both.
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IN WITNESS WHEREOF, the undersigned has signed this Certificate this
th day of September, 2003.
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CONSECO, INC
By:
--------------------------------------------
Name:
Title:
Attested By:
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Name:
Title:
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