EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis ("CD&A") describes the Company's executive compensation program and explains how the Human Resources
and Compensation Committee (the "Committee") made compensation decisions for the following Named Executive Officers (the "NEOs") in 2017:
|
|
|
Named Executive Officer
|
|
Position with the Company in 2017
|
Edward Bonach
|
|
Chief Executive Officer
|
Gary Bhojwani
|
|
President
|
Bruce Baude
|
|
Chief Operations & Technology Officer
|
Eric Johnson
|
|
Chief Investment Officer
|
Erik Helding
|
|
Chief Financial Officer
|
Mr. Bhojwani
became Chief Executive Officer on January 1, 2018, after being hired on April 18, 2016 and serving as President. Mr. Bhojwani succeeds
Mr. Bonach who served as Chief Executive Officer from October 1, 2011 to December 31, 2017, after joining as Chief Financial Officer in 2007. Additional details on the Chief
Executive Officer transition can be found on page 32.
EXECUTIVE SUMMARY
Our Business
CNO Financial Group, Inc. is a Fortune 1000 company, with $4.3 billion in total revenues for the year ending December 31,
2017. CNO Financial provides health and life insurance, as well as retirement solutions, to middle-income Americans through our family of insurance brands: Bankers Life, Colonial Penn and Washington
National.
Our
vision is to be the leader in meeting middle-income Americans' needs for financial security and readiness for the life of their retirement. Our strategic plan remains focused on
top-line growth and delivering long-term value for all our stakeholders. In the last year, the insurance sector continued to experience change, including innovative technology, economic shifts, the
Tax Cuts and Jobs Act (the "Tax Reform Act"), regulation changes and increased competition. These changes impact our associates, agents, customers and business. As we enter 2018, we continue to serve
the middle-income market through a diverse set of distribution and products. We will continue to grow the franchise by introducing new products and services and expanding to attract younger and
slightly more affluent customers that can also benefit from our product solutions. CNO also remains committed to reducing our relative long-term care exposure and deploying capital effectively.
2017 Business Highlights
In 2017, CNO demonstrated continued financial strength, with a double-digit increase in operating earnings, asset growth in our accumulation
businesses, and improvements in nearly all of our Growth Scorecard measures across the firm. Meaningful increases in first-year and total collected premiums were driven by strong annuity sales,
expanded customer reach, and pricing discipline. Sustained in-force policy counts and increased annuity account values indicate our ability to achieve enterprise growth through sales and the retention
of satisfied customers.
16
Table of Contents
Specific
results included first-year collected premiums up 2% over 2016 to $1,374.1 million, total collected premiums up 2% to $3,688.3 million, net income per diluted
share of $1.02 in 2017 compared to $2.01 in 2016, and net operating income per diluted share
1
up 19% to $1.75. Results reflect the one-time unfavorable impact of $172.5 million
related to the Tax Reform Act which was enacted in December 2017.
The
Tax Reform Act will be an ongoing benefit to the Company, with the estimated effective tax rate in the 21 to 23 percent range. Excluding the one-time unfavorable impacts of
the Tax Reform Act, full year 2017 net income was $348.1 million, or $2.02 per diluted share.
We
returned $227 million to shareholders in 2017, with $167 million in common stock repurchases and $60 million in common stock dividends. From the initiation of
our share buyback program in 2011, we have returned over $1.9 billion to shareholders.
Our
financial condition and capital generation continued to be strong in 2017. Our consolidated risk-based capital ratio was 446%, and book value per diluted share, excluding
accumulated other comprehensive income (loss)
1
, decreased to $21.43 at the end of 2017 from $22.02 at the end of 2016, reflecting the one-time unfavorable impact of the Tax Reform Act.
Our debt-to-total-capital ratio, excluding accumulated other comprehensive income
1
, at the end of 2017, was 20.1% compared to 19.1% at the end of 2016.
2017 Total Compensation Highlights
Our compensation programs are designed to attract, retain and motivate the executives who lead our Company. The Committee has established
programs and practices that align management's interests with those of the Company's shareholders, and thus help drive the creation of long-term shareholder value. We believe our compensation program
supports our belief in pay for performance by providing a significant amount of compensation in the form of equity, by balancing both short- and long-term incentives that are tied to Company
performance, and by delivering both fixed and variable compensation (pay-at-risk) in appropriate measure to retain and motivate our leaders, all of which are tied to our business results and market
practices. In 2017, our executive compensation program consisted of:
Long-Term
Incentive Compensation (LTI)
. We believe performance-based equity compensation aligns our NEOs to shareholder interests and helps drive long-term
shareholder value creation, while also facilitating the retention of key executive talent. In 2017, the Committee approved the following forms of equity compensation:
-
-
Annual equity awards are delivered in the form of Performance Shares ("P-Shares"), stock options and restricted stock units
("RSUs"):
-
-
One half of long-term compensation value was delivered in the form of P-Shares, which only pay out in Company stock if specific
levels of performance relative to Operating Return on Equity ("Operating ROE") and Relative Total Shareholder Return ("TSR") are achieved.
-
-
25 percent of long-term compensation value was delivered in the form of Stock Options, which allow executives to purchase
Company stock at a specific market price on the date of grant, thus encouraging executives to actions leading to long-term increases in the Company's stock price.
-
-
Beginning in 2017, 25 percent of long-term compensation value was delivered in the form of RSUs, which award stock to
executives after time-based restrictions are met, serving as a
1
For a definition and reconciliation of this measure to the corresponding measure under generally accepted accounting principles ("GAAP"), see "Information Related to Certain Non-GAAP
Financial Measures" on page 58 of this Proxy Statement.
17
Table of Contents
-
-
Mr. Bonach's 2017 long-term equity compensation comprised 65% of his total target compensation, while equity compensation
made up 47% for the other current NEOs, on average.
-
-
Time-based RSUs have also been used in certain circumstances to recognize high performance, high potential, retention of specific leaders, or
as an inducement to join our Company. In 2017:
-
-
Mr. Helding was granted 5,560 RSUs in recognition of his contributions and to ensure retention of his skills, ability and
leadership.
Annual
Cash Incentive
. Our annual incentive plan, the Pay for Performance or "P4P" Plan, is designed to focus on and reward achievement of annual performance
goals. It is the broadest of our management incentive programs, covering our NEOs and approximately 600 other key employees. All participants in the P4P plan, including our NEOs, are assigned target
incentive opportunities expressed as a percentage of base salary (pay-at-risk).
-
-
In 2017, Operating EPS and GAAP Revenue were metrics for all of our NEOs. Policies In-Force, Combined In-Force EBIT and Combined Value of New
Business ("VNB") were metrics for Messrs. Bonach, Bhojwani, Baude and Helding. GAAP Investment Yield and GAAP Investment Income were metrics for Mr. Johnson only.
-
-
In 2017, P4P
payouts ranged from 158.8% to 167.8% of target for our NEOs.
Base
Salary
. Base salary is the only fixed component of executive compensation and makes up the smallest percentage of total compensation.
-
-
In 2017, base salary (fixed compensation) represented 13% of total target compensation for Mr. Bonach.
-
-
For the remaining NEOs,
base salary represented 26% (on average) of total target compensation.
-
-
None of our NEOs received a merit base salary increase in 2017.
These
components delivered the following compensation for our NEOs in 2017:
NEO Compensation Delivered in 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
January 1, 2017
Base Salary
|
|
December 31, 2017
Base Salary
|
|
% Change
During 2017
|
|
2017
P4P
|
|
2017 Annual
LTI Grant
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Bonach
|
|
$
|
1,000,000
|
|
$
|
1,000,000
|
|
|
0.0%
|
|
$
|
2,875,713
|
|
$
|
5,016,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary Bhojwani
|
|
$
|
750,000
|
|
$
|
750,000
|
|
|
0.0%
|
|
$
|
1,573,194
|
|
$
|
1,254,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Baude
|
|
$
|
600,000
|
|
$
|
600,000
|
|
|
0.0%
|
|
$
|
964,114
|
|
$
|
877,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Johnson
|
|
$
|
500,000
|
|
$
|
500,000
|
|
|
0.0%
|
|
$
|
794,133
|
|
$
|
877,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Erik Helding
(2)
|
|
$
|
400,000
|
|
$
|
400,000
|
|
|
0.0%
|
|
$
|
503,422
|
|
$
|
1,120,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Expressed
as the aggregate grant date fair value of stock options, performance shares and restricted stock units granted in 2017.
-
(2)
-
Mr. Helding
received an additional 5,560 RSUs in recognition of his valuable contributions to the Company and for retention purposes.
18
Table of Contents
Maintaining Best Practices in Executive Compensation
The Committee strives to maintain best practices in corporate governance in our executive compensation programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
What We Do
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✔
|
|
|
|
Pay-for-Performance
: The majority of NEO target total compensation is tied to Company, Business-segment and/or individual
performance, and is therefore considered by the Company to be "Pay-at-Risk" (payouts contingent upon performance). For 2017, 87% of Mr. Bonach's target total compensation was at risk, as was 74% of all other NEOs target total compensation, on
average.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✔
|
|
|
|
Balanced View on Performance
: We take a balanced approach to measuring our performance by using both relative and absolute
performance measures in our compensation programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✔
|
|
|
|
Stock Ownership Guidelines
: In order to align our executives with shareholder interests, our CEO and all of his direct
reports (including the other NEOs) are required to maintain ownership levels in accordance with Company policy. The CEO is required to maintain ownership equal to 5x his base salary, while all other NEOs are required to maintain ownership equal to 3x
their base salaries. Until the guidelines are met, the officer is required to retain ownership of not less than one-half of the net shares of CNO common stock received, after payment of applicable taxes, upon the vesting or exercise of any equity
award. As of December 31, 2017, all NEOs have met or are within their allowable timeframes for meeting these guidelines.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✔
|
|
|
|
Double-Trigger Change-in-Control
: All employment agreements and equity award agreements for NEOs require a qualified
termination of employment in addition to a change in control of the Company in order for change in control benefits to be triggered.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✔
|
|
|
|
Strong Clawback Rights
: Our P4P and LTI plans have clawback provisions that include recapture rights of any incentive amount
paid or vested in the event that the Committee determines that the achievement of performance goals was based on incorrect data, errors, omissions or fraud.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✔
|
|
|
|
Independence of Executive Compensation Consultant (Aon Hewitt)
: The Committee has engaged an independent executive
compensation advisor, taking SEC and NYSE guidelines into consideration. Aon Hewitt has no business or personal relationships with our NEOs or Board members.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✔
|
|
|
|
Independence of Committee Members
: All Committee Members are independent of the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✔
|
|
|
|
Ongoing Succession Planning
: Throughout the year, the Committee regularly engages in in-depth discussions regarding
succession planning and talent development of our executives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✔
|
|
|
|
Strive to Understand Our Shareholders Views on Executive Compensation
: We had strong Say on Pay results from the 2017 Annual
Meeting, at which approximately 98% of the votes cast were for approval of the Company's 2016 executive compensation as described in last year's proxy statement.
|
|
|
|
|
|
|
|
|
|
|
|
Conversely,
there are several practices which we do not consider representative of good corporate governance, and therefore do not do.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
What We Do Not Do
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✘
|
|
|
|
No Supplemental Executive Retirement Plans
: We do not offer SERPs to our current executives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✘
|
|
|
|
No Significant Perquisites
: Our executives participate in broad-based Company-sponsored benefits programs on the same basis
as other full-time associates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✘
|
|
|
|
No Re-pricing of Stock Options
: Re-pricing of underwater stock options without shareholder approval is prohibited (except in
the event of certain permissible corporate events).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✘
|
|
|
|
No Hedging
: Senior Executives, including NEOs are prohibited from hedging activities related to our equity securities,
including holding shares in a margin account.
|
|
|
|
|
|
|
|
|
|
|
|
19
Table of Contents
Role of the Human Resources and Compensation Committee
The Committee determines the components and amount of compensation for our executive officers and provides overall guidance for our employee
compensation policies and programs. In addition, the Committee actively monitors our executive development and succession planning activities related to our senior executives and other officers.
Currently, four members of our Board of Directors sit on the Committee, each of whom is an independent director under the New York Stock Exchange listing requirements, the exchange upon which our
stock trades. From time to time, other Board members may also participate in the Committee's meetings, though these ad hoc participants do not participate in making pay decisions. The full Board of
Directors receives regular reports of Committee deliberations and decisions and, at least once annually, the full Board reviews the Committee's written evaluation of the Chief Executive Officer's
performance and compensation. The Committee's functions are more fully described in its charter, which can be found in the Investor Relations section of our website at
www.CNOinc.com
.
In
making executive compensation decisions, the Committee receives advice from its independent compensation consultant, Aon Hewitt. Although Aon Hewitt is retained directly by the
Committee, Aon Hewitt personnel interact with our executive officers as needed, specifically the Chief Executive Officer, Chief Human Resources Officer, General Counsel and their staffs to provide the
Committee with relevant compensation and performance data for our executives and the Company. In addition, Aon Hewitt personnel may interact with management to confirm information, identify data
questions, and/or exchange ideas.
As
requested by the Committee, Aon Hewitt's services to the Committee in 2017 included:
-
-
providing competitive analysis of total compensation components for our senior executive officers, including our NEOs;
-
-
researching and presenting competitive and emerging compensation practices and regulatory issues;
-
-
researching and reviewing CEO transition alternatives;
-
-
attending Committee meetings, in person and telephonically; and
-
-
reviewing and evaluating changes to the executive compensation philosophy and proposed plan changes.
The
Committee has the authority under its charter to retain outside consultants or other advisors. Part of that decision process is an assessment of the advisor's independence. Relative
to Aon Hewitt's independence the Committee took into account the independence factors determined by the SEC and NYSE. Included in the Committee's assessment of Aon Hewitt's independence for 2017 was
management's decision to engage Aon Risk
Services to assist in the placement of an Agents Errors and Omissions policy. Aon Risk Services received an estimated commission of $200,000 from the carrier of the insurance policy. Aon Risk Services
and Aon Hewitt are subsidiaries of Aon plc operating under separate management structures. The Committee considered that the brokerage services were provided by a related Aon plc entity
noting that the estimated commission of $200,000 was less than .01% of Aon plc's revenues and that Aon Hewitt and Aon Risk Services are separately managed subsidiaries of Aon plc. Fees
paid by CNO to Aon Hewitt for executive compensation advisory services were $244,335 in 2017. The Committee determined Aon Hewitt to be independent.
In
making its decisions, the Committee collects and considers input from multiple sources. The Committee may ask senior executive officers to attend Committee meetings where executive
compensation, overall and individual performance are discussed and evaluated. During these meetings, executives provide insight, suggestions or recommendations regarding executive compensation.
Deliberations generally occur with input from Aon Hewitt, members of management and other Board members. However, only the members of the Committee
20
Table of Contents
make
decisions regarding executive compensation. In the case of the Chief Executive Officer's compensation, these decisions are submitted to the full Board for its review and approval.
Philosophy and Objectives
Philosophy
The Committee, which is comprised solely of independent, non-employee Directors, has developed a philosophy and a comprehensive compensation
strategy to reward overall and individual performance that drives long-term success for our shareholders.
Our
compensation philosophy consists of the following guiding principles:
-
-
Pay for Performance
: Rewards will be
differentiated based on Company, business segment and individual performance.
-
-
Target Total Rewards Position
: The overall
rewards will be competitive by targeting compensation at approximately the median of the relevant comparator group with additional compensation for achieving superior performance.
-
-
Relevant Comparator Group
: We will utilize a
relevant comparator group of companies in the insurance/financial services industry and general industry where appropriate, taking both asset size and revenue into consideration, which includes the
best available data for comparison with our peers and companies with which we compete for executive talent.
Pay for Performance Objectives
The Committee strives to provide a clear reward program that allows us to attract, motivate and retain seasoned executive talent with the
significant industry experience required to continue to improve our performance and build long-term shareholder value. To achieve this, our programs are designed to:
-
-
reward operational and productivity improvements which are sustainable. This means that (1) we set performance goals under our P4P plan
at targeted performance levels for key financial metrics, and (2) we set multi-year performance goals for our P-Share (performance share) awards;
-
-
align the interests of our executives with those of our shareholders by rewarding shareholder value creation;
-
-
integrate with the Company-wide annual performance management program of individual goal setting and formal evaluation;
-
-
provide for discretion to make adjustments and modifications based upon how well individual executives meet our performance standards for
expected achievement of business results, as well as uphold our values and leadership behaviors; and
-
-
offer the opportunity to earn additional compensation when overall and individual performances exceed expectations.
Target Total Rewards and Selection of the Comparator Groups
In setting target executive compensation opportunities, the Committee looks at Base Salary, Total Annual Cash (which is comprised of base
salary and target cash incentives) and Total Direct Compensation (which is the sum of Total Annual Cash and long-term incentives). Our long-term incentives may include a combination of P-Shares, stock
option awards, and restricted stock units. The Committee intends to compensate our executives at
21
Table of Contents
approximately
the 50th percentile (meaning within a range of +/- 15% of the 50th percentile dollar value) for total direct compensation, for the achievement of target performance, with
additional compensation opportunities for the achievement of superior results.
The
Committee assesses "competitive market" compensation annually using a number of sources. In determining the competitive compensation levels, at the recommendation of the independent
compensation consultant, the Committee reviews targeted proxy data from a select group of peer companies identified below for the NEOs, and
also compares our other executives to the Diversified Insurance Study published by Willis Towers Watson. Both of these sources provide a more focused analysis of specific industry peers with whom the
Company competes for talent. We continued to use our peer companies for the NEOs as the relevant comparator group and all other executives have been compared to the Willis Towers Watson Diversified
Industry Study in 2017.
Peer Companies:
|
|
|
|
|
Aflac Incorporated
|
|
Primerica, Inc.
|
|
|
American Financial Group, Inc.
|
|
Principal Financial Group, Inc.
|
|
|
Arch Capital Group Ltd.
|
|
Reinsurance Group of America, Incorporated
|
|
|
Assurant, Inc.
|
|
The Hanover Insurance Group, Inc.
|
|
|
Cincinnati Financial Corporation
|
|
Torchmark Corporation
|
|
|
Genworth Financial, Inc.
|
|
Universal American Corp.
|
|
|
Horace Mann Educators Corporation
|
|
Unum Group
|
|
|
Kemper Corporation
|
|
Voya Financial, Inc.
|
|
|
Lincoln National Corporation
|
|
|
|
|
Although
aggregate pay levels are generally consistent with our compensation philosophy, it is possible that pay levels for specific individuals may be above or below the targeted
competitive benchmark levels based on a number of factors including: each individual's role and responsibilities within our Company, the individual's experience and expertise, the pay levels for peers
within the Company, and the pay levels for similar job functions in the marketplace. The Committee is responsible for approving all compensation programs for our senior executive officers. In
determining executive compensation, the Committee considers all forms of compensation and benefits, and uses appropriate tools and market studies to review the value delivered to each executive
through each component of compensation.
Our
studies provide a way for the Committee to examine external market practices and compare them to our internal evaluations and decisions. These studies capture and
report:
-
-
Competitive external market data on a base salary, Total Annual Cash and Total Direct Compensation basis;
-
-
Individual Total Annual Cash compensation including annual salary, target bonus opportunity, and actual bonus paid;
-
-
Long-term equity grants and their vesting status and value at a hypothetically established share price; and
-
-
Employment agreement terms and conditions.
22
Table of Contents
Competitive
market data is used as a reference point, and we avoid adjusting compensation based exclusively on a single year of competitive benchmarking data. We believe an executive's
compensation should reflect Company-specific factors such as: the relative importance of the role within the organization, the compensation for other positions at the same level, and individual
factors such as experience, expertise, and individual performance.
In
addition to the objective review of external factors, the Committee also considers internal equity among colleagues when determining executive compensation levels. This means that,
although the Committee examines competitive pay data for specific positions, market data is not the sole factor considered in setting pay levels. The Committee also considers factors such as our
organizational structure and the relative roles and responsibilities of individuals within that structure. The Committee believes that this approach fosters an environment of cooperation among
executives that enhances sales growth, profitability and customer satisfaction.
Realized
total compensation in any year may be significantly above or below targeted compensation levels depending on whether our incentive goals were attained and whether shareholder
value was created. In some cases, the amount and structure of compensation results from negotiations with executives at the time they were hired, which may reflect competitive pressures to attract and
hire quality executive talent in the insurance industry. To help attract and retain such talent, the Committee also seeks to provide a level of benefits in line with those of comparable publicly
traded companies without matching such benefits item by item.
23
Table of Contents
Compensation Components
Our compensation program is composed of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Compensation Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
Compensation
|
|
|
|
Component
|
|
|
|
Description
|
|
|
|
Why We Pay This
Component
|
|
|
|
How We Determine
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Pay
|
|
|
|
Base Salary
|
|
|
|
Fixed Cash Compensation
May be adjusted each year based on individual performance and relevant market data
|
|
|
|
To attract, motivate and retain top talent
|
|
|
|
Established using market data targeting 50
th
percentile of market
Adjusted up or down to reflect factors such as scope of position, responsibilities,
experience level, unique skills and competencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-At-Risk
(Annual)
|
|
|
|
Annual Cash Incentive (P4P)
|
|
|
|
Variable Cash Compensation
Earned based on Company, business-segment and individual financial and operational performance
|
|
|
|
To incentivize achievement of annual financial and operational performance goals
|
|
|
|
Established using market data targeting the 50
th
percentile of the market
Target incentive opportunities are expressed as a percentage of base
salary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-At-Risk
(Long-Term)
|
|
|
|
Performance Shares (P-Shares)
|
|
|
|
Equity Compensation
Earned based on achievement of performance goals at the end of a three-year performance period
Realizable value is variable based on long-term Company performance and stock price appreciation
|
|
|
|
To focus management on long-term Company performance
To balance the short-term focus of P4P by tying rewards to performance achieved over multi-year periods
To align the interests of management with shareholders
|
|
|
|
The Committee establishes compensation levels for equity compensation based on competitive market data
Individual awards may be adjusted up or down to reflect performance,
potential and other individual considerations
P-Shares account for 50% of the annual grant target, and were divided evenly between those tied to (1) Operating ROE and
(2) relative TSR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
|
Equity Compensation
Time-vested awards which generally vest over three years
Realizable value
is variable based on long-term stock price appreciation
|
|
|
|
To balance the short-term focus of P4P by tying rewards to performance achieved over multi-year periods
To focus management on long-term stock price appreciation
To align the interests of management with shareholders
|
|
|
|
The Committee establishes compensation levels for equity compensation based on competitive market data
Individual awards may be adjusted up or down to reflect performance,
potential and other individual considerations
Stock Options accounted for 25% of the annual target from a grant value perspective
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units (RSUs)
|
|
|
|
Equity Compensation
Time-vested awards which generally vest over three years
Realizable value
is variable based on long-term stock price appreciation
In addition to the annual grant, used selectively for retention and recognition
|
|
|
|
To encourage retention and reward for exceptional performance and/or potential
To balance the short-term focus of P4P by tying rewards to performance achieved over
multi-year periods
To align the interests of management with shareholders
|
|
|
|
The Committee establishes compensation levels for equity compensation based on competitive market data
Individual awards may be adjusted up or down to reflect performance,
potential and other individual considerations
RSUs accounted for 25% of the annual target from a grant value perspective
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below summarizes information about the target level of 2017 Total Annual Cash (TAC) and Total Direct Compensation (TDC) for our NEOs. This table differs from the Summary
Compensation Table on page 35 in that values generally represent target amounts and equity grants which are part of our normal long-term incentive program for 2017 only. Further detail about these
compensation components can be found later in this section.
24
Table of Contents
Summary of Components of TDC in 2017 at Target
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive
Officer
|
|
Base
Salary
|
|
Target
Incentive
(% of
Salary)
|
|
Target Total
Annual Cash
|
|
Stock Option
Value
(2)(3)
|
|
P-Share
Value
(2)
|
|
RSU
Value
(2)
|
|
Total LTI
Value
(2)
|
|
Target TDC
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Bonach
|
|
$
|
1,000,000
|
|
|
175%
|
|
$
|
2,750,000
|
|
$
|
1,097,391
|
|
$
|
2,749,109
|
|
$
|
1,170,094
|
|
$
|
5,016,594
|
|
$
|
7,766,594
|
|
% Change vs. 2016
|
|
|
0%
|
|
|
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
|
9%
|
|
|
9%
|
|
% of TDC
|
|
|
13%
|
|
|
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
|
|
65%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary Bhojwani
|
|
$
|
750,000
|
|
|
125%
|
|
$
|
1,687,500
|
|
$
|
274,363
|
|
$
|
687,277
|
|
$
|
292,523
|
|
$
|
1,254,163
|
|
$
|
2,941,663
|
|
% Change vs. 2016
|
|
|
0%
|
|
|
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
-74%
|
|
|
-55%
|
|
% of TDC
|
|
|
25%
|
|
|
|
|
|
57%
|
|
|
|
|
|
|
|
|
|
|
|
43%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Baude
|
|
$
|
600,000
|
|
|
100%
|
|
$
|
1,200,000
|
|
$
|
192,023
|
|
$
|
480,946
|
|
$
|
204,703
|
|
$
|
877,672
|
|
$
|
2,077,672
|
|
% Change vs. 2016
|
|
|
0%
|
|
|
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
-27%
|
|
|
-14%
|
|
% of TDC
|
|
|
29%
|
|
|
|
|
|
58%
|
|
|
|
|
|
|
|
|
|
|
|
42%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Johnson
|
|
$
|
500,000
|
|
|
100%
|
|
$
|
1,000,000
|
|
$
|
192,023
|
|
$
|
480,946
|
|
$
|
204,703
|
|
$
|
877,672
|
|
$
|
1,877,672
|
|
% Change vs. 2016
|
|
|
0%
|
|
|
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
2%
|
|
|
1%
|
|
% of TDC
|
|
|
27%
|
|
|
|
|
|
53%
|
|
|
|
|
|
|
|
|
|
|
|
47%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Erik Helding
|
|
$
|
400,000
|
|
|
75%
|
|
$
|
700,000
|
|
$
|
219,491
|
|
$
|
549,723
|
|
$
|
351,070
|
|
$
|
1,120,284
|
|
$
|
1,820,284
|
|
% Change vs. 2016
|
|
|
0%
|
|
|
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
53%
|
|
|
27%
|
|
% of TDC
|
|
|
22%
|
|
|
|
|
|
38%
|
|
|
|
|
|
|
|
|
|
|
|
62%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Annual
Incentive expressed as Target levels as of award date; value of equity expressed as grant date fair value.
-
(2)
-
Represents
stock option, performance share and restricted stock unit aggregate grant date fair values granted in 2017; actual value realized will depend on stock
price appreciation and achievement of performance metrics at time of vesting. Valuation methodology is discussed later in this Proxy Statement.
-
(3)
-
The
amounts shown for the 2017 stock option grants reflect the grant date fair value in accordance with ASC 718. See the explanation in the Impact of Tax and
Accounting on Compensation section.
-
(4)
-
Target
TDC includes Target TAC and the Total LTI Value provided at the time of the annual grant.
In
delivering total direct compensation to our NEOs, the Company provided both fixed (base salary) and variable (cash and equity incentives) compensation to the NEOs in 2017. The vast
majority of compensation awarded to NEOs in 2017 is at risk to the executive because the compensation value that is actually paid may vary from the target compensation value that was awarded by the
Compensation Committee and the payment is dependent on Company, business segment and individual performance. The amount of total target compensation at risk was significantly more than the amount of
base salary. Also, the majority of total target compensation awarded in 2017 to each NEO was in the form of equity. The equity awarded to Mr. Bhojwani in 2017 was lower than the prior year due
to the awards made in 2016 in connection with his hiring, while the equity awarded to Mr. Helding (who was promoted to CFO in April 2016) in 2017 was higher than the prior year,
reflecting a full year of service in 2017 as CFO. The following charts show each element of 2017 target NEO compensation,
25
Table of Contents
including
the mix of short-term and long-term incentives, as well as the amount of "Pay-at-Risk" for the CEO and for the other NEOs (on average):
Base Salaries
Although the Committee begins by targeting the 50th percentile of the competitive market, base salaries may range from the
25th percentile (for recently promoted employees or those who otherwise have less experience in the current position) to the 75th percentile (for high performers with significant
industry experience) of the competitive market data.
Annual reviews of executives' base salaries consider numerous factors, including:
-
-
Comparison to market data;
-
-
Mix of compensation;
-
-
Job role and
responsibility;
-
-
Individual leadership, experience and expertise;
-
-
Individual historical performance, retention, and
future potential;
-
-
Competitive labor market pressures; and
-
-
Internal equity of peers.
No
specific weighting of these factors is used. However, given our desire for a performance-based culture, the Committee's use of discretion generally results in increases for our top
performers and little or no increases in base salary for average or lower performing employees.
There
is no expectation on the part of the Committee for senior executives to receive base salary increases annually. In 2017 there were no base salary increases provided to our NEOs.
Annual Cash Incentives
Our annual incentive plan, the "Pay for Performance" Plan (P4P) is the broadest of our management incentive programs, covering our NEOs and
other key employees. All participants in the P4P plan, including our NEOs, are assigned target incentive opportunities expressed as a percentage of base salary.
26
Table of Contents
During February 2017, the Committee reviewed the P4P plan design for 2017 in order to ensure alignment between shareholder and participant
interests, to keep senior executives focused on the financial performance of the enterprise, to improve alignment with financial metrics that participants influence and to select operational/business
metrics that drive financial success, balancing between earnings and revenue growth. This review was accomplished by focusing on the selection of appropriate performance metrics and the determination
of performance levels which would contribute to financial success. As a result of this review, most performance metrics and weightings remained the same. Metrics which continued to be part of the 2017
incentive plans applicable to all NEOs
2
included:
-
-
Operating Earnings Per Share (EPS)
, defined as operating income (net of tax) divided by the weighted average
number of diluted shares outstanding. Operating earnings exclude the impact of realized gains (losses), loss on extinguishment or modification of debt, fair value changes due to fluctuations in the
interest rates used to discount embedded derivatives related to our fixed index annuities, fair value changes related to the agent deferred compensation plan, changes to our valuation allowance for
deferred taxes and other non-operating items consisting primarily of earnings attributable to variable interest entities. The Committee believes Operating EPS is a key measure of our operating
performance, is less impacted by events that are unrelated to the underlying fundamentals of the business and is directly impacted by management during the calendar year.
-
-
Combined and/or Business Segment In-force Earnings Before Interest and Taxes (EBIT)
, where Combined In-force EBIT
is the sum of individual business segment In-force EBIT. In-force EBIT includes pre-tax revenues and expenses associated with the sales of insurance products that were completed more than one year
before the end of the reporting period, but excludes the impact of realized gains (losses), and fair value changes due to fluctuations in the interest rates used to discount embedded derivatives
related to our fixed index annuities. In the Committee's view, this metric enhances line of sight for our operating management and increases their focus on improving the longer-term core profitability
of our operations. In-force EBIT excludes the impacts of activities related to the generation of New Business.
-
-
Combined and/or Business Segment Value of New Business (VNB)
, which calculates the present value of expected
profits from product sales. The selection of VNB is based on the Committee's desire to have a focus on growing through sales of profitable products as opposed to rewarding only top-line sales growth.
-
-
GAAP Revenue
, which is defined as reported revenue in CNO's 10-K, after elimination of items that are considered
to be non-operating in nature (such as realized gains (losses)) and revenues that are offset by corresponding expenses (such as revenues related to call options associated with our fixed indexed
annuities, the rabbi trust related to a deferred compensation plan and the transitional services agreement relating to the sale of a former subsidiary).
-
-
Policies In-Force,
which is defined as the number of policies for which a reserve has been established (and third
party counts for policies sold by Bankers agents). This metric not only aligns P4P participants to CNO's strategic focus on customer growth, but also retention and persistency, as well as external
stakeholders' expectations in this important growth area for the Company.
-
-
GAAP Investment Yield,
which is defined as period investment income (net of investment expenses) divided by
average invested assets for the same period.
2
Operating EPS and GAAP Revenue were applicable to Mr. Johnson in common with the other NEOs; GAAP Investment Yield and GAAP Investment Income applied exclusively to him.
27
Table of Contents
-
-
GAAP Investment Income,
which is defined as the income earned on general account invested assets, net of
investment expenses.
Our
P4P plan design rewards a threshold level of financial performance which corresponds to 50% of a target payout; target level of performance which provides 100% of target payout; and
a maximum level of performance which provides a payout of 200% of target. Any payout between these financial performance goals is determined through straight line interpolation between the appropriate
levels of performance. Consistent with our compensation philosophy, target annual incentive levels are established to generate Total Annual Cash compensation at competitive market median levels.
The
Committee administered the P4P and long-term incentive plans for 2017 so that payments qualify as "performance-based compensation" under Section 162(m) of the Internal
Revenue Code. However, the Committee
does reserve the right to make awards that do not qualify as "performance-based compensation" under Section 162(m) to the extent it deems it advisable to do so.
The
table below summarizes the 2017 financial metrics and weightings for our NEOs under the P4P plan.
Summary of 2017 P4P Metrics and Weightings for NEOs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measures
|
|
|
|
|
Edward Bonach
|
|
|
Gary Bhojwani
|
|
|
Bruce Baude
|
|
|
Eric Johnson
|
|
|
Erik Helding
|
|
|
|
|
Operating EPS
|
|
|
|
|
40
|
%
|
|
40
|
%
|
|
30
|
%
|
|
40
|
%
|
|
40
|
%
|
|
|
|
Policies In-Force
|
|
|
|
|
10
|
%
|
|
10
|
%
|
|
10
|
%
|
|
--
|
|
|
10
|
%
|
|
|
|
GAAP Revenue
|
|
|
|
|
20
|
%
|
|
20
|
%
|
|
20
|
%
|
|
15
|
%
|
|
20
|
%
|
|
|
|
Combined In-Force EBIT
|
|
|
|
|
20
|
%
|
|
20
|
%
|
|
20
|
%
|
|
--
|
|
|
20
|
%
|
|
|
|
Combined VNB
|
|
|
|
|
10
|
%
|
|
10
|
%
|
|
20
|
%
|
|
--
|
|
|
10
|
%
|
|
|
|
GAAP Investment Yield
|
|
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
25
|
%
|
|
--
|
|
|
|
|
GAAP Investment Income
|
|
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
20
|
%
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The primary purpose of P4P is to reward for core annual operating performance. Under the terms of the Pay for Performance Plan (P4P Plan) as
approved by shareholders, the Committee has the authority to adjust performance goals or results for various items as needed to properly reflect the year's operating results.
The
Committee takes into account a number of factors in setting incentive performance targets as well as the threshold and maximum levels. These factors include Company business plans
and current forecasts, historical performance, incentive practices used by peer companies and analyst expectations. The Committee believes that the range of performance goals for the P4P metrics
provide appropriate stretch. After reviewing these factors, the Committee determined that participants with corporate measures would have the same threshold and maximum performance levels.
The
table below provides a summary of 2017 performance targets and actual results for our NEOs under the P4P plan. The 2017 P4P plan had a minimum performance criteria in order to be
funded if the Company's Combined In-force EBIT for 2017 equaled or exceeded $287.5 million, excluding any gain or loss associated with any reinsurance or similar
transaction involving the long-term care business, the maximum potential P4P award becomes funded for the NEOs under the purview of the Committee.
28
Table of Contents
Summary of 2017 P4P Performance Targets and Actual Results for NEOs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Targets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measures
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
2017 Results
|
|
|
|
|
Operating EPS
|
|
$1.25
|
|
$1.29
|
|
$1.58
|
|
$1.75
|
|
|
|
|
Policies In-Force
|
|
3,425,000
|
|
3,493,800
|
|
3,650,000
|
|
3,486,400
|
|
|
|
|
GAAP Revenue
|
|
$3,807.1 MM
|
|
$3,965.7 MM
|
|
$4,124.3 MM
|
|
$4,028.3 MM
|
|
|
|
|
Combined In-Force EBIT
|
|
$575.0 MM
|
|
$596.2 MM
|
|
$720.0 MM
|
|
$705.0 MM
|
|
|
|
|
Combined VNB
|
|
$69.0 MM
|
|
$72.3 MM
|
|
$80.0 MM
|
|
$74.5 MM
|
|
|
|
|
GAAP Investment Yield
|
|
5.45%
|
|
5.55%
|
|
5.85%
|
|
5.63%
|
|
|
|
|
GAAP Investment Income
|
|
$1,200.0 MM
|
|
$1,232.9 MM
|
|
$1,350.0 MM
|
|
$1,268.8 MM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below provides the threshold, target and maximum payouts for 2017 for each of our NEOs under the P4P plan.
Summary of 2017 P4P Opportunities for NEOs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Threshold Payout
(% of Salary)
|
|
Target Payout
(% of Salary)
|
|
Maximum Payout
(% of Salary)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Bonach
|
|
87.5%
|
|
175%
|
|
350%
|
|
|
|
|
Gary Bhojwani
|
|
62.5%
|
|
125%
|
|
250%
|
|
|
|
|
Bruce Baude
|
|
50.0%
|
|
100%
|
|
200%
|
|
|
|
|
Eric Johnson
|
|
50.0%
|
|
100%
|
|
200%
|
|
|
|
|
Erik Helding
|
|
37.5%
|
|
75%
|
|
150%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below sets forth the actual bonuses paid out for 2017 to the NEOs pursuant to our P4P plan.
2017 P4P Target and Actual Bonuses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
|
Target Amount
|
|
|
Actual Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Bonach
|
|
$
|
1,713,699
|
|
$
|
2,875,713
|
|
|
|
|
Gary Bhojwani
|
|
$
|
937,500
|
|
$
|
1,573,194
|
|
|
|
|
Bruce Baude
|
|
$
|
600,000
|
|
$
|
964,114
|
|
|
|
|
Eric Johnson
|
|
$
|
500,000
|
|
$
|
794,133
|
|
|
|
|
Erik Helding
|
|
$
|
300,000
|
|
$
|
503,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Equity Incentives
Under the Amended and Restated Long-Term Incentive Plan, the Committee may grant a variety of long-term incentive awards, including stock
options, stock appreciation rights, restricted stock or restricted stock units, and performance shares or units, settled in cash or stock.
Unless
otherwise noted, grants to our NEOs have vesting schedules identical to those for other executives. To be eligible to vest in long-term equity incentive awards, associates must
continue to work for us through the vesting dates or satisfy the definition of Retirement, Death or Disability.
29
Table of Contents
The
Committee assesses aggregate share usage and dilution levels in comparison to general industry norms. Through this method, the Committee believes it is mindful of total cost, grants
awards that are competitive within the market, promotes internal equity and reinforces our philosophy of pay for performance.
The
Committee reviews and approves individual grants for the NEOs as well as all stock options, performance share (P-Share) grants and any restricted stock unit (RSU) awards made to
other executives under the purview of the Committee. Annual grants for all officers are reviewed and approved at the Committee's scheduled meeting at approximately the same time each year. Stock
options may be granted only with an exercise price at or above the closing market price of our common stock on the date of grant (Fair Market Value). Interim or off-cycle grants are reviewed and
approved by the Committee as circumstances warrant. The Chief Executive Officer has been authorized by the Committee to utilize a designated number of shares each year to grant equity awards to
non-Section 16 executives to attract, reward, motivate and/or retain such employees, as deemed appropriate by the CEO. Such awards are regularly reviewed by the Committee.
The Committee established the annual target for all long-term equity incentive grants based on competitive market data. The approach was
intended to deliver median Total Direct Compensation using a combination of stock options, P-Shares, and RSUs. In the 2017 annual grant, the Committee used a 30-day
average of our stock price to calculate the number of shares granted to each executive and continued to use a Black-Scholes valuation model for stock options.
RSUs
were added to the annual long-term incentive grant in 2017. Utilizing RSUs is a prevalent market practice and aids in the retention and recognition of executives, while supporting
long-term planning and strategic thinking. Providing RSUs in the annual grant helps align the interests of management with shareholders. In 2017, RSU awards to NEOs were payable only if the Company's
Combined In-force EBIT equaled or exceeded $287.5 million, excluding any gain or loss associated with any reinsurance or similar transaction involving the long-term care business.
In
2017, the Committee approved the mix of award grants as 50% P-Shares, 25% stock options and 25% RSUs. This mix of long-term equity incentives focuses on performance elements and
better aligns our long-term compensation with generating shareholder value. The P-Shares awarded in 2017 required a threshold-level performance of 50% of the target award, and the upside opportunity
for maximum performance was 200% of the target award. Dividends are paid on previously granted shares of restricted stock prior to vesting, and dividend equivalents are paid on P-Shares and RSUs upon
vesting.
The
table below shows the annual equity awards granted to our NEOs in 2017.
2017 Annual Equity Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 Equity Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Stock Options
(1)
|
|
Performance Shares
|
|
Restricted Stock Units
|
|
|
|
|
Edward Bonach
|
|
176,990
|
|
111,120
|
|
55,560
|
|
|
|
|
Grant Date Fair Value
|
|
$1,097,391
|
|
$2,749,109
|
|
$1,170,094
|
|
|
|
|
Gary Bhojwani
|
|
44,250
|
|
27,780
|
|
13,890
|
|
|
|
|
Grant Date Fair Value
|
|
$274,363
|
|
$687,277
|
|
$292,523
|
|
|
|
|
Bruce Baude
|
|
30,970
|
|
19,440
|
|
9,720
|
|
|
|
|
Grant Date Fair Value
|
|
$192,023
|
|
$480,946
|
|
$204,703
|
|
|
|
|
Eric Johnson
|
|
30,970
|
|
19,440
|
|
9,720
|
|
|
|
|
Grant Date Fair Value
|
|
$192,023
|
|
$480,946
|
|
$204,703
|
|
|
|
|
Erik Helding
(2)
|
|
35,400
|
|
22,220
|
|
16,670
|
|
|
|
|
Grant Date Fair Value
|
|
$219,491
|
|
$549,723
|
|
$351,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
amounts shown for the 2017 stock option grants reflect the aggregate grant date fair value in accordance with ASC 718. See the explanation in the
Impact of Tax and Accounting on Compensation Decisions section below.
-
(2)
-
Mr. Helding's
2017 grant included an additional grant of RSUs in recognition of his continued valuable contributions.
30
Table of Contents
Long-Term Incentive Program Performance for Awards Granted in 2015, 2016 and 2017
P-Shares for the 2015 2017 grant were evenly split (50% / 50%) between three-year average Operating ROE and
relative TSR. The Committee believed that the combination of the two metrics would focus management on improving long-term earnings growth and creating value for shareholders. For
the 2015 2017 grant, we intended to deliver compensation at the 50th percentile of the relevant comparator group at target performance.
In
calculating the Operating ROE for 2017, the Committee excluded the one-time unfavorable impact of $172.5 million incurred in the fourth quarter of 2017 related to the Tax
Reform Act. This positively impacted the Company achievement of three-year average Operating ROE of 9.75% (the target was 9.25%). Three-year average TSR performance produced a result of 15.6%. The TSR
P-Share results placed us at the 41
st
percentile of our peer group and the Operating ROE P-Share result was above target. Accordingly, 82% of the TSR P-Shares and 166% of the
three-year average Operating ROE P-Shares vested from this grant. Mr. Bonach's Operating ROE P-Shares performance target was higher than the other NEOs 9.43%
resulting in a payout of 156%, which was slightly below the result for other NEOs. His relative TSR P-Shares had the same performance target as the other NEOs.
The
table below shows actual Operating ROE and relative TSR P-Share vesting for NEOs related to the 2015 2017 award.
2015 2017 P-Share Award Vesting for NEOs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Measure
|
|
|
P-Shares Granted
|
|
|
P-Share
Opportunity Earned
(% of Target)
|
|
|
P-Shares Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Bonach
|
|
Operating ROE
|
|
|
54,420
|
|
|
156
|
%
|
|
84,653
|
|
|
|
|
|
|
Relative TSR
|
|
|
54,420
|
|
|
82
|
%
|
|
44,624
|
|
|
|
|
Bruce Baude
|
|
Operating ROE
|
|
|
9,895
|
|
|
166
|
%
|
|
16,448
|
|
|
|
|
|
|
Relative TSR
|
|
|
9,895
|
|
|
82
|
%
|
|
8,114
|
|
|
|
|
Eric Johnson
|
|
Operating ROE
|
|
|
9,895
|
|
|
166
|
%
|
|
16,448
|
|
|
|
|
|
|
Relative TSR
|
|
|
9,895
|
|
|
82
|
%
|
|
8,114
|
|
|
|
|
Erik Helding
|
|
Operating ROE
|
|
|
2,805
|
|
|
166
|
%
|
|
4,663
|
|
|
|
|
|
|
Relative TSR
|
|
|
2,805
|
|
|
82
|
%
|
|
2,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Mr. Bhojwani was not employed by the Company and Mr. Helding was not an executive officer at the time of the
2015 2017 P-Share Grant.
The 2016 2018 grant was evenly split between three-year average Operating ROE, with a 9.5% target for all NEOs, and
relative TSR for our comparator group, targeting the 50
th
percentile for target performance.
The
2017 2019 grant was evenly split between three-year average Operating ROE, using an 8.25% target, and relative TSR for our comparator group, targeting
the 50
th
percentile for target performance.
Continuing
the use of relative Total Shareholder Return in the 2016 2018 and 2017 2019 grants provides an incentive to CNO
executives to deliver shareholder value by outperforming our peers. The Company's
31
Table of Contents
relative
TSR will be ranked for the 2016 2018 and 2017 2019 performance periods against the following TSR performance peers, derived from common
industry companies and those companies with competing products:
|
|
|
2016 2018 and 2017 2019 TSR Performance Peers
|
Aflac, Inc.
|
|
Kemper Corporation
|
American Financial Group, Inc.
|
|
Lincoln National Corp.
|
Arch Capital Group
|
|
Metlife, Inc.
|
Assurant, Inc.
|
|
Primerica, Inc.
|
Cincinnati Financial Corporation
|
|
Principal Financial Group, Inc.
|
Genworth Financial, Inc.
|
|
Prudential Financial, Inc.
|
Hanover Insurance Group, Inc.
|
|
Reinsurance Group of America. Incorporated
|
Hartford Financial Services
|
|
Torchmark Corporation
|
Horace Mann Educators
|
|
Unum Group
|
|
|
Voya Financial, Inc.
|
The
table below shows the opportunities for NEOs related to P-Share vesting, depending on the level of performance achieved in relation to the associated grant metrics.
2016 2018 and 2017 2019 P-Share Opportunities for NEOs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
|
Threshold (as a % of
Granted P-Shares)
|
|
|
Target (as a % of Granted
P-Shares)
|
|
|
Maximum (as a % of
Granted P-Shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward Bonach
1
|
|
|
50
|
%
|
|
100
|
%
|
|
200
|
%
|
|
|
|
Gary Bhojwani
2
|
|
|
50
|
%
|
|
100
|
%
|
|
200
|
%
|
|
|
|
Bruce Baude
|
|
|
50
|
%
|
|
100
|
%
|
|
200
|
%
|
|
|
|
Eric Johnson
|
|
|
50
|
%
|
|
100
|
%
|
|
200
|
%
|
|
|
|
Erik Helding
|
|
|
50
|
%
|
|
100
|
%
|
|
200
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
1
-
Under
the terms of the P-Share awards, Mr. Bonach will be entitled to receive a pro rata payout of the 2016 2018 and
2017 2019 grants in connection with his retirement.
-
2
-
Mr. Bhojwani
was not employed by the Company at the time of the 2016 2018 grant; he did receive a
2017 2019 grant.
Benefits
Our NEOs are eligible to participate in all of the broad-based Company-sponsored benefits programs on the same basis as other full-time
employees. These include our health and welfare benefits, such as our medical/dental plans, disability plans and life insurance. We do not offer any supplemental executive health and welfare programs.
Executives may also participate in our 401(k) Plan. The Company also has a non-qualified deferred compensation plan. This plan is primarily intended as a "restoration" plan, giving participants the
ability to defer their own compensation above the Internal Revenue Service limits imposed on the 401(k) Plan. P-Shares and RSUs may also be deferred into a deferred compensation plan. At present, we
do not make annual contributions to the non-qualified deferred compensation plan in addition to the amounts contributed by our executives.
CEO Transition
On December 31, 2017, Ed Bonach retired as CNO's Chief Executive Officer and was replaced by Gary Bhojwani who was serving as CNO's
President. Mr. Bhojwani's appointment was the result of the Board's ongoing succession planning process. Mr. Bonach was awarded a bonus of $1,000,000 in recognition of the successful
transition of his CEO responsibilities. Effective January 1, 2018, the Board increased Mr. Bhojwani's base salary to $1,000,000 and increased his target annual bonus to 150% of his
annual base salary. In connection with his promotion to CEO, the Board also agreed to grant restricted stock units with a value of $2,000,000 in addition to the annual awards made under the Plan in
2018.
32
Table of Contents
Additional Information
It
violates our policy for any senior personnel to purchase, sell or engage in any other transaction involving any derivative securities or hedging related to any of our equity
securities. This prohibition does not, however, apply to any exercise of our stock options pursuant to our Amended and Restated Long-Term Incentive Plan or any other benefit plans that we may adopt
from time to time, any sale of our stock in connection with any cashless exercise (if otherwise permitted), or payment of withholding tax upon the exercise, of any such stock option.
Our Amended and Restated Long-Term Incentive Plan contains a clawback provision relating to our long-term equity awards: stock options,
P-Shares and restricted stock units. Under this clawback provision, if our financial statements are required to be restated as a result of errors, omissions, or fraud, the Committee may, at its
discretion, based on the facts and circumstances surrounding the restatement, direct the recovery of all or a portion of an equity award from one or more executives with respect to any fiscal year in
which our financial results are negatively affected by such restatement. To do this, we may pursue various ways to recover awards from one or more executives: (1) seek repayment from the
executive; (2) reduce the amount that would otherwise be payable to the executive under another benefit plan; (3) withhold future equity grants, bonus awards, or salary increases; or
(4) take any combination of these actions.
Our
Pay for Performance (P4P) Plan contains recapture rights of any incentive amount paid or vested in the event that the Committee determines that the achievement of performance goals
was based on incorrect data.
As a general matter, the Committee considers the various tax and accounting implications of our compensation vehicles.
When
determining amounts of long-term equity incentive grants to executives and employees, the Committee considers the accounting cost associated with the grants. Under FASB ASC Topic
718, grants of stock options, restricted stock, restricted stock units and other share-based payments result in an accounting charge that is reflected in our financial statements.
In
2017, Section 162(m) of the Internal Revenue Code generally prohibited any publicly held corporation from taking a federal income tax deduction for compensation paid in excess
of $1 million in any taxable year to the chief executive officer and the next three highest compensated officers excluding the chief financial officer. Exceptions are made for qualified
performance-based compensation, among other things. It is the Committee's policy to maximize the effectiveness of our executive compensation plans in this regard. However, the Committee believes that
compensation and benefits decisions should be primarily driven by the needs of the business, rather than by tax policy. Therefore, the Committee may make pay decisions (such as the determination of
the Chief Executive Officer's base salary) that result in compensation expense that is not fully deductible under Section 162(m). The Committee administered our incentive plans for 2017 so that
payments qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code.
Under the terms of award agreements under our equity-based compensation plans and under our employment agreements, the NEOs are entitled to
payments and benefits upon the occurrence of specified events including termination of employment for various reasons. The specific terms of these arrangements, as well as an estimate of the
compensation that would have been payable had they been triggered as of fiscal year-end, are described in the section entitled "Potential Payments Upon Termination or Change in Control" on page 42.
The terms of these arrangements were set through the course of employment agreement negotiations with each of the
33
Table of Contents
NEOs,
with an emphasis on internal consistency. The potential payments upon a change in control for the CEO and his direct reports are three times and two times, respectively, their annual base salary
plus target bonus, to align with market best practices. A double trigger, both change in control and termination, continues to be required before such payments are made.
The
termination of employment provisions of the employment agreements were entered into in order to address competitive concerns when the NEOs were recruited. Providing those
individuals with a fixed amount of compensation offset the potential risk of leaving their prior employer or foregoing other opportunities in order to work for us. At the time of entering into these
arrangements, the Committee considered our aggregate potential
obligations in the context of the desirability of hiring the individual and the expected compensation upon joining us.
OTHER MATTERS
Management knows of no other matters which may be presented at the Annual Meeting. If any other matters should properly come before the meeting
or any adjournment or postponement thereof, the persons named in the form of proxy will vote in accordance with their best judgment on such matters.
|
|
|
|
|
By Order of the Board of Directors
Karl W. Kindig
Senior Vice President and Secretary
|
March 28,
2018
60
Table of Contents
Annex A
CNO FINANCIAL GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I.
PURPOSE, SCOPE AND ADMINISTRATION OF THE PLAN
1.1
Purpose
and Scope
. The purpose of the CNO Financial Group, Inc. Employee Stock Purchase Plan, as it may be amended from
time to time, (the "
Plan
") is to assist employees of CNO Financial Group, Inc., a Delaware corporation, (the "
Company
") and its
Designated Subsidiaries in acquiring a stock ownership interest in the Company pursuant to a plan which is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code
and to help such employees provide for their future security and to encourage them to remain in the employment of the Company and its Subsidiaries.
ARTICLE II.
DEFINITIONS
Whenever
the following terms are used in the Plan, they shall have the meaning specified below unless the context clearly indicates to the contrary. The singular pronoun shall include
the plural where the context so indicates.
2.1
"
Agent
" means the brokerage firm, bank or other financial institution, entity or person(s), if any, engaged, retained, appointed or authorized to act as
the agent of the Company or an Employee with regard to the Plan.
2.2
"
Administrator
" shall mean the Committee, or such individuals to which authority to administer the Plan has been delegated under Section 7.1
hereof.
2.3
"
Board
" shall mean the Board of Directors of the Company.
2.4
"
Code
" shall mean the Internal Revenue Code of 1986, as amended.
2.5
"
Committee
" shall mean the Human Resources and Compensation Committee of the Board (or any successor committee), or such other committee as designated
by the Board.
2.6
"
Common Stock
" shall mean the common stock of the Company, par value $0.01 USD per share.
2.7
"
Company
" shall have such meaning as set forth in Section 1.1 hereof.
2.8
"
Designated Subsidiary
" shall mean each Subsidiary that has been designated by the Board or Committee from time to time in its sole discretion as
eligible to participate in the Plan.
2.9
"
Effective Date
" means March 8, 2018, the date the Plan was approved by the Board.
2.10
"
Eligible Employee
" shall mean an Employee who, after the granting of the Option would not be deemed for purposes of Section 423(b)(3) of the
Code to possess five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any Subsidiary. The rules of Section 424(d) of the Code with
regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock which an Employee may purchase under outstanding options shall be treated as
stock owned by the Employee. Notwithstanding the foregoing, the Administrator may exclude from participation in the Plan as an Eligible Employee (x) any Employee that is a "highly compensated
employee" of the Company or any Designated Subsidiary (within the meaning of Section 414(q) of the Code), or that is such a "highly compensated employee" (A) with compensation above a
specified level, (B) who is an officer and/or (C) is subject to the
A-1
Table of Contents
disclosure
requirements of Section 16(a) of the Exchange Act and/or (y) any Employee who is a citizen or resident of a foreign jurisdiction (without regard to whether they are also a
citizen of the United States or a resident alien (within the meaning of Section 7701(b)(1)(A) of the Code)) if either (i) the grant of the Option is prohibited under the laws of the
jurisdiction governing such Employee, or (ii) compliance with the laws of the foreign jurisdiction would cause the Plan or the Option to violate the requirements of Section 423 of the
Code and/or (z) any Employee who has been employed by the Company or a Designated Subsidiary for less than a period specified by the Administrator (such period not to exceed two years);
provided
that any exclusion in clauses (x), (y) and/or (z) shall be applied in an identical manner under each Offering Period
commencing after the date of the Administrator's action to all Employees of the Company and all Designated Subsidiaries, in accordance with Treasury Regulation Section 1.423-2(e). An Eligible
Employee shall not include Employees whose customary employment is less than twenty-one (21) hours per week or Employees whose customary employment is for not more than five months in a
calendar year.
2.11
"
Employee
" shall mean any person who renders services to the Company or a Designated Subsidiary in the status of an employee within the meaning of
Section 3401(c) of the Code. "Employee" shall not include any director of the Company or a Designated Subsidiary who does not render services to the Company or a Designated Subsidiary in the
status of an employee within the meaning of Section 3401(c) of the Code. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on
military leave, sick leave or other leave of absence approved by the Company or Designated Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-1(h)(2). Where the period
of leave exceeds three (3) months, or such other period specified in Treasury Regulation Section 1.421-1(h)(2), and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed to have terminated on the first day immediately following such three (3)-month period, or such other period specified in Treasury
Regulation Section 1.421-1(h)(2).
2.12
"
Enrollment Date
" shall mean the first date of each Offering Period.
2.13
"
Exercise Date
" shall mean the last Trading Day of each Offering Period, except as provided in Section 5.2 hereof.
2.14
"
Exchange Act
" shall mean the Securities Exchange Act of 1934, as amended.
2.15
"
Fair Market Value
" shall mean, as of any date, the value of Common Stock determined as follows:
(a) If
the Common Stock is (i) listed on any established securities exchange (such as the New York Stock Exchange, the NASDAQ Global Market and the NASDAQ Global
Select Market), (ii) listed on any national market system or (iii) listed, quoted or traded on any automated quotation system, its Fair Market Value shall be the closing sales price for
a share of Common Stock as quoted on such exchange or system for such date or, if there is no closing sales price for a share of Common Stock on the date in question, the closing sales price for a
share of Stock on the last preceding date for which such quotation exists, as reported in
The Wall Street Journal
or such other source as the
Administrator deems reliable;
(b) If
the Common Stock is not listed on an established securities exchange, national market system or automated quotation system, but the Common Stock is regularly quoted
by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a share of Common
Stock on such date, the high bid and low asked prices for a share of Common Stock on the last preceding date for which such information exists, as reported in
The Wall Street
Journal
or such other source as the Administrator deems reliable; or
A-2
Table of Contents
(c) If
the Common Stock is neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized
securities dealer, its Fair Market Value shall be established by the Administrator in good faith.
2.16
"
Grant Date
" shall mean the first Trading Day of an Offering Period.
2.17
"
New Exercise Date
" shall have such meaning as set forth in Section 5.2(b) hereof.
2.18
"
Offering Period
" shall mean the six (6)-month period as determined by the Board or the Committee; provided, however, that the duration and timing of
Offering Periods may be changed by the Board or Committee, in its sole discretion. In no event may an Offering Period exceed twenty-seven (27) months.
2.19
"
Option
" shall mean the right to purchase shares of Common Stock pursuant to the Plan during each Offering Period.
2.20
"
Option Price
" shall mean the purchase price of a share of Common Stock hereunder as provided in Section 4.2 hereof.
2.21
"
Parent
" means any entity that is a parent corporation of the Company within the meaning of Section 424 of the Code and the Treasury Regulations
thereunder.
2.22
"
Participant
" shall mean any Eligible Employee who elects to participate in the Plan.
2.23
"
Payday
" shall mean the regular and recurring established day for payment of compensation to an Employee of the Company or any Designated Subsidiary.
2.24
"
Plan
" shall have such meaning as set forth in Section 1.1 hereof.
2.25
"
Plan Account
" shall mean a bookkeeping account established and maintained by the Company in the name of each Participant.
2.26
"
Section 423 Option
" shall have such meaning as set forth in Section 3.1(b) hereof.
2.27
"
Subsidiary
" shall mean any entity that is a subsidiary corporation of the Company within the meaning of Section 424 of the Code and the
Treasury Regulations thereunder. In addition, with respect to any sub-plans adopted under Section 7.1(d) hereof which are designed to be outside the scope of Section 423 of the Code,
Subsidiary shall include any corporate or noncorporate entity in which the Company has a direct or indirect equity interest or significant business relationship.
2.28
"
Trading Day
" shall mean a day on which the principal securities exchange on which the Common Stock is listed is open for trading or, if the Common
Stock is not listed on a securities exchange, shall mean a business day, as determined by the Administrator in good faith.
2.29
"
Withdrawal Election
" shall have such meaning as set forth in Section 6.1(a) hereof.
A-3
Table of Contents
ARTICLE III.
PARTICIPATION
3.1
Eligibility
.
(a) Any
Eligible Employee who shall be employed by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering Period shall be eligible to participate
in the Plan during such Offering Period, subject to the requirements of Articles IV and V hereof, and the limitations imposed by Section 423(b) of the Code and the Treasury Regulations
thereunder.
(b) No
Eligible Employee shall be granted an Option under the Plan which permits the Participant's rights to purchase shares of Common Stock under the Plan, and to purchase
stock under all other employee stock purchase plans of the Company, any Parent or any Subsidiary subject to Section 423 of the Code (any such Option or other option, a
"
Section 423 Option
"), to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined at the time the Section 423 Option is
granted) for each calendar year in which any Section 423 Option granted to the Participant is outstanding at any time. The limitation under this Section 3.1(b) shall be applied in
accordance with Section 423(b)(8) of the Code and the Treasury Regulations thereunder. No Eligible Employee may purchase in any one Offering Period shares of Common Stock having an aggregate
Fair Market Value in excess of $25,000 (determined at the time the Section 423 Option is granted). Notwithstanding any other provision of the Plan, unless otherwise determined by the Committee
prior to an Offering Period, the maximum number of shares of Common Stock that may be purchased by each participating employee for such Offering Period shall be 5,000 shares of Common Stock.
3.2
Election
to Participate; Payroll Deductions
(a) Except
as provided in Section 3.3 hereof, an Eligible Employee may become a Participant in the Plan only by means of payroll deduction. Each individual who is an
Eligible Employee as of an Offering Period's Enrollment Date may elect to participate in such Offering Period and the Plan by delivering to the Company a payroll deduction authorization no later than
such period of time prior to the applicable Enrollment Date as determined by the Administrator, in its sole discretion.
(b) Subject
to Section 3.1(b) hereof, and unless alternative contribution limits are determined by the Committee prior to any Offering Period, payroll deductions for
each Offering Period shall not exceed the lesser of (i) ten percent (10%) of the Participant's base salary (or other base compensation) and bonus during the Offering Period or
(ii) $15,000; and may be expressed as a whole number percentage or as a dollar amount. In addition, the Committee may establish for any calendar year a contribution limit per Participant which
is less than the annual dollar limit set forth in Section 3.1(b) hereof. Amounts deducted from a Participant's base salary (or other base compensation) and bonus with respect to an Offering
Period pursuant to this Section 3.2 shall be deducted each Payday through payroll deduction and credited to the Participant's Plan Account.
(c) Following
at least one (1) payroll deduction, a Participant may decrease (to as low as zero) the amount deducted from such Participant's base salary (or other
base compensation) or bonus only once during an Offering Period upon ten (10) calendar days' prior written notice to the Company.
(d) Notwithstanding
the foregoing, upon the termination of an Offering Period, each Participant in such Offering Period shall automatically participate in the immediately
following Offering Period at the same payroll deduction percentage as in effect at the termination of the prior Offering Period, unless such Participant delivers to the Company a different election
with respect to the successive Offering Period in accordance with Section 3.1(a) hereof, or unless such Participant becomes ineligible for participation in the Plan.
A-4
Table of Contents
3.3
Leave
of Absence
. Payroll deductions for shares for which a Participant has an option to purchase may be suspended during any
leave of absence approved by the Company meeting the requirements of Treasury Regulation Section 1.421-1(h)(2) under the Code, or, if the Participant so elects, periodic payments for such
shares may continue to be made in cash. If such Participant returns to active service prior to the last day of the Offering Period, the Participant's payroll deductions will be resumed and if said
Participant did not make periodic cash payments during the Participant's period of absence, the Participant shall, by written notice to the Company's Human Resources Department within ten
(10) days after the Participant's return to active service, but not later than the last day of the Offering Period, elect: (a) to make up any deficiency in the Participant's Plan Account
resulting from a suspension of payroll deductions by making an immediate cash payment or through increased payroll deductions; (b) not to make up such deficiency, in which event the number of
shares to be purchased by the Participant shall be reduced to the number of whole shares which may be purchased with the amount, if any, then credited to the Participant's Plan Account plus the
aggregate amount, if any, of all payroll deductions to be made thereafter; or (c) withdraw the amount in the Participant's Plan Account and terminate the Participant's option to purchase. If
any Participant fails to deliver the written notice described above within ten (10) days after the Participant's return to active service or by the last day of the Offering Period, whichever is
earlier, the Participant shall be deemed to have elected subsection 3.3(b) above.
ARTICLE IV.
PURCHASE OF SHARES
4.1
Grant
of Option
. Each Participant shall be granted an Option with respect to an Offering Period on the applicable Grant Date.
Subject to the limitations of Section 3.1(b) hereof, the number of shares of Common Stock subject to a Participant's Option shall be determined by dividing (a) such Participant's payroll
deductions accumulated prior to such Exercise Date and retained in the Participant's Plan Account on such Exercise Date by (b) the applicable Option Price;
provided,
however
, that the maximum number of shares of Common Stock that may be purchased by a Participant in an Offering Period shall be determined by dividing such Participant's Plan
Account on such Exercise Date by eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Grant Date. The Administrator may, for future Offering Periods, increase or
decrease, in its absolute discretion, the maximum number of shares of Common Stock that a Participant may purchase during such future Offering Periods. Each Option shall expire on the Exercise Date
for the applicable Offering Period immediately after the automatic exercise of the Option in accordance with Section 4.3 hereof, unless such Option terminates earlier in accordance with
Article 6 hereof.
4.2
Option
Price
. The "
Option Price
" per share of Common Stock to be paid by a Participant upon
exercise of the Participant's Option on the applicable Exercise Date for an Offering Period shall be equal to
eight-five
percent (
85%)
(or
such greater percentage as may be determined by the Committee prior to the commencement of any Offering Period) of the lesser of (i) the Fair Market Value of a share of Common Stock on the
applicable Exercise Date or (ii) the Fair Market Value of a share of Common Stock on the Grant Date;
provided
that in no event shall the Option
Price per share of Common Stock be less than the par value per share of the Common Stock and
provided further
that the Committee may determine prior to
an Offering Period to calculate the Option Price for such Offering Period solely by reference to the Fair Market Value of a share of Common Stock on the applicable Exercise Date or Grant Date, or
based on the greater of such values (rather than the lesser of such values).
4.3
Purchase
of Shares
.
(a) Subject
to the limitation contained in Section 4.1 hereof, on the applicable Exercise Date for an Offering Period, each Participant shall automatically and
without any action on such Participant's part be deemed to have exercised his or her Option to purchase at the applicable per share Option Price the largest number of whole shares of Common Stock
which can be purchased with the amount in the Participant's Plan Account. No fractional shares shall be issued upon the exercise of rights granted under this Plan. Any balance that is remaining in the
Participant's Plan Account (after exercise of such
A-5
Table of Contents
Participant's
Option) as of the Exercise Date shall be returned to the Participant in one lump sum in cash within thirty (30) days after such Exercise Date, without any interest thereon.
(b) As
soon as practicable following the applicable Exercise Date, the number of shares of Common Stock purchased by such Participant pursuant to Section 4.3(a)
hereof shall be delivered (either in share certificate or book entry form), in the Company's sole discretion, to either (i) the Participant or (ii) an account established in the
Participant's name at a stock brokerage or other financial services firm designated by the Company. If the Company is required to obtain from any commission or agency authority to issue any such
shares of Common Stock, the Company shall seek to obtain such authority. Inability of the Company to obtain from any such commission or agency authority which counsel for the Company deems necessary
for the lawful issuance of any such shares shall relieve the Company from liability to any Participant except to refund to the Participant such Participant's Plan Account balance, without interest
thereon.
4.4
Transferability
of Rights
. An Option granted under the Plan shall not be transferable, other than by will or the applicable
laws of descent and distribution, and is exercisable during the Participant's lifetime only by the Participant. No option or interest or right to the Option shall be available to pay off any debts,
contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by pledge, encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempt at disposition of the
option shall have no effect.
ARTICLE V.
PROVISIONS RELATING TO COMMON STOCK
5.1
Common
Stock Reserved
. Subject to adjustment as provided in Section 5.2 hereof, the number of shares of Common Stock
that shall be made available for sale under the Plan shall be 1,600,000 shares of Common Stock. Shares of Common Stock made available for sale under the Plan may be authorized but unissued shares,
treasury shares of Common Stock, or reacquired shares reserved for issuance under the Plan.
5.2
Adjustments
Upon Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale
.
(a)
Changes
in Capitalization
. Subject to any required action by the stockholders of the Company, the number of shares of Common
Stock which have been authorized for issuance under the Plan but not yet placed under Option, as well as the price per share and the number of shares of Common Stock covered by each Option under the
Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company.
Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of
shares of Common Stock subject to an Option.
(b)
Dissolution
or Liquidation
. In the event of the proposed dissolution or liquidation of the Company, the Offering Period then
in progress shall be shortened by setting a new Exercise Date (the "
New Exercise Date
"), and shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date shall be before the date of the Company's proposed dissolution or liquidation. The Administrator shall
notify each Participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the Participant's Option has been changed to the New Exercise Date
and that the
A-6
Table of Contents
Participant's
Option shall be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 6.1
hereof.
(c)
Merger
or Asset Sale
. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger
of the Company with or into another corporation, each outstanding Option shall be assumed or an equivalent Option substituted by the successor corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation refuses to assume or substitute for the Option, any Offering Periods then in progress shall be shortened by setting a New Exercise Date and any
Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company's proposed sale or merger. The Administrator shall notify each
Participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the Participant's Option has been changed to the New Exercise Date and that
the Participant's Option shall be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 6.1
hereof.
5.3
Insufficient
Shares
. If the Administrator determines that, on a given Exercise Date, the number of shares of Common Stock with
respect to which Options are to be exercised may exceed the number of shares of Common Stock remaining available for sale under the Plan on such Exercise Date, the Administrator shall make a pro rata
allocation of the shares of Common Stock available for issuance on such Exercise Date in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable
among all Participants exercising Options to purchase Common Stock on such Exercise Date, and unless additional shares are authorized for issuance under the Plan, no further Offering Periods shall
take place and the Plan shall terminate pursuant to Section 7.5 hereof. If an Offering Period is so terminated, then the balance of the amount credited to the Participant's Plan Account which
has not been applied to the purchase of shares of Common Stock shall be paid to such Participant in one lump sum in cash within thirty (30) days after such Exercise Date, without any interest
thereon.
5.4
Rights
as Stockholders
. With respect to shares of Common Stock subject to an Option, a Participant shall not be deemed to be a
stockholder of the Company and shall not have any of the rights or privileges of a stockholder. A Participant shall have the rights and privileges of a stockholder of the Company when, but not until,
shares of Common Stock have been deposited in the designated brokerage account following exercise of his or her Option.
ARTICLE VI.
TERMINATION OF PARTICIPATION
6.1
Cessation
of Contributions; Voluntary Withdrawal
.
(a) A
Participant may cease payroll deductions during an Offering Period and elect to withdraw from the Plan by delivering written notice of such election to the Company in
such form and at such time prior to the Exercise Date for such Offering Period as may be established by the Administrator (a "
Withdrawal Election
"). A Participant electing
to withdraw from the Plan may elect to withdraw all of the funds then credited to the Participant's Plan Account as of the date on which the Withdrawal Election is received by the Company, in which
case amounts credited to such Plan Account shall be returned to the Participant in one (1) lump-sum payment in cash within thirty (30) days after such election is received by the
Company, without any interest thereon, and the Participant shall cease to participate in the Plan and the Participant's Option for such Offering Period shall terminate. Upon receipt of a Withdrawal
Election, the Participant's payroll deduction authorization and his or her Option to purchase under the Plan shall terminate.
(b) A
participant's withdrawal from the Plan shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the
Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the Participant withdraws.
A-7
Table of Contents
6.2
Termination of Eligibility
. Upon a Participant's ceasing to be an Eligible Employee, for any reason,
such Participant's Option for the applicable Offering Period shall automatically terminate, he or she shall be deemed to have elected to withdraw from the Plan, and amounts credited to the
Participant's Plan Account shall be paid in cash to such Participant or, in the case of his or her death, to the person or persons entitled thereto pursuant to applicable law, within thirty
(30) days after such cessation of being an Eligible Employee, without any interest thereon.
ARTICLE VII.
GENERAL PROVISIONS
7.1
Administration
.
(a) The
Plan shall be administered by the Committee, which shall be composed of members of the Board. The Committee may delegate administrative tasks under the Plan to the
services of an Agent and/or Employees to assist in the administration of the Plan, including establishing and maintaining an individual securities account under the Plan for each Participant.
(b) It
shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with the provisions of the Plan. The Administrator shall have
the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To
establish Offering Periods;
(ii) To
determine when and how Options shall be granted and the provisions and terms of each Offering Period (which need not be identical);
(iii) To
select Designated Subsidiaries in accordance with Section 7.2 hereof; and
(iv) To
construe and interpret the Plan, the terms of any Offering Period and the terms of the Options and to adopt such rules for the administration, interpretation, and
application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. The Administrator, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, any Offering Period or any Option, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effect, subject to Section 423 of the
Code and the Treasury Regulations thereunder.
(c) The
Administrator may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and
procedures. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding handling of
participation elections, payroll deductions, payment of interest, conversion of local currency, payroll tax, withholding procedures and handling of stock certificates which vary with local
requirements. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan.
(d) The
Administrator may adopt sub-plans applicable to particular Designated Subsidiaries or locations, which sub-plans may be designed to be outside the scope of
Section 423 of the Code. The rules of such sub-plans may take precedence over other provisions of this Plan, with the exception of Section 5.1 hereof, but unless otherwise superseded by
the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan.
A-8
Table of Contents
(e) All
expenses and liabilities incurred by the Administrator in connection with the administration of the Plan shall be borne by the Company. The Administrator may, with
the approval of the Committee, employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Administrator, the Company and its officers and directors shall be entitled to rely
upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon all
Participants, the Company and all other interested persons. No member of the Board or Administrator shall be personally liable for any action, determination or interpretation made in good faith with
respect to the Plan or the options, and all members of the Board or Administrator shall be fully protected by the Company in respect to any such action, determination, or interpretation.
7.2
Designation
of Subsidiary Corporations
. The Administrator, Board or Committee shall designate from among the Subsidiaries, as
determined from time to time, the Subsidiary or Subsidiaries that shall constitute Designated Subsidiaries. The Administrator, Board or Committee may designate a Subsidiary, or terminate the
designation of a Subsidiary, without the approval of the stockholders of the Company.
7.3
Reports
. Individual
accounts shall be maintained for each Participant in the Plan. Statements of Plan Accounts shall be given
to Participants at least annually, which statements shall set forth the amounts of payroll deductions, the Option Price, the number of shares purchased and the remaining cash balance, if any.
7.4
No
Right to Employment
. Nothing in the Plan shall be construed to give any person (including any Participant) the right to
remain in the employ of the Company, a Parent or a Subsidiary or to affect the right of the Company, any Parent or any Subsidiary to terminate the employment of any person (including any Participant)
at any time, with or without cause, which right is expressly reserved.
7.5
Amendment
and Termination of the Plan
.
(a) The
Board may, in its sole discretion, amend, suspend or terminate the Plan at any time and from time to time;
provided
,
however
, that without approval of the
Company's stockholders given within twelve (12) months before or after action by the Board, the Plan may
not be amended to increase the maximum number of shares of Common Stock subject to the Plan or change the designation or class of Eligible Employees.
(b) In
the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, to
the extent permitted under Section 423 of the Code, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence
including, but not limited to:
(i) altering
the Option Price for any Offering Period including an Offering Period underway at the time of the change in Option Price;
(ii) shortening
any Offering Period so that the Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Administrator action;
and
(iii) allocating
shares of Common Stock.
Such
modifications or amendments shall not require stockholder approval or the consent of any Participant.
A-9
Table of Contents
7.6
Use
of Funds; No Interest Paid
. All funds received by the Company by reason of purchase of Common Stock under the Plan shall
be included in the general funds of the Company free of any trust or other restriction and may be used for any corporate purpose. No interest shall be paid to any Participant or credited under the
Plan.
7.7
Term;
Approval by Stockholders
. No Option may be granted during any period of suspension of the Plan or after termination of
the Plan. The Plan shall be submitted for the approval of the Company's stockholders within twelve (12) months after the date of the Board's initial adoption of the Plan. Options may be granted
prior to such stockholder approval;
provided
,
however
, that such Options shall not be exercisable prior
to the time when the Plan is approved by the stockholders;
provided
,
further
that if such approval has
not been obtained by the end of said twelve (12)-month period, all Options previously granted under the Plan shall thereupon terminate and be canceled and become null and void without being exercised.
7.8
Effect
Upon Other Plans
. The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the
Company, any Parent or any Subsidiary. Nothing in the Plan shall be construed to limit the right of the Company, any Parent or any Subsidiary (a) to establish any other forms of incentives or
compensation for Employees of the Company or any Parent or any Subsidiary, or (b) to grant or assume Options otherwise than under the Plan in connection with any proper corporate purpose,
including, but not by way of limitation, the grant or assumption of options in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets
of any corporation, firm or association.
7.9
Conformity
to Securities Laws
. Notwithstanding any other provision of the Plan, the Plan and the participation in the Plan by
any individual who is then subject to Section 16 of the Exchange Act shall be subject to any additional limitations set forth in any applicable exemption rule under Section 16 of the
Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan
shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
7.10
Notice
of Disposition of Shares
. Each Participant shall give the Company prompt notice of any disposition or other transfer
of any shares of Common Stock, acquired pursuant to the exercise of an Option, if such disposition or transfer is made (a) within two (2) years after the applicable Grant Date or
(b) within one (1) year after the transfer of such shares of Common Stock to such Participant upon exercise of such Option. The Company may direct that any certificates evidencing shares
acquired pursuant to the Plan refer to such requirement.
7.11
Tax
Withholding
. The Company or any Parent or any Subsidiary shall be entitled to require payment in cash or deduction from
other compensation payable to each Participant of any sums required by federal, state or local tax law to be withheld with respect to any purchase of shares of Common Stock under the Plan or any sale
of such shares.
7.12
Governing
Law
. The Plan and all rights and obligations thereunder shall be construed and enforced in accordance with the laws
of the State of Delaware.
7.13
Notices
. All
notices or other communications by a participant to the Company under or in connection with the Plan shall be
deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
7.14
Conditions
to Issuance of Shares
.
(a) Notwithstanding
anything herein to the contrary, the Company shall not be required to issue or deliver any certificates or make any book entries evidencing shares of
Common Stock pursuant to the exercise of an Option by a Participant, unless and until the Board or the Committee has determined, with
A-10
Table of Contents
advice
of counsel, that the issuance of such shares of Common Stock is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any
securities exchange or automated quotation system on which the shares of Common Stock are listed or traded, and the shares of Common Stock are covered by an effective registration statement or
applicable exemption from registration. In addition to the terms and conditions provided herein, the Board or the Committee may require that a Participant make such reasonable covenants, agreements,
and representations as the Board or the Committee, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements.
(b) All
certificates for shares of Common Stock delivered pursuant to the Plan and all shares of Common Stock issued pursuant to book entry procedures are subject to any
stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal, state, or foreign securities or other laws, rules and regulations and the rules of any
securities exchange or automated quotation system on which the shares of Common Stock are listed, quoted, or traded. The Committee may place legends on any certificate or book entry evidencing shares
of Common Stock to reference restrictions applicable to the shares of Common Stock.
(c) The
Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement, distribution or exercise
of any Option, including a window-period limitation, as may be imposed in the sole discretion of the Committee.
(d) Notwithstanding
any other provision of the Plan, unless otherwise determined by the Committee or required by any applicable law, rule or regulation, the Company may, in
lieu of delivering to any Participant certificates evidencing shares of Common Stock issued in connection with any Option, record the issuance of shares of Common Stock in the books of the Company
(or, as applicable, its transfer agent or stock plan administrator).
7.15
Equal
Rights and Privileges
. Except with respect to sub-plans designed to be outside the scope of Section 423 of the
Code, all Eligible Employees of the Company (or of any Designated Subsidiary) shall have equal rights and privileges under this Plan to the extent required under Section 423 of the Code or the
regulations promulgated thereunder so that this Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 of the Code or the Treasury Regulations thereunder. Any
provision of this Plan that is inconsistent with Section 423 of the Code or the Treasury Regulations thereunder shall, without further act or amendment by the Company or the Board, be reformed
to comply with the equal rights and privileges requirement of Section 423 of the Code or the Treasury Regulations thereunder.
7.16
Holding
Period Requirement for Shares
. Unless otherwise determined by the Committee prior to the commencement of any Offering
Period, shares of Common Stock purchased under the Plan shall not be transferable by a Participant until the first anniversary of the Exercise Date upon which such shares were purchased by the
Participant.
A-11
Table of Contents
Annex B
THIRD AMENDED AND RESTATED SECTION 382 RIGHTS AGREEMENT
CNO FINANCIAL GROUP, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC
as Rights Agent
Dated as of October 3, 2017; effective as of November 13, 2017
Table of Contents
TABLE OF CONTENTS
B-i
Table of Contents
INDEX OF DEFINED TERMS
|
|
|
|
|
|
|
Page
|
|
Acquiring Person
|
|
|
B-2
|
|
Affiliate
|
|
|
B-2
|
|
Approved Acquisition
|
|
|
B-2
|
|
Associate
|
|
|
B-2
|
|
Authorized Officer
|
|
|
B-27
|
|
Beneficial Owner
|
|
|
B-2
|
|
Beneficial Ownership
|
|
|
B-2
|
|
Beneficially Own
|
|
|
B-2
|
|
Book Entry
|
|
|
B-2
|
|
Business Day
|
|
|
B-3
|
|
Close of Business
|
|
|
B-3
|
|
Code
|
|
|
B-3
|
|
Common Stock
|
|
|
B-3
|
|
Common Stock Equivalents
|
|
|
B-13
|
|
Company
|
|
|
B-1
|
|
Company 382 Securities
|
|
|
B-3
|
|
Current Value
|
|
|
B-13
|
|
Distribution Date
|
|
|
B-5
|
|
Equivalent Preferred Shares
|
|
|
B-14
|
|
Exchange Act
|
|
|
B-3
|
|
Exchange Ratio
|
|
|
B-30
|
|
Exempted Person
|
|
|
B-3
|
|
Exemption Request
|
|
|
B-33
|
|
Expiration Date
|
|
|
B-9
|
|
Final Expiration Date
|
|
|
B-3
|
|
First A&R Rights Agreement
|
|
|
B-1
|
|
Grandfathered Person
|
|
|
B-4
|
|
Invalidation Time
|
|
|
B-12
|
|
NOLs
|
|
|
B-1
|
|
|
|
|
|
|
|
|
Page
|
|
NYSE
|
|
|
B-4
|
|
Original Rights Agreement
|
|
|
B-1
|
|
Person
|
|
|
B-4
|
|
Preferred Stock
|
|
|
B-4
|
|
Principal Party
|
|
|
B-20
|
|
Purchase Price
|
|
|
B-9
|
|
Record Date
|
|
|
B-1
|
|
Redemption Date
|
|
|
B-9
|
|
Redemption Price
|
|
|
B-29
|
|
Requesting Person
|
|
|
B-33
|
|
Right
|
|
|
B-1
|
|
Right Certificate
|
|
|
B-6
|
|
Rights Agent
|
|
|
B-1
|
|
Rights Agreement
|
|
|
B-1
|
|
Section 11(a)(ii) Trigger Date
|
|
|
B-14
|
|
Section 382
|
|
|
B-4
|
|
Securities Act
|
|
|
B-4
|
|
Security
|
|
|
B-15
|
|
Spread
|
|
|
B-13
|
|
Stock Acquisition Date
|
|
|
B-4
|
|
Subsidiary
|
|
|
B-4
|
|
Substitution Period
|
|
|
B-14
|
|
Summary of Rights
|
|
|
B-6
|
|
Tax Benefits
|
|
|
B-5
|
|
Threshold Holder
|
|
|
B-5
|
|
Trading Day
|
|
|
B-16
|
|
Treasury Regulations
|
|
|
B-5
|
|
Trust
|
|
|
B-31
|
|
Trust Agreement
|
|
|
B-30
|
|
B-ii
Table of Contents
THIRD AMENDED AND RESTATED SECTION 382 RIGHTS AGREEMENT
This
Third Amended and Restated Section 382 Rights Agreement, dated as of October 3, 2017 (as amended, supplemented or otherwise modified from time to time, the
"
Rights Agreement
") between CNO Financial Group, Inc., a Delaware corporation (the "
Company
"), and American Stock Transfer &
Trust Company, LLC, as rights agent (the "
Rights Agent
"), amends and restates effective as of November 13, 2017 that certain Second Amended and Restated
Section 382 Rights Agreement, dated as of November 13, 2014 (the "
Second A&R Rights Agreement
") between the Company and the Rights Agent, which amended and
restated that certain Amended and Restated Section 382 Rights Agreement, dated as of December 6, 2011 (the "
First A&R Rights Agreement
"), which amended and
restated that certain Section 382 Rights Agreement, dated as of January 20, 2009 (the "
Original Rights Agreement
") between the Company and the Rights Agent.
WHEREAS,
(a) the Company and certain of its Subsidiaries (as defined below) have generated net operating losses for United States federal income tax purposes
("
NOLs
"); (b) such NOLs may potentially provide valuable Tax Benefits (as defined below) to the Company; (c) the Company desires to avoid an "ownership
change" within
the meaning of Section 382 (as defined below), and thereby preserve the ability to utilize such Tax Benefits; and (d) in furtherance of such objective, the Company entered into the
Original Rights Agreement, the First A&R Rights Agreement and the Second A&R Rights Agreement;
WHEREAS,
in connection with the adoption of the Original Rights Agreement, the Board of Directors of the Company on January 20, 2009 authorized and declared a dividend of one
preferred share purchase right (a "
Right
") for each share of Common Stock (as defined below) of the Company outstanding as of the Close of Business (as defined below) on
January 30, 2009 (the "
Record Date
"), each Right representing the right to purchase one one-thousandth (subject to adjustment) of a share of Preferred Stock (as
defined below), upon the terms and subject to the conditions set forth in the Original Rights Agreement, and the Board of Directors further authorized and directed the issuance of one Right (subject
to adjustment as provided herein) with respect to each share of Common Stock that shall become outstanding between the Record Date and the earlier of the Distribution Date and the Expiration Date (as
such terms are hereinafter defined);
provided
,
however
, that Rights may be issued with respect to shares of Common Stock that shall become
outstanding after the Distribution Date and prior to the Expiration Date in accordance with
Section 22
;
WHEREAS,
the Board of Directors has determined it is in the best interests of the Company and its stockholders to extend the term of the Second A&R Rights Agreement and to amend certain
other provisions therein; and WHEREAS, pursuant to Section 27 of the Second A&R Rights Agreement, the Board of Directors has authorized and approved the amendment and restatement of the Second
A&R Rights Agreement, and an appropriate officer of the Company has delivered a certificate to the Rights Agent in accordance with Section 27 of the Second A&R Rights Agreement.
NOW
THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree effective as of November 13, 2017 as follows:
Section 1.
Certain
Definitions
. For purposes of this Rights Agreement, the following terms have the meaning indicated:
(a) "
Acquiring
Person
" shall mean any Person (as defined below) who is or shall have become a Threshold Holder (as defined below), whether or
not such Person continues to be a Threshold Holder, but shall not include (i) an Exempted Person (as defined below), or (ii) any Grandfathered Person (as defined below);
provided
,
however
, that a Person will not be deemed to have become an Acquiring Person solely as a result of (x) a reduction in the
number of shares of Common Stock or any other class of Company 382 Securities outstanding, (y) the exercise of any options, warrants, rights or similar interests (including restricted stock)
granted by the Company to its directors, officers and employees, or (z) any unilateral grant of any security by the Company, unless and until such time as such Person thereafter
B-1
Table of Contents
acquires
beneficial ownership of any additional shares of Common Stock or additional shares of any class of Company 382 Securities (other than Common Stock), as applicable. Notwithstanding the
foregoing, the Board of Directors may, in its sole discretion, determine that any Person shall not be deemed to be an "Acquiring Person" for any purposes of this Rights Agreement.
(b) "
Affiliate
"
and "
Associate
" shall mean, with respect to any Person, any other Person whose common stock would
be deemed to be (i) constructively owned by such first Person, or (ii) otherwise aggregated with the shares owned by such first Person (other than aggregation solely by reason of such
shares being part of the same "public group" as defined under Treasury Regulation Section 1.382-2T(f)(13), in each case pursuant to the provisions of Section 382, or any successor or
replacement provision, and the Treasury Regulations promulgated thereunder.
(c) "
Approved
Acquisition
" shall mean (i) any acquisition of Company 382 Securities that would cause a Person to qualify as a Threshold
Holder and that is approved in advance by the Board of Directors, or (ii) a conversion (or other exchange) of Company 382 Securities for other Company 382 Securities where such conversion (or
other exchange) does not increase the Beneficial Ownership in the Company by any Person for purposes of Section 382.
(d) Except
as may expressly be set forth elsewhere herein, a Person shall be deemed the "
Beneficial Owner
" of, shall be deemed to have
"
Beneficial Ownership
" of and shall be deemed to "
Beneficially Own
" any securities which such Person: (i) directly owns, or
(ii) would be deemed to own constructively pursuant to Section 382 and the Treasury Regulations promulgated thereunder (including as a result of the deemed exercise of an "option"
pursuant to Treasury Regulation Section 1.382-4(d) and including, without duplication, Company 382 Securities, as applicable, owned by any Affiliate or Associate of such Person);
provided
,
that
, a Person shall not be treated as "Beneficially Owning" Company 382 Securities pursuant to clause (i) above to the
extent that such Person is acting solely in a fiduciary capacity in respect of such Company 382 Securities and does not have the right to receive or the power to direct the receipt of dividends from,
or the proceeds from the sale of, Company 382 Securities.
(e) "
Book
Entry
" shall mean an uncertificated book entry for the shares of Common Stock.
(f) "
Business
Day
" shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in the State of Indiana, or the
State in which the principal office of the Rights Agent is located, are authorized or obligated by law or executive order to close.
(g) "
Close
of Business
" on any given date shall mean 5:00 P.M., New York, New York time, on such date;
provided,
however,
that if such date is not a Business Day it shall mean 5:00 P.M., New York, New York time, on the next succeeding Business Day.
(h) "
Code
"
shall mean the Internal Revenue Code of 1986, as amended from time to time, or any comparable successor statute.
(i) "
Common
Stock
" when used with reference to the Company shall mean the common stock, par value $0.01 per share, of the Company. "Common
Stock" when used with reference to any Person other than the Company shall mean the capital stock (or, in the case of an entity other than a corporation, the equivalent equity interest) with the
greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person.
(j) "
Company
382 Securities
" shall mean the Common Stock of the Company and any other interest that would be treated as "stock" of the Company
for purposes of Section 382 (including pursuant to Treasury Regulation Section 1.382-2T(f)(18)).
B-2
Table of Contents
(k) "
Exchange
Act
" shall mean the Securities Exchange Act of 1934, as amended.
(l) "
Exempted
Person
" shall mean (i) the Company, (ii) any Subsidiary (as defined below) of the Company, (in the case of
subclauses (i) and (ii) including, without limitation, in its fiduciary capacity), (iii) any employee benefit plan or compensation arrangement of the Company or of any Subsidiary
of the Company, (iv) any entity or trustee holding (or acting in a fiduciary capacity in respect of) Company 382 Securities to the extent organized, appointed or established by the Company or
any Subsidiary of the Company for or pursuant to the terms of any such plan or for the purpose of funding any such employee benefit plan or compensation arrangement, (v) any Person (together
with its Affiliates and Associates) whose status as a Threshold Holder will, in the sole judgment of the Board of Directors, not jeopardize or endanger the availability to the Company of its NOL
carryforwards to be used to offset its taxable income in such year or future years (but in the case of any Person determined by the Board of Directors to be an Exempted Person pursuant to this
subparagraph (l)(v) only for so long as such Person's status as a Threshold Holder continues not to jeopardize or endanger the availability of such NOL carryforwards, as determined by the Board
of Directors in its good faith discretion), or (vi) any Person who or which would qualify as a Threshold Holder as a result of an Approved Acquisition and, to the extent approved by the Board
of Directors, any Person who or which acquires Company 382 Securities from any such Person.
(m) "
Final
Expiration Date
" shall mean the earliest to occur of (i) the Close of Business on November 13, 2020, (ii) the
Close of Business on October 3, 2018 if stockholder approval of this Rights Agreement has not been received by or on such date, (iii) the adjournment of the first annual meeting of the
stockholders of the Company following November 13, 2017 if stockholder approval of this Rights Agreement has not been received prior to such time, (iv) the repeal of Section 382
or any successor statute if the Board of Directors determines that this Rights Agreement is no longer necessary for the preservation of Tax Benefits or (v) the beginning of a taxable year of
the Company to which the Board of Directors determines that no Tax Benefits may be carried forward.
(n) "
Grandfathered
Person
" shall mean any Person who or which, together with all Affiliates and Associates of such Person, was on
November 13, 2017, the Beneficial Owner of 4.99% or more of the Company 382 Securities outstanding on such date, unless and until such time as such Person after the date of this Rights
Agreement acquires beneficial ownership of additional shares or other interests in Company 382 Securities representing more than 1% of the Company 382 Securities then outstanding. Any Grandfathered
Person who, together with all of its Affiliates and Associates, subsequently becomes the Beneficial Owner of less than 4.99% of the Company 382 Securities shall cease to be a Grandfathered Person.
(o) "
NYSE
"
shall mean the New York Stock Exchange, Inc.
(p) "
Person
"
shall mean any individual, firm, corporation, business trust, joint stock company, partnership, trust association, limited
liability company, limited partnership, or other entity, or any group of Persons making a "coordinated acquisition" of Company 382 Securities or otherwise treated as an entity within the meaning of
Treasury Regulation Section 1.382-3(a)(1)(i), or otherwise and shall include any successor (by merger or otherwise) of any such entity.
(q) "
Preferred
Stock
" shall mean the Series D Junior Participating Preferred Stock, par value $0.01 per share, of the Company having the
rights and preferences set forth in the Form of Certificate of Designations attached to this Rights Agreement as
Exhibit A
and, to the extent that there is a not
sufficient number of shares of the Series D Junior Participating Preferred Stock authorized to permit the full exercise of the Rights, any other series of preferred stock of the Company
designated for such purpose containing terms substantially similar to the terms of the Series D Junior Participating Preferred Stock.
B-3
Table of Contents
(r) "
Section 382
"
shall mean Section 382 of the Code, or any comparable successor provision.
(s) "
Securities
Act
" shall mean the Securities Act of 1933, as amended.
(t) "
Stock
Acquisition Date
" shall mean the first date of public announcement (which for purposes of this definition shall include, without
limitation, a report filed pursuant to Section 13(d), Section 13(f) or Section 13(g) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has
become such or that discloses information which reveals the existence of an Acquiring Person, or such earlier date as a majority of the Board of Directors becomes aware of the existence of an
Acquiring Person.
(u) "
Subsidiary
"
of any Person shall mean any corporation or other entity of which securities or other ownership interests having ordinary
voting power sufficient to elect a majority of the board of directors or other persons performing similar functions are beneficially owned, directly or indirectly, by such Person, and any corporation
or other entity that is otherwise controlled by such Person.
(v) "
Tax
Benefits
" shall mean the net operating loss carryovers, capital loss carryovers, general business credit carryovers, alternative
minimum tax credit carryovers and foreign tax credit carryovers, as well as any loss or deduction attributable to a "net unrealized built-in loss" within the meaning of Section 382, and the
Treasury Regulations promulgated thereunder, of the Company or any of its Subsidiaries.
(w) "
Threshold
Holder
" shall mean any Person who or which, together with all Affiliates and Associates of such Person, is the Beneficial Owner
of 4.99% or more of the shares of Common Stock or any other class of Company 382 Securities then outstanding.
(x) "
Treasury
Regulations
" shall mean any income tax regulations promulgated under the Code, including any amendments thereto.
Any
determination required by the definitions in this Rights Agreement shall be made by the Board of Directors in its good faith judgment, which determination shall be binding on the
Rights Agent and the holders of Rights.
Section 2.
Appointment
of Rights Agent
. The Company hereby appoints the Rights Agent to act as agent for the Company and
the holders of the Rights (who, in accordance with
Section 3
hereof, shall prior to the Distribution Date also be the holders of Common Stock) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable upon
10 days' prior notice to the Rights Agent. The Rights Agent shall have no duty to supervise, and shall in no event be liable for the acts or omissions of any such co-Rights Agent.
Section 3.
Issuance
of Right Certificates
. (a) Until the Close of Business on the earlier of (i) the tenth
Business Day after the Stock Acquisition Date (or, if the Stock Acquisition Date occurs before the Record Date, the Close of Business on the Record Date) or (ii) the tenth Business Day (or such
later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement by any Person (other than an
Exempted Person) of, or of the first public announcement of the intention of such Person (other than an Exempted Person) to commence, a tender or exchange offer the consummation of which would result
in any Person (other than an Exempted Person) becoming an Acquiring Person (irrespective of whether any shares are actually purchased pursuant to any such offer) (including, in the case of both
clause (i) and (ii), any such date which is after the date of this Rights Agreement and prior to the issuance of the Rights) (the earlier of such dates being herein referred to as the
"
Distribution Date
"), (x) the Rights will be evidenced (subject to the provisions of
Section 3(b)
hereof) by the certificates
B-4
Table of Contents
representing
the Common Stock registered in the names of the holders thereof (or by Book Entry shares in respect of such Common Stock) and not by separate Right Certificates (as defined below), and
(y) the Rights will be transferable only in connection with the transfer of Common Stock. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights
Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, postage-prepaid mail, to each record holder of Common Stock as of
the Close of Business on the Distribution Date (other than any Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the address of such holder shown on the records of the
Company, a Right Certificate, in substantially the form of
Exhibit B
hereto (a "
Right Certificate
"), evidencing one Right (subject to
adjustment as provided herein) for each share of Common Stock so held. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to
Section 11
or
13
hereof, at the time of distribution of the Right Certificates, the Company shall make the necessary and appropriate
rounding adjustments (in accordance with
Section 14(a)
hereof), so that Right Certificates representing only whole numbers of Rights are distributed and cash is
paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Right Certificates.
(b) In
connection with the adoption of the Original Rights Agreement, the Company sent a copy of a Summary of Rights to Purchase Shares of Preferred Stock (the
"
Summary of Rights
"), by first-class, postage-prepaid mail, to each record holder of Common Stock and holder of Book Entry shares as of the Close of Business on the Record
Date, at the address of such holder shown on the records of the Company as the address at which such holder has consented to receive notice. With respect to shares of Common Stock outstanding as of
the Record Date, until the Distribution Date, the Rights associated with such shares will be evidenced by the share certificate for such shares of Common Stock registered in the names of the holders
thereof or the Book Entry shares, in each case together with the Summary of Rights, in substantially the form of
Exhibit C
hereto. Until the Distribution Date (or,
if earlier, the Expiration Date), the surrender for transfer of any certificate for Common Stock or Book Entry shares outstanding on the Record Date, with or without a copy of the Summary of Rights,
shall also constitute the transfer of the Rights associated with the shares of Common Stock represented by such certificate or Book Entry shares.
(c) Rights
shall be issued in respect of all shares of Common Stock issued or disposed of (including, without limitation, upon disposition of Common Stock out of treasury
stock or issuance or reissuance of Common Stock out of authorized but unissued shares) after the Record Date but prior to the earlier of the Distribution Date and the Expiration Date, or in certain
circumstances provided in
Section 22
hereof, after the Distribution Date. Certificates issued for Common Stock (including, without limitation, upon transfer of
outstanding Common Stock, disposition of Common Stock out of treasury stock or issuance or reissuance of Common Stock out of authorized but unissued shares) after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them a legend substantially to the effect of the following:
|
This certificate also evidences and entitles the holder hereof to certain rights as set forth in the Third Amended and Restated Section 382 Rights Agreement between CNO Financial Group, Inc. and
American Stock Transfer & Trust Company, LLC, as Rights Agent, dated as of October 3, 2017 as the same may be amended, supplemented or otherwise modified from time to time (the "
Rights Agreement
"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of CNO Financial Group, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. CNO Financial Group, Inc. will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, Rights owned by or transferred to any Person who is or becomes an Acquiring Person (as defined in the Rights Agreement) and certain transferees thereof will become null and void and will no longer
be transferable.
|
B-5
Table of Contents
With
respect to any Book Entry shares of Common Stock, such legend shall be included in a notice to the registered holder of such shares in accordance with applicable law. With respect to such
certificates containing the foregoing legend, or any notice of the foregoing legend delivered to holders of Book Entry shares, until the Distribution Date, the Rights associated with the Common Stock
represented by such certificates or Book Entry shares shall be evidenced by such certificates or Book Entry shares alone, and the surrender for transfer of any such certificate or Book Entry share,
except as otherwise provided herein, shall also constitute the transfer of the Rights associated with the Common Stock represented thereby. In the event that the Company purchases or otherwise
acquires any Common Stock after the Record Date but prior to the Distribution Date, any Rights associated with such Common Stock shall be deemed cancelled and retired so that the Company shall not be
entitled to exercise any Rights associated with the shares of Common Stock which are no longer outstanding.
Notwithstanding
this
Section 3(c)
, neither the omission of a legend nor the failure to deliver the notice of such legend required hereby shall affect
the enforceability of any part of this Rights Agreement or the rights of any holder of the Rights.
Section 4.
Form
of Right Certificates
. The Right Certificates (and the forms of election to purchase shares and of
assignment to be printed on the reverse thereof) shall be substantially in the form set forth in
Exhibit B
hereto and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Rights Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of the NYSE or of any other stock exchange or automated quotation system
on which the Rights may from time to time be listed or quoted, or to conform to usage. Subject to the provisions of this Rights Agreement, the Right Certificates shall entitle the holders thereof to
purchase such number of one one-thousandths of a share of Preferred Stock as shall be set forth therein at the Purchase Price (as determined pursuant to
Section
7), but
the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein.
Section 5.
Countersignature
and Registration
. (a) The Right Certificates shall be executed on behalf of the Company
by the Chief Executive Officer, the President, any of the Vice Presidents or the Treasurer of the Company, either manually or by facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof and shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be countersigned by the
Rights Agent, either manually or by facsimile signature, and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect
as though the Person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any Person who, at the
actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such
Person was not such an officer.
(b) Following
the Distribution Date, the Rights Agent will keep or cause to be kept, at an office or agency designated for such purpose, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the
Right Certificates and the date of each of the Right Certificates.
B-6
Table of Contents
Section 6.
Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates
. (a) Subject to the provisions of this Rights Agreement, at any time after the Close of Business on the Distribution Date, and prior to the Close of
Business on the Expiration Date, any Right Certificate or Right Certificates may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a share of Preferred Stock (or, following such time, other securities, cash or assets as the case may be) as the Right Certificate
or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the office or agency
of the Rights Agent designated for such purpose. Thereupon the Rights Agent, subject to the provisions of this Rights Agreement, shall countersign and deliver to the Person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection
with any transfer, split up, combination or exchange of Right Certificates.
(b) Subject
to the provisions of this Rights Agreement, at any time after the Distribution Date and prior to the Expiration Date, upon receipt by the Company and the Rights
Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered holder in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.
Section 7.
Exercise
of Rights, Purchase Price; Expiration Date of Rights
. (a) Except as otherwise provided herein,
the Rights shall become exercisable on the Distribution Date, and thereafter the registered holder of any Right Certificate may, subject to
Section 11(a)(ii)
hereof
and except as otherwise provided herein, exercise the Rights evidenced thereby in whole or in part upon surrender of the Right Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the office or agency of the Rights Agent designated for such purpose, together with payment of the Purchase Price for each one one-thousandth of a share
of Preferred Stock (or other securities, cash or assets, as the case may be) as to which the Rights are exercised, at any time which is both after the Distribution Date and prior to the time (the
"
Expiration Date
") that is the earliest of (i) the Final Expiration Date, (ii) the time at which the Rights are redeemed as provided in
Section 23
hereof (the "
Redemption Date
") or (iii) the time at which such Rights are exchanged as provided in
Section 24
hereof.
(b) The
purchase price (the "
Purchase Price
") shall be initially $90.00 for each one one-thousandth of a share of Preferred Stock purchasable
upon the exercise of a Right. The Purchase Price and the number of one one-thousandths of a share of Preferred Stock or other securities or property to be acquired upon exercise of a Right shall be
subject to adjustment from time to time as provided in
Sections 11
and
13
hereof and shall be payable in lawful money of the United
States of America in accordance with
paragraph (c)
of this
Section 7
.
(c) Except
as otherwise provided herein, upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase properly completed and
duly executed, accompanied by payment of the aggregate Purchase Price for the number of shares of Preferred Stock to be purchased and an amount equal to any applicable transfer tax or charge required
to be paid by the holder of such Right Certificate in accordance with
Section 6
hereof, in lawful money of the United States of America, in cash or by certified
check, cashier's check or money order payable to the order of the Company, the Rights Agent shall thereupon promptly (i) either (A) requisition from any transfer agent of the Preferred
Stock, or make available if the Rights Agent is the transfer agent for the Preferred Stock, certificates for the total number of shares of Preferred Stock to be purchased (and the Company hereby
irrevocably authorizes its transfer agent to comply with all such requests), or (B) if the Company shall have elected to deposit the Preferred Stock with a depositary agent under a depositary
B-7
Table of Contents
arrangement,
requisition from the depositary agent appointed by the Company depositary receipts representing interests in the number of one one-thousandths of a share of Preferred Stock as are to be
purchased, in which case certificates for the Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent (and the Company hereby directs any such
depositary agent to comply with all such requests), (ii) when necessary to comply with this Rights Agreement (or otherwise when appropriate, as determined by the Company with notice to the
Rights Agent) requisition from the Company the amount of cash, if any, to be paid in lieu of issuance of fractional shares in accordance with
Section 14
hereof,
(iii) promptly after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in
such name or names as may be designated by such holder and (iv) when necessary to comply with this Rights Agreement (or otherwise when appropriate, as determined by the Company with notice to
the Rights Agent), after receipt of the cash requisitioned from the Company, promptly deliver such cash, if any, to or upon the order of the registered holder of such Right Certificate.
(d) Except
as otherwise provided herein, in case the registered holder of any Right Certificate shall exercise less than all of the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the exercisable Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his, her or its
duly authorized assigns, subject to the provisions of
Section 14
hereof.
(e) Notwithstanding
anything in this Rights Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a
registered holder of Rights upon the occurrence of any purported transfer or exercise of Rights pursuant to
Section 6
hereof or this
Section 7
unless such registered holder shall have (i) completed and signed the certificate contained in the form of assignment or form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for such transfer or exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (for
the purposes of this Section 7(e), as such term is defined in Rule 13d-3 or 13d-5 of the General Rules and Regulations under the Exchange Act), former Beneficial Owner and/or Affiliates
or Associates (for purposes of this Section 7(e), as such terms are respectively defined for purposes of Rule 12b-2 of the General Rules and Regulations under the Exchange Act) thereof
as the Company shall reasonably request.
Section 8.
Cancellation
and Destruction of Right Certificates
. All Right Certificates surrendered for the purpose of
exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if
surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement.
The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy or cause to be
destroyed such cancelled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company.
Section 9.
Availability
of Shares of Preferred Stock
. (a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of Preferred Stock or any shares of Preferred Stock held in its treasury, the number of shares of Preferred Stock that will be
sufficient to permit the exercise in full of all outstanding Rights.
(b) So
long as the shares of Preferred Stock (and, following the time that a Person becomes an Acquiring Person, shares of Common Stock and/or other securities) issuable
upon the exercise of Rights may be listed or admitted to trading on the NYSE or listed on any other national securities exchange or quotation system, the Company shall use its best efforts to cause,
from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed or admitted to trading on the NYSE or listed on any other national securities exchange or
quotation system upon official notice of issuance upon such exercise.
B-8
Table of Contents
(c) From
and after such time as the Rights become exercisable, the Company shall use its best efforts, if then necessary to permit the issuance of shares of Preferred Stock
(and following the time that a Person first becomes an Acquiring Person, shares of Common Stock and other securities) upon the exercise of Rights, to register and qualify such shares of Preferred
Stock (and following the time that a Person first becomes an Acquiring Person, shares of Common Stock and/or other securities) under the Securities Act and any applicable state securities or "Blue
Sky" laws (to the extent exemptions therefrom are not available), cause such registration statement and qualifications to become effective as soon as possible after such filing and keep such
registration and qualifications effective until the earlier of (x) the date as of which the Rights are no longer exercisable for such securities and (y) the Expiration Date. The Company
may temporarily suspend, for a period of time not to exceed 90 days, the exercisability of the Rights in order to prepare and file a registration statement under the Securities Act and
permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Rights Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction
unless the requisite qualification or exemption in such jurisdiction shall have been obtained and until a registration statement under the Securities Act (if required) shall have been declared
effective.
(d) The
Company covenants and agrees that it will take all such action as may be necessary to ensure that all shares of Preferred Stock (and, following the time that a
Person becomes an Acquiring Person, shares of Common Stock and other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates therefor (subject to payment of
the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares.
(e) The
Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect
of the issuance or delivery of the Right Certificates or of any shares of Preferred Stock (or shares of Common Stock or other securities) upon the exercise of Rights. The Company shall not, however,
be required to pay any transfer tax or charge which may be payable in respect of any transfer or delivery of Right Certificates to a Person other than, or the issuance or delivery of certificates or
depositary receipts for the Preferred Stock (or shares of Common Stock or other securities) in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered
for exercise or to issue or deliver any certificates or depositary receipts for Preferred Stock (or shares of Common Stock or other securities) upon the exercise of any Rights until any such tax or
charge shall have been paid (any such tax or charge being payable by that holder of such Right Certificate at the time of surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax or charge is due.
Section 10.
Preferred
Stock Record Date
. Each Person in whose name any certificate for Preferred Stock is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares of Preferred Stock represented thereby on, and such certificate shall be dated, the date upon
which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes or charges) was made;
provided
,
however
, that if the date of such surrender and payment is a date upon which the Preferred Stock transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which such
transfer books are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of Preferred Stock for which the
Rights shall be exercisable, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
Section 11.
Adjustment
of Purchase Price, Number and Kind of Shares and Number of Rights
. The Purchase Price, the number of
shares of Preferred Stock or other securities or property purchasable upon exercise
B-9
Table of Contents
of
each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this
Section 11
.
(a) (i)
In the event the Company shall at any time after the date of this Rights Agreement (A) declare and pay a dividend on the Preferred Stock payable in shares of
Preferred Stock, (B) subdivide the outstanding shares of Preferred Stock, (C) combine the outstanding shares of Preferred Stock into a smaller number of shares of
Preferred Stock or (D) issue any shares of its capital stock in a reclassification of the shares of Preferred Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this
Section 11(a),
the Purchase Price in effect at the
time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, as the case may be, and the number and kind of shares of capital stock issuable
on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which,
if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, the holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or reclassification;
provided, however,
that in no event shall the consideration to be paid upon
the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right.
(ii) Subject
to
Section 24
of this Rights
Agreement
and except as otherwise provided in this
Section 11(a)(ii)
and
Section 11(a)(iii),
in the event that any Person becomes an Acquiring Person, each holder of a Right shall
thereafter have the right to receive, upon exercise thereof at a price equal to the then-current Purchase Price, in accordance with the terms of this Rights Agreement and in lieu of shares of
Preferred Stock, such number of shares of Common Stock (or at the option of the Company, such number of one one-thousandths of a share of Preferred Stock) as shall equal the result obtained by
(x) multiplying the then-current Purchase Price by the number of one one-thousandths of a share of Preferred Stock for which a Right is then exercisable and dividing that product by
(y) 50% of the then-current per share market price of the Company's Common Stock (determined pursuant to
Section 11(d)
hereof) on the date of the occurrence
of such event;
provided
,
however
, that the Purchase Price (as so adjusted) and the number of shares of Common Stock so receivable upon
exercise of a Right shall thereafter be subject to further adjustment as appropriate in accordance with this
Section 11
. Notwithstanding anything in this Rights
Agreement to the contrary, however, from and after the time (the "
Invalidation Time
") when any Person first becomes an Acquiring Person, any Rights that are beneficially
owned by (x) any Acquiring Person (or any Affiliate or Associate of any Acquiring Person), (y) a transferee of any Acquiring Person (or any such Affiliate or Associate) who becomes a
transferee after the Invalidation Time or (z) a transferee of any Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or concurrently with the Invalidation
Time pursuant to either (I) a transfer from the Acquiring Person to holders of its equity securities or to any Person with whom it has any continuing agreement, arrangement or understanding,
written or otherwise, regarding the transferred Rights or (II) a transfer that the Board of Directors has determined is part of a plan, arrangement or understanding, written or otherwise, which
has the purpose or effect of avoiding the provisions of this paragraph, and subsequent transferees of such Persons, shall be void without any further action and any holder of such Rights shall
thereafter have no rights whatsoever with respect to such Rights under any provision of this Rights Agreement. The Company shall use all reasonable efforts to ensure that the provisions of this
Section 11(a)(ii)
are complied with, but shall have no liability to any holder of Right Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. From and after the Invalidation Time, no Right Certificate shall be issued pursuant to
Section 3
or
Section 6
hereof that represents Rights that are or have become void pursuant to the provisions
B-10
Table of Contents
of
this paragraph, and any Right Certificate delivered to the Rights Agent that represents Rights that are or have become void pursuant to the provisions of this paragraph shall be cancelled. From and
after the occurrence of an event specified in
Section 13(a)
hereof, any Rights that theretofore have not been exercised pursuant to this
Section 11(a)(ii)
shall thereafter be exercisable only in accordance with
Section 13
and not pursuant to this
Section 11(a)(ii)
.
(iii) The
Company may at its option substitute for a share of Common Stock issuable upon the exercise of Rights in accordance with the foregoing subparagraph (ii)
such number or fractions of shares of Preferred Stock having an aggregate current market value equal to the current per share market price of a share of Common Stock. In the event that there shall be
an insufficient number of shares of Common Stock authorized but unissued (and unreserved) to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii), the
Board of Directors shall, with respect to such deficiency, to the extent permitted by applicable law and any material agreements then in effect to which the Company is a party (A) determine the
excess of (x) the value of the shares of Common Stock issuable upon the exercise of a Right in accordance with the foregoing subparagraph (ii) (the "
Current
Value
") over (y) the then-current Purchase Price multiplied by the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior
to the time that the Acquiring Person became such (such excess, the "
Spread
"), and (B) with respect to each Right (other than Rights which have become void pursuant
to
Section 11(a)(ii)
), make adequate provision to substitute for the shares of Common Stock issuable in accordance with the foregoing subparagraph (ii) upon
exercise of the Right and payment of the Purchase Price (as adjusted in accordance therewith), (1) cash, (2) a reduction in such Purchase Price, (3) shares of Preferred Stock or
other equity securities of the Company (including, without limitation, shares or fractions of shares of preferred stock which, by virtue of having dividend, voting and liquidation rights substantially
comparable to those of the shares of Common Stock, are deemed in good faith by the Board of Directors to have substantially the same value as the shares of Common Stock (such shares of preferred stock
and shares or fractions of shares of preferred stock are hereinafter referred to as "
Common Stock Equivalents
")), (4) debt securities of the Company,
(5) other assets or (6) any combination of the foregoing, having a value which, when added to the value of the shares of Common Stock actually issued upon exercise of such Right, shall
have an aggregate value equal to the Current Value (less the amount of any reduction in such Purchase Price), where such aggregate value has been determined by the Board of Directors upon the advice
of a nationally recognized investment banking firm selected in good faith by the Board of Directors;
provided
,
however
, if the Company shall
not make adequate provision to deliver value pursuant to clause (B) above within 30 days following the date that the Acquiring Person became such (the
"
Section 11(a)(ii) Trigger Date
"), then the Company shall be obligated to deliver, to the extent permitted by applicable law and any material agreements then in
effect to which the Company is a party, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available), and then, if
necessary, such number or fractions of shares of Preferred Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If within
the 30 day period referred to above the Board of Directors shall determine in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance
upon exercise in full of the Rights, then, if the Board of Directors so elects, such 30 day period may be extended to the extent necessary, but not more than 90 days after the
Section 11(a)(ii)
Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such 30 day period,
as it may be extended, is hereinafter called the "
Substitution Period
"). To the extent that the Company determines that some action need be taken pursuant to the second
and/or third sentence of this
Section 11(a)(iii),
the
Company (x) shall provide, subject to
Section 11(a)(ii)
hereof and the last sentence of this
Section 11(a)(iii)
hereof,
that such action shall apply uniformly to all outstanding Rights and (y) may suspend the exercisability of the Rights until the expiration of the Substitution
B-11
Table of Contents
Period
in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such second sentence and to determine the value thereof. In
the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. For purposes of this
Section 11(a)(iii)
, the per share value of the shares of Common Stock shall be the current per
share market price (as determined pursuant to
Section 11(d)(i)
) on the
Section 11(a)(ii)
Trigger Date and the per share or
fractional value of any Common Stock Equivalent shall be deemed to equal the current per share market price of the Common Stock on such date. The Board of Directors of the Company may, but shall not
be required to, establish procedures to allocate the right to receive shares of Common Stock upon the exercise of the Rights among the holders of Rights pursuant to this
Section 11(a)(iii)
.
(b) In
case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them (for a period expiring
within 45 calendar days after such record date) to subscribe for or purchase Preferred Stock (or shares having similar rights, privileges and preferences as the Preferred Stock
("
Equivalent Preferred Shares
")) or securities convertible into Preferred Stock or Equivalent Preferred Shares at a price per share of Preferred Stock or Equivalent
Preferred Shares (or having a conversion price per share, if a security convertible into shares of Preferred Stock or Equivalent Preferred Shares) less than the then-current per share market price of
the Preferred Stock (determined pursuant to
Section 11(d)
hereof) on such record date, the Purchase Price to be in effect after such record date shall be determined
by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock and Equivalent Preferred Shares
outstanding on such record date plus the number of shares of Preferred Stock and Equivalent Preferred Shares which the aggregate offering price of the total number of such shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price, and the denominator of which shall be the number of shares
of Preferred Stock and Equivalent Preferred Shares outstanding on such record date plus the number of additional shares of Preferred Stock and/or Equivalent Preferred Shares to be offered for
subscription or purchase (or into which the convertible securities so to be offered are initially convertible);
provided
,
however
, that in no
event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case
such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and which shall be binding on the Rights Agent. Shares of Preferred Stock and Equivalent
Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In
case the Company shall fix a record date for the making of a distribution to all holders of the Preferred Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend
payable in Preferred Stock) or subscription rights or warrants (excluding those referred to in
Section 11(b)
hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then-current per share market price
of the Preferred Stock (determined pursuant to
Section 11(d)
hereof) on such record date, less the fair market value (as determined in good faith by the Board of
Directors of the Company whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the
B-12
Table of Contents
Rights
Agent) of the portion of such assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one share of Preferred Stock, and the denominator
of which shall be such current per share market price of the Preferred Stock (determined pursuant to Section 11(d) hereof);
provided
,
however
, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the
Company to be issued upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price that would then be in effect if such record date had not been fixed.
(d) (i)
Except as otherwise provided herein, for the purpose of any computation hereunder, the "current per share market price" of any security (a
"
Security
" for the purpose of this
Section 11(d)(i)
) on any date shall be deemed to be the average of the daily closing prices per
share of such Security for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date;
provided
,
however
, that in the event that the current per share market price of the Security is determined during a period following the announcement by the issuer of such Security
of (A) a dividend or distribution on such Security payable in shares of such Security or securities convertible into such shares, or (B) any subdivision, combination or reclassification
of such Security, and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification,
then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported by
(w) the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, (x) if the Security is not listed or admitted to
trading on the NYSE, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, (y) if the Security is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the
high bid and low asked prices in the over-the-counter market, as reported by the system then in use, or, (z) if on any such date the
Security is not so quoted or reported, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Security selected by the Board of Directors of
the Company. The term "
Trading Day
" shall mean a day on which the principal national securities exchange on which the Security is listed or admitted to trading is open for
the transaction of business or, if the Security is not listed or admitted to trading on any national securities exchange, a Business Day.
(ii) For
the purpose of any computation hereunder, if the Preferred Stock is publicly traded, the "current per share market price" of the Preferred Stock shall be
determined in accordance with the method set forth in
Section 11(d)(i)
. If the Preferred Stock is not publicly traded but the Common Stock is publicly traded, the
"current per share market price" of the Preferred Stock shall be conclusively deemed to be the current per share market price of the Common Stock, as determined pursuant to
Section 11(d)(i)
, multiplied by one thousand (appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after
November 13, 2017). If neither the Common Stock nor the Preferred Stock is publicly traded, "current per share market price" shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent.
B-13
Table of Contents
(e) No
adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price;
provided
,
however
, that any adjustments which by reason of this
Section 11(e)
are not required to be made
shall be carried forward and taken into account in any subsequent adjustment. All calculations under this
Section 11
shall be made to the nearest cent or to the
nearest one ten-thousandth of a share of Preferred Stock or share of Common Stock or other share or security as the case may be. Notwithstanding the first sentence of this
Section 11(e)
, any adjustment required by this
Section 11
shall be made no later than the earlier of (i) three years from
the date of the transaction which requires such adjustment or (ii) the Expiration Date. If as a result of an adjustment made pursuant to
Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than the Preferred Stock, thereafter the Purchase Price and the
number of such other shares so receivable upon exercise of a Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Stock contained in
Sections 11(a)
,
11(b)
,
11(c)
,
11(e)
,
11(h)
,
11(i)
and
11(m)
hereof, as applicable, and the provisions of
Sections 7
,
9
,
10
,
13
and
14
hereof with respect
to the Preferred Stock shall apply on like terms to any such other shares.
(f) All
Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted
Purchase Price, the number of one one-thousandths of a share of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided
herein.
(g) Unless
the Company shall have exercised its election as provided in
Section 11(i)
, upon each adjustment of the Purchase Price as a
result of the calculations made in
Sections 11(b)
and
11(c)
, each Right outstanding immediately prior to the making of such adjustment
shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandths of a share of Preferred Stock (calculated to the nearest ten-thousandth of a share
of Preferred Stock) obtained by (i) multiplying (x) the number of one one-thousandths of a share of Preferred Stock purchasable upon the exercise of a Right immediately prior to such
adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(h) The
Company may elect on or after the date of any adjustment of the Purchase Price or any adjustment to the number of shares of Preferred Stock for which a Right may be
exercised made pursuant to
Sections 11(a)(i)
,
11(b)
or
11(c)
hereof to adjust the number of Rights, in
substitution for any adjustment in the number of one one-thousandths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest ten-thousandth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the
number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. Such record date may be the date on which the Purchase Price is
adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i)
, the Company may, as promptly as practicable, cause to be distributed to holders
of record of Right Certificates on such record date Right Certificates evidencing, subject to
Section 14
hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by
such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such
B-14
Table of Contents
holders
shall be entitled as a result of such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered
in the names of the holders of record of Right Certificates on the record date specified in the public announcement.
(i) Irrespective
of any adjustment or change in the Purchase Price or the number of one one-thousandths of a share of Preferred Stock issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-thousandths of a share of Preferred Stock which were expressed in the initial Right Certificates issued hereunder.
(j) Before
taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the shares of Preferred Stock or other shares
of capital stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of Preferred Stock or other such shares at such adjusted Purchase Price.
(k) In
any case in which this
Section 11
shall require that an adjustment in the Purchase Price be made effective as of a record date
for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date the Preferred Stock, Common Stock or
other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Preferred Stock, Common Stock or other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided
,
however
, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment.
(l) Notwithstanding
anything in this
Section 11
to the contrary, the Company shall be entitled to make such adjustments in the Purchase
Price, in addition to those adjustments expressly required by this
Section 11
, as and to the extent that the Board of Directors in its sole discretion shall
determine to be advisable in order that any consolidation or subdivision of the Preferred Stock, issuance (wholly for cash) of any shares of Preferred Stock at less than the current market price,
issuance (wholly for cash) of Preferred Stock or securities which by their terms are convertible into or exchangeable for Preferred Stock, dividends on Preferred Stock payable in shares of Preferred
Stock or issuance of rights, options or warrants referred to hereinabove in
Section 11(b)
, hereafter made by the Company to holders of its Preferred Stock shall not
be taxable to such stockholders.
(m) Notwithstanding
anything in this Rights Agreement to the contrary, in the event that at any time after the date of this Rights Agreement and prior to the Distribution
Date, the Company shall (i) declare and pay any dividend on the Common Stock payable in Common Stock, or (ii) effect a subdivision, combination or consolidation of the Common Stock (by
reclassification or otherwise than by payment of a dividend payable in Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case, the number of Rights associated
with each share of Common Stock then outstanding, or issued or delivered thereafter, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common
Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the
numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately following the occurrence of such event.
B-15
Table of Contents
(n) The
Company agrees that, after the earlier of the Distribution Date or the Stock Acquisition Date, it will not, except as permitted by
Sections 23
,
24
or
27
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish substantially or eliminate the benefits intended to be afforded by the Rights.
Section 12.
Certificate of Adjusted Purchase Price or Number of Shares
. Whenever an adjustment is
made as provided in
Section 11
or
13
hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with the Rights Agent and with each transfer agent for the Common Stock and the Preferred Stock a copy of such
certificate and (c) mail a brief summary thereof to each holder of a Right Certificate (or if prior to the Distribution Date, to each holder of a certificate representing shares of Common
Stock) in accordance with
Section 26
hereof (if so required under
Section 25
hereof). Notwithstanding the foregoing sentence,
the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. The Rights Agent shall be fully protected in relying
on any such certificate and on any adjustment therein contained and shall not be deemed to have knowledge of any such adjustment unless and until it shall have received such certificate. Any
adjustment to be made pursuant to
Sections 11
or
13
hereof shall be effective as of the date of the event giving rise to such
adjustment.
Section 13.
Consolidation,
Merger or Sale or Transfer of Assets or Earning Power
. (a) In the event, directly or
indirectly, at any time after any Person has become an Acquiring Person, (i) the Company shall merge with and into any other Person (other than one or more of its wholly-owned Subsidiaries),
(ii) any Person (other than one or more of its wholly-owned Subsidiaries) shall consolidate with the Company, or any Person (other than one or more of its wholly-owned Subsidiaries) shall merge
with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Stock shall be changed into or
exchanged for stock or other securities of any other Person (or of the Company) or cash or any other property, or (iii) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating to 50% or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person (other than the Company or one or more of its wholly-owned Subsidiaries), then, and in each such case, proper provision shall be made so that:
(A) each
holder of record of a Right (other than Rights which have become void pursuant to
Section 11(a)(ii)
) shall thereafter have the
right to receive, upon the exercise thereof at a price equal to the then-current Purchase Price multiplied by the number of one one-thousandths of a share of Preferred Stock for which a Right was
exercisable (whether or not such Right was then exercisable) immediately prior to the time that any Person first became an Acquiring Person (each as subsequently adjusted thereafter pursuant to
Sections 11(a)(i)
,
11(b)
,
11(c)
,
11(f)
,
11(h)
,
11(i)
and
11(m)
), in accordance with the terms of this Rights Agreement and in lieu of Preferred Stock, such number of validly issued, fully
paid and non-assessable and freely tradeable shares of Common Stock of the Principal Party (as defined below) not subject to any liens, encumbrances, rights of first refusal or other adverse claims,
as shall be equal to the result obtained by (1) multiplying the then-current Purchase Price by the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior
to the time that any Person first became an Acquiring Person (as subsequently adjusted thereafter pursuant to
Sections 11(a)(i)
,
11(b)
,
11(c)
,
11(f)
,
11(h)
,
11(i)
and
11(m)
) and
(2) dividing that product by 50% of the then-current per share market price of the Common Stock of such Principal Party (determined pursuant to
Section 11(d)(i)
hereof) on the date of consummation of such consolidation, merger, sale or transfer;
provided
, that the Purchase Price
and the number of shares of Common Stock of such Principal Party issuable upon exercise of each Right shall be further adjusted as provided in
Section 11(f)
of this
Rights Agreement to reflect any events occurring in respect of such Principal Party after the date of such consolidation, merger, sale or transfer;
B-16
Table of Contents
(B) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Rights Agreement;
(C) the
term "Company" as used herein shall thereafter be deemed to refer to such Principal Party; and
(D) such
Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of its shares of its Common Stock) in connection with
such consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the shares of its
Common Stock thereafter deliverable upon the exercise of the Rights;
provided,
that upon the subsequent occurrence of any consolidation, merger, sale or transfer of assets
or other extraordinary transaction in respect of such Principal Party, each holder of a Right shall thereupon be entitled to receive, upon exercise of a Right and payment of the Purchase Price as
provided in this
Section 13(a)
, such cash, shares, rights, warrants and other property which such holder would have been entitled to receive had such holder, at the
time of such transaction, owned the Common Stock of the Principal Party receivable upon the exercise of a Right pursuant to this
Section 13(a)
, and such Principal
Party shall take such steps (including, but not limited to, reservation of shares of stock) as may be necessary to permit the subsequent exercise of the Rights in accordance with the terms hereof for
such cash, shares, rights, warrants and other property.
(b) "Principal
Party" shall mean:
(i) in
the case of any transaction described in clauses (i) or (ii) of the first sentence of
Section 13(a)
hereof:
(A) the Person that is the issuer of the securities into which the shares of Common Stock are converted in such merger or consolidation, or, if there is more than one such issuer, the issuer of
the shares of Common Stock of which have the greatest aggregate market value of shares outstanding, or (B) if no securities are so issued, (x) the Person that is the other party to the
merger, if such Person survives said merger, or, if there is more than one such Person, the Person the shares of Common Stock of which have the greatest aggregate market value of shares outstanding or
(y) if the Person that is the other party to the merger does not survive the merger, the Person that does survive the merger (including the Company if it survives) or (z) the Person
resulting from the consolidation; and
(ii) in
the case of any transaction described in clause (iii) of the first sentence in
Section 13(a)
hereof, the Person that is
the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if each Person that is a party to such transaction or transactions
receives the same portion of the assets or earning power so transferred or if the Person receiving the greatest portion of the assets or earning power cannot be determined, whichever of such Persons
is the issuer of Common Stock having the greatest aggregate market value of shares outstanding;
provided
,
however
, that in any such case described in the foregoing clause (b)(i) or (b)(ii), if the Common Stock of such Person is not
at such time or has not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect Subsidiary
of another Person the Common Stock of which is and has been so registered, the term "Principal Party" shall refer to such other Person, or (2) if such Person is a Subsidiary, directly or
indirectly, of more than one Person, and the Common Stock of all of such Persons have been so registered, the term "Principal Party" shall refer to whichever of such Persons is the issuer of Common
Stock having the greatest aggregate market value of shares outstanding, or (3) if such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not
owned, directly or indirectly, by the same Person, the rules set forth in clauses (1) and (2) above shall apply to each of the owners having an interest in the venture as if the Person
owned by the joint venture was a Subsidiary of both or all of such joint venturers, and the Principal Party in each such case shall bear the obligations set forth in this Section 13 in the same
ratio as its interest in such Person bears to the total of such interests.
B-17
Table of Contents
(c) The
Company shall not consummate any consolidation, merger, sale or transfer referred to in
Section 13(a)
hereof unless prior
thereto the Company and the Principal Party involved therein shall have executed and delivered to the Rights Agent an agreement confirming that the requirements of
Sections 13(a)
and
(b)
hereof shall promptly be performed in accordance with their terms and that such consolidation, merger,
sale or transfer of assets shall not result in a default by the Principal Party under this Rights Agreement as the same shall have been assumed by the Principal Party pursuant to
Sections 13(a)
and
(b)
hereof and providing that, as soon as practicable after executing such agreement pursuant to this
Section 13,
the Principal Party will:
(i) prepare
and file a registration statement under the Securities Act, if necessary, with respect to the Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, use its best efforts to cause such registration statement to become effective as soon as practicable after such filing and use its best efforts to cause such
registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date, and similarly comply with applicable state
securities laws;
(ii) use
its best efforts, if the Common Stock of the Principal Party shall be listed or admitted to trading on the NYSE or on another national securities exchange, to list
or admit to trading (or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on the NYSE or such securities exchange, or, if the Common Stock of the Principal
Party shall not be listed or admitted to trading on the NYSE or a national
securities exchange, to cause the Rights and the securities receivable upon exercise of the Rights to be reported by such other system then in use;
(iii) deliver
to holders of the Rights historical financial statements for the Principal Party which comply in all respects with the requirements for registration on
Form 10 (or any successor form) under the Exchange Act; and
(iv) obtain
waivers of any rights of first refusal or preemptive rights in respect of the Common Stock of the Principal Party subject to purchase upon exercise of
outstanding Rights.
In
the event that any of the transactions described in
Section 13(a)
hereof shall occur at any time after the occurrence of a transaction described in
Section 11(a)(ii)
hereof, the Rights which have not theretofore been exercised shall thereafter be exercisable in the manner described in
Section 13(a)
.
(d) In
case the Principal Party has a provision in any of its authorized securities or in its certificate of incorporation or by-laws or other instrument governing its
affairs, which provision would have the effect of (i) causing such Principal Party to issue (other than to holders of Rights pursuant to this
Section 13)
, in
connection with, or as a consequence of, the consummation of a transaction referred to in this
Section 13
, shares of Common Stock or Common Stock Equivalents of
such Principal Party at less than the then-current market price per share thereof (determined pursuant to
Section 11(d)
hereof) or securities exercisable for, or
convertible into, Common Stock or Common Stock Equivalents of such Principal Party at less than such then-current market price, or (ii) providing for any special payment, tax or similar
provision in connection with the issuance of the Common Stock of such Principal Party pursuant to the provisions of
Section 13
, then, in such event, the Company
hereby agrees with each holder of Rights that it shall not consummate any such transaction unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights
Agent a supplemental agreement providing that the provision in question of such Principal Party shall have been canceled, waived or amended, or that the authorized securities shall be redeemed, so
that the applicable provision will have no effect in connection with, or as a consequence of, the consummation of the proposed transaction.
(e) The
Company covenants and agrees that it shall not, at any time after a Person first becomes an Acquiring Person, enter into any transaction of the type contemplated by
Sections 13(a)(i)-(iii)
hereof if (x) at the time of or immediately after such consolidation, merger, sale, transfer or other transaction there are any
rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish
B-18
Table of Contents
or
otherwise eliminate the benefits intended to be afforded by the Rights, (y) prior to, simultaneously with or immediately after such consolidation, merger, sale, transfer or other
transaction, the stockholders of the Person who constitutes, or would constitute, the Principal Party for purposes of
Section 13(b)
hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates or Associates or (z) the form or nature of organization of the Principal Party would preclude or limit the
exercisability of the Rights.
Section 14.
Fractional
Rights and Fractional Shares
. (a) The Company shall not be required to issue fractions of
Rights (except prior to the Distribution Date in accordance with
Section 11(n)
hereof) or to distribute Right Certificates which evidence fractional Rights. In lieu
of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Right. For the purposes of this
Section 14(a)
, the current market value of a whole Right shall be the
closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported by (w) the principal consolidated
transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, (x) if the Rights are not listed or admitted to trading on the NYSE, as reported in the
principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or,
(y) if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by such system then in use or, (z) if on any such date the Rights are not so quoted or reported, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the
fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used.
(b) The
Company shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of
Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth
of a share of Preferred Stock). Interests in fractions of Preferred Stock in integral multiples of one one-thousandth of a share of Preferred Stock may, at the election of the Company, be evidenced by
depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it;
provided
, that such agreement shall provide that the holders
of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners (for the purposes of this
Section 14(b)
, as such term is defined in Rule 13d-3 or 13d-5 of the General Rules and Regulations under the Exchange Act) of the Preferred Stock represented
by such depositary receipts. In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-thousandth of a share of Preferred Stock, the Company shall pay to the
registered holders of Right Certificates at the time such Rights are exercised or exchanged as herein provided an amount in cash equal to the same fraction of the current market value of one share of
Preferred Stock. For the purposes of this
Section 14(b)
, the current market value of a share of Preferred Stock shall be the closing price of a share of Preferred
Stock (as determined pursuant to
Section 11(d)(ii)
hereof) for the Trading Day immediately prior to the date of such exercise or exchange.
(c) The
Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock upon the
exercise or exchange of Rights. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional shares
of Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock. For purposes of this
Section 14(c)
, the current market value of one share of Common Stock for which a Right is exercisable shall be deemed to be the closing price of one share of Common
Stock (as determined in accordance with
Section 11(d)(i)
hereof), for the Trading Day immediately prior to the date of such exercise or exchange.
B-19
Table of Contents
(d) The
holder of a Right by the acceptance of the Right expressly waives the right to receive any fractional Rights or any fractional shares upon exercise or exchange of a
Right (except as provided above).
Section 15.
Rights
of Action
. All rights of action in respect of this Rights Agreement, excepting the rights of action
given to the Rights Agent under
Section 18
hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date,
the registered holders of the Common Stock); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of
the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Stock), on such holder's own behalf and for such holder's own benefit, may enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder's right to exercise the Rights evidenced by such Right Certificate (or, prior to the
Distribution Date, such Common Stock) in the manner provided in such Right Certificate and in this Rights Agreement. Without limiting the foregoing or any remedies available to the holders of Rights,
it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Rights Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Rights Agreement.
Section 16.
Agreement
of Right Holders
. Every holder of a Right, by accepting the same, consents and agrees with the
Company and the Rights Agent and with every other holder of a Right that:
(i) prior
to the Distribution Date, the Rights will not be evidenced by a Right Certificate and will be transferable only in connection with the transfer of the Common
Stock;
(ii) after
the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the office or agency of the
Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer;
(iii) the
Company and the Rights Agent may deem and treat the Person in whose name the Right Certificate (or, prior to the Distribution Date, the Common Stock certificate
(or Book Entry shares in respect of Common Stock)) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right
Certificates or the Common Stock certificate (or notices provided to holders of Book Entry shares of Common Stock) made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent, subject to
Section 7(e)
hereof, shall be affected by any notice to the contrary; and
(iv) notwithstanding
anything in this Rights Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other
Person as a result of its inability to perform any of its obligations under this Rights Agreement by reason of any preliminary or permanent injunction or other order, judgment, decree or ruling
(whether interlocutory or final) issued by a court or by a governmental, regulatory, self-regulatory or administrative agency or commission, or any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation;
provided
,
however
,
that the Company must use its reasonable best efforts to have any such injunction, order, judgment, decree or ruling lifted or otherwise overturned as soon as possible.
Section 17.
Right
Certificate Holder Not Deemed a Stockholder
. No holder, as such, of any Right Certificate shall be
entitled to vote, receive dividends or be deemed for any purpose the holder of the Preferred Stock or any other securities of the Company which may at any time be issuable on the exercise or exchange
of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate
action, or to receive notice of meetings or other actions affecting
B-20
Table of Contents
stockholders
(except as provided in this Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by such Right Certificate shall have been exercised
or exchanged in accordance with the provisions hereof.
Section 18.
Concerning
the Rights Agent
. (a) The Company agrees to pay to the Rights Agent reasonable compensation
for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and
execution of this Rights Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Rights Agreement, including the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly.
(b) The
Rights Agent shall be protected and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its
administration of this Rights Agreement in reliance upon any Right Certificate or certificate representing the Preferred Stock, the Common Stock or any other securities of the Company, instrument of
assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document reasonably believed by it to be genuine and to
be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons, or otherwise upon the advice of counsel as set forth in
Section 20
hereof.
Section 19.
Merger
or Consolidation or Change of Name of Rights Agent
. (a) Any corporation or entity into which the
Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation or entity resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation or entity succeeding to the stock transfer or corporate trust powers of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Rights Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto;
provided
, that such corporation or entity would be eligible for appointment as a successor Rights Agent under the provisions of
Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Rights Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent
or in the name of such successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Rights Agreement.
(b) In
case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered the
Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name and in all such cases such Right Certificates shall have the full force provided
in the Right Certificates and in this Rights Agreement.
B-21
Table of Contents
Section 20.
Duties of Rights Agent
. The Rights Agent undertakes the duties and obligations imposed
by this Rights Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound:
(a) The
Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and
protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever
in the performance of its duties under this Rights Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or
established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the Chief Executive Officer, President, any Vice President, the Treasurer or the Secretary of the Company (each, an
"
Authorized Officer
") and delivered to the Rights Agent; and such certificate shall be full authorization to the
Rights Agent for any action taken or suffered in good faith by it under the provisions of this Rights Agreement in reliance upon such certificate.
(c) The
Rights Agent shall be liable hereunder to the Company and any other Person only for its own gross negligence, bad faith or willful misconduct.
(d) The
Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Rights Agreement or in the Right Certificates
(except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only.
(e) The
Rights Agent shall not be under any responsibility in respect of the validity of this Rights Agreement or the execution and delivery hereof (except the due
execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Rights Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to
Section 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided
for in
Sections 3
,
11
,
13
,
23
and
24
, or the
ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after receipt of a certificate
furnished pursuant to
Section 12
, describing such change or adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to
the authorization or reservation of any shares of Preferred Stock or other securities to be issued pursuant to this Rights Agreement or any Right Certificate or as to whether any shares of Preferred
Stock or other securities will, when issued, be validly authorized and issued, fully paid and nonassessable.
(f) The
Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other
acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Rights Agreement.
(g) The
Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any person reasonably believed by
the Rights Agent to be one of the Authorized Officers, and to apply to such Authorized Officers for advice or instructions in connection with its duties, and it shall not be liable for any action
taken or suffered by it in good faith in accordance with instructions of any such Authorized Officer or for any delay in acting while waiting for those instructions. Any application by the Rights
Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the
B-22
Table of Contents
Rights
Agent under this Rights Agreement and the date on and/or after which such action shall be taken or such omission shall be effective. The Rights Agent shall not be liable for any action taken
by, or omission of, the Rights Agent in accordance with a proposal included in any such application on or after the date specified in such application (which date shall not be less than five Business
Days after the date any Authorized Officer of the Company actually receives such application, unless any such Authorized Officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the Rights Agent shall have received written instructions in response to such application specifying the action to be taken
or omitted.
(h) The
Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or
become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights
Agent under this Rights Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity.
(i) The
Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or
agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct,
provided
, that reasonable care was exercised in the selection and continued employment thereof.
(j) If,
with respect to any Right Certificate surrendered to the Rights Agent for exercise or transfer, the certificate contained in the form of assignment or the form of
election to purchase set forth on the reverse thereof, as the case may be, has not been completed to certify the holder is not an Acquiring Person (or an Affiliate or Associate thereof) or a
transferee thereof, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company.
Section 21.
Change
of Rights Agent
. The Rights Agent or any successor Rights Agent may resign and be discharged from its
duties under this Rights Agreement upon 30 days' notice in writing mailed to the Company and, in the event that the Rights Agent or one if its affiliates is not also the transfer agent for the
Company, to each transfer agent of the Common Stock or Preferred Stock by registered or certified mail, and, following the Distribution Date, to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common Stock or Preferred Stock by registered or certified
mail, and, following the Distribution Date, to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his, her or its Right
Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court, shall be (A) a corporation or other entity organized and doing business under the laws of the United States or any
State thereof, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at least $50 million or (B) an affiliate of a corporation or entity described in clause (A) of this
sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act
or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed
B-23
Table of Contents
necessary
for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the
Common Stock or Preferred Stock, and, following the Distribution Date, mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in
this
Section 21
, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
Section 22.
Issuance
of New Right Certificates
. Notwithstanding any of the provisions of this Rights Agreement or of the
Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such forms as may be approved by its Board of Directors to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Rights Agreement.
In addition, in connection with the issuance or sale of Common Stock following the Distribution Date and prior to the Expiration Date, the Company may with respect to shares of Common Stock so issued
or sold (i) pursuant to the exercise of stock options, (ii) under any employee plan or arrangement, (iii) upon the exercise, conversion or exchange of securities, notes or
debentures issued by the Company or (iv) pursuant to a contractual obligation of the Company, in each case existing prior to the Distribution Date, issue Right Certificates representing the
appropriate number of Rights in connection with such issuance or sale.
Section 23.
Redemption
. (a) The
Board of Directors of the Company may, at its option at any time prior to such time
as any Person first becomes an Acquiring Person, redeem all but not less than all the then-outstanding Rights at a redemption price of $0.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring in respect of the Common Stock of the Company after November 13, 2017 (the redemption price hereinafter referred to as the
"
Redemption Price
"). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole
discretion may establish. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the current market price of the Common Stock at the time of redemption as
determined pursuant to
Section 11(d)(i)
hereof) or any other form of consideration deemed appropriate by the Board of Directors.
(b) Immediately
upon the action of the Board of Directors ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23
(or at such later time as the Board of Directors may establish for the effectiveness of such redemption), and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice
of any such redemption;
provided
,
however
, that the failure to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of Directors ordering the redemption of the Rights (or such later time as the Board of Directors may establish for the effectiveness of
such redemption), the Company shall mail a notice of redemption to all the holders of the then-outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption shall state the method by which the payment of the Redemption Price will be made. The failure to give notice required by this
Section 23(b)
or any defect therein shall not affect the validity of the action taken by the Company.
(c) In
the case of a redemption under
Section 23(a)
hereof, the Company may, at its option, discharge all of its obligations with
respect to the Rights by (i) issuing a press release announcing the manner of redemption of the Rights and (ii) mailing payment of the Redemption Price to the registered holders of the
Rights at their last addresses as they appear on the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent of the Common Stock, and upon
such action, all outstanding Right Certificates shall be void without any further action by the Company.
B-24
Table of Contents
Section 24.
Exchange
. (a) The
Board of Directors of the Company may, at its option, at any time after any Person
first becomes an Acquiring Person, exchange all or part of the then-outstanding Rights (which shall not include Rights that have not become effective or that have become void pursuant to the
provisions of
Section 11(a)(ii)
hereof) for shares of Common Stock at an exchange ratio of one share of Common Stock (or one one-thousandth of a share of Preferred
Stock) per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after November 13, 2017 (such amount per Right being hereinafter referred to
as the "
Exchange Ratio
"). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after an Acquiring Person
becomes the Beneficial Owner of shares of Common Stock
aggregating 50% or more of the shares of Common Stock then outstanding. From and after the occurrence of an event specified in
Section 13(a)
hereof, any Rights that
theretofore have not been exchanged pursuant to this
Section 24(a)
shall thereafter be exercisable only in accordance with
Section 13
and may not be exchanged pursuant to this
Section 24(a)
. The exchange of the Rights by the Board of Directors may be
made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Prior to effecting an exchange pursuant to this Section 24,
the Board of Directors may direct the Company to enter into a Trust Agreement in such form and with such terms as the Board of Directors shall then approve (the "
Trust
Agreement
"). If the Board of Directors so directs, the Company shall enter into the Trust Agreement and shall issue to the trust created by such agreement (the
"
Trust
") all of the shares of Common Stock issuable pursuant to the exchange, and all stockholders entitled to receive shares pursuant to the exchange shall be entitled to
receive such shares (and any dividends or distributions made thereon after the date on which such shares are deposited in the Trust) only from the Trust and solely upon compliance with the relevant
terms and provisions of the Trust Agreement.
(b) Immediately
upon the effectiveness of the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this
Section 24
and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of
such Rights shall be to receive that number of shares of Common Stock equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public
notice of any such exchange and shall promptly mail a notice of any such exchange to all of the holders of the Rights so exchanged at their last addresses as they appear upon the registry books of the
Rights Agent;
provided
,
however
, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. Any
notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of
the shares of Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on
the number of Rights (other than Rights which have become void pursuant to the provisions of
Section 11(a)(ii)
hereof) held by each holder of Rights.
(c) The
Company may at its option substitute and, in the event that there shall not be sufficient shares of Common Stock issued but not outstanding or authorized but
unissued (and unreserved) to permit an exchange of Rights for Common Stock as contemplated in accordance with this
Section 24
, the Company shall substitute to the
extent of such insufficiency, for each share of Common Stock that would otherwise be issuable upon exchange of a Right, a number of shares of Preferred Stock or fractions thereof (or Equivalent
Preferred Shares as such term is defined in
Section 11(b
)) such that the current per share market price (determined pursuant to
Section 11(d)
hereof) of one share of Preferred Stock (or Equivalent Preferred Share) multiplied by such number or fraction is equal to the current per share market
price of one share of Common Stock (determined pursuant to
Section 11(d)
hereof) as of the date of such exchange.
Section 25.
Notice
of Certain Events
. (a) In case the Company shall at any time after the earlier of the
Distribution Date or the Stock Acquisition Date propose (i) to pay any dividend payable in stock of any class to the holders of its Preferred Stock or to make any other distribution to the
holders of its Preferred Stock (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Preferred Stock rights or warrants to subscribe for or to purchase any
additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of its Preferred Stock (other than a
reclassification
B-25
Table of Contents
involving
only the subdivision or combination of outstanding Preferred Stock), (iv) to effect the liquidation, dissolution or winding up of the Company, or (v) to pay any dividend on the
Common Stock payable in Common Stock or to effect a subdivision, combination or consolidation of the Common Stock (by reclassification or otherwise than by payment of dividends in Common Stock), then,
in each such case, the Company shall give to each holder of a Right Certificate, in accordance with
Section 26
hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, or distribution or offering of rights or warrants, or the date on which such liquidation, dissolution, reclassification, subdivision,
combination, consolidation or winding up is to take place and the date of participation therein by the holders of the Common Stock and/or Preferred Stock, if any such date is to be fixed, and such
notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Preferred Stock for
purposes of such action, and in the case of any such other action, at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders
of the Common Stock and/or Preferred Stock, whichever shall be the earlier.
(b) In
case any event described in
Section 11(a)(ii)
or
Section 13
shall occur then the Company
shall as soon as practicable thereafter give to each holder of a Right Certificate (or if occurring prior to the Distribution Date, the holders of the Common Stock) in accordance with
Section 26
hereof, a notice of the occurrence of such event, which notice shall describe such event and the consequences of such event to holders of Rights under
Section 11(a)(ii)
and Section 13 hereof.
(c) The
failure to give notice required by this
Section 25
or any defect therein shall not affect the validity of the action taken by
the Company or the vote upon any such action.
Section 26.
Notices
. Notices
or demands authorized by this Rights Agreement to be given or made by the Rights Agent or by
the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by overnight delivery service or first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:
Subject
to the provisions of
Section 21
hereof, any notice or demand authorized by this Rights Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by overnight delivery service or first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Company) as follows:
American
Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
Attn: Corporate Trust Department
with
a copy (which shall not constitute notice) to:
American
Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
Attn: General Counsel
Notices
or demands authorized by this Rights Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.
B-26
Table of Contents
Section 27.
Supplements
and Amendments
. Except as otherwise provided in this
Section 27
, for so long as the Rights are then redeemable, the Company may in its sole and absolute discretion, and the Rights Agent shall if the Company so
directs, supplement or amend any provision of this Rights Agreement in any respect without the approval of any holders of the Rights. At any time when the Rights are no longer redeemable, except as
otherwise provided in this
Section 27
, the Company may, and the Rights Agent shall, if the Company so directs, supplement or amend this Rights Agreement without the
approval of any holders of Rights in order to (i) cure any ambiguity, (ii) correct or supplement any provision contained herein which may be defective or inconsistent with any other
provisions herein, (iii) shorten or lengthen any time period hereunder, or (iv) change or supplement the provisions
hereunder in any manner which the Company may deem necessary or desirable;
provided, however,
that no such supplement or amendment shall adversely affect the interests of
the holders of Rights as such (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person), and no such amendment may cause the Rights again to become redeemable or cause this
Rights Agreement again to become amendable other than in accordance with this sentence. Notwithstanding anything contained in this Rights Agreement to the contrary, no supplement or amendment shall be
made which decreases the Redemption Price. Upon the delivery of a certificate from an appropriate officer of the Company which states that the supplement or amendment is in compliance with the terms
of this
Section 27
, the Rights Agent shall execute such supplement or amendment;
provided
, that any supplement or amendment that does
not amend
Section 18
,
19
,
20
or
21
hereof or this
Section 27
in a manner adverse to the Rights Agent shall become effective immediately upon execution by the Company, whether or not also executed by the Rights
Agent.
Section 28.
Process
to Seek Exemption
. Any Person who desires to effect any acquisition of Company 382 Securities
that might, if consummated, result in such Person (together with its Affiliates and Associates) Beneficially Owning 4.99% or more of any class of Company 382 Securities then outstanding (or, in the
case of a Grandfathered Person, additional shares of Company 382 Securities in excess of those permitted by the definition of Grandfathered Person) (a "
Requesting Person
")
may, prior to the Stock Acquisition Date and in accordance with this Section 28, request that the Board of Directors grant an exemption with respect to such acquisition under this Agreement so
that such Person would be deemed to be an "Exempted Person" under subsections (v) or (vi) of Section 1(l) hereof for purposes of this Agreement (an "
Exemption
Request
"). An Exemption Request shall be in proper form and shall be delivered by registered mail, return receipt requested, to the Secretary of the Company at the principal executive
office of the Company. To be in proper form, an Exemption Request shall set forth (i) the name and address of the Requesting Person, (ii) the number and percentage of shares of Company
382 Securities then Beneficially Owned by the Requesting Person, together with all Affiliates and Associates of the Requesting Person, and (iii) a reasonably detailed description of the
transaction or transactions by which the Requesting Person would propose to acquire Beneficial Ownership of Company 382 Securities aggregating 4.99% or more of any class of the then outstanding
Company 382 Securities (or, in the case of a Grandfathered Person, additional shares of Company 382 Securities in excess of those permitted by the definition of Grandfathered Person) and the maximum
number and percentage of shares of Company 382 Securities that the Requesting Person proposes to acquire. The Board of Directors shall endeavor to respond to an Exemption Request within 30 Business
Days after receipt of such Exemption Request;
provided
, that the failure of the Board of Directors to make a determination within such period shall be deemed to constitute
the denial by the Board of Directors of the Exemption Request. The Requesting Person shall respond promptly to reasonable and appropriate requests for additional information from the Company or the
Board of Directors and its advisors to assist the Board of Directors in making its determination. The Board of Directors shall only grant an exemption in response to an Exemption Request if the Board
of Directors determines in its sole discretion that the acquisition of Beneficial Ownership of Company 382 Securities by the Requesting Person will not jeopardize or endanger the availability to the
Company of its NOL carryforwards. Any exemption granted hereunder may be granted in whole or in part, and may be subject to limitations or conditions (including a requirement that the Requesting
Person agree that it will not acquire Beneficial Ownership of shares of Company 382 Securities in excess of the maximum number and percentage of shares approved by the Board of Directors), in each
case as and to the extent the Board shall determine necessary or desirable to provide for the protection of the Company's NOLs.
B-27
Table of Contents
Section 29.
Successors
. All
the covenants and provisions of this Rights Agreement by or for the benefit of the Company or
the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.
Section 30.
Benefits
of this Rights Agreement
. Nothing in this Rights Agreement shall be construed to give to any Person
other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Stock) any legal or equitable right, remedy or claim
under this Rights Agreement; but this Rights Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Stock).
Section 31.
Determinations
and Actions by the Board of Directors
. The Board of Directors of the Company shall have the
exclusive power and authority to administer this Rights Agreement and to exercise the rights and powers specifically granted to the Board of Directors of the Company or to the Company, or as may be
necessary or advisable in the administration of this Rights Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Rights Agreement and
(ii) make all determinations deemed necessary or advisable for the administration of this Rights Agreement (including, without limitation, a determination to redeem or exchange or not redeem or
exchange the Rights or to amend or not amend this Rights Agreement). All such actions, calculations, interpretations and determinations that are done or made by the Board of Directors of the Company
in good faith, shall be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights, as such, and all other parties.
Section 32.
Severability
. If
any term, provision, covenant or restriction of this Rights Agreement or applicable to this
Rights Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Rights
Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated;
provided, however,
that notwithstanding anything in this Rights
Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors determines in its
good faith judgment that severing the invalid language from this Rights Agreement would adversely affect the purpose or effect of this Rights Agreement, the right of redemption set forth in
Section 23
hereof shall be reinstated (with prompt notice to the Rights Agent) and shall not expire until the Close of Business on the tenth Business Day following the date of such determination by the Board.
Without limiting the foregoing, if any provision requiring a specific group of Directors of the Company to act is held by any court of competent jurisdiction or other authority to be invalid, void or
unenforceable, such determination shall then be made by the Board of Directors in accordance with applicable law and the Company's Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws.
Section 33.
Governing
Law
. This Rights Agreement and each Right Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed
entirely within such State.
Section 34.
Counterparts
. This
Rights Agreement may be executed in any number of counterparts and each of such counterparts
shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. A signature to this Rights Agreement transmitted electronically
shall have the same authority, effect and enforceability as an original signature.
Section 35.
Descriptive
Headings
. Descriptive headings of the several sections of this Rights Agreement are inserted for
convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.
Section 36.
Prior
Agreement
. This Rights Agreement amends and restates in its entirety the Second A&R Rights Agreement and
the terms and provisions of the Second A&R Rights Agreement are superseded hereby.
B-28
Table of Contents
IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Rights Agreement to be duly executed and attested, all as of the day and
year first
above written.
|
|
|
|
|
|
|
|
|
|
|
CNO FINANCIAL GROUP, INC.
|
Attest:
|
|
/s/ KARL W. KINDIG
|
|
By:
|
|
/s/ ERIC M. HELDING
|
|
|
|
|
|
|
|
Name:
|
|
Karl W. Kindig
|
|
Name:
|
|
Eric M. Helding
|
Title:
|
|
Senior Vice President and Secretary
|
|
Title:
|
|
Executive Vice President, Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC
|
Attest:
|
|
/s/ JENNIFER DONOVAN
|
|
By:
|
|
/s/ MICHAEL A. NESPOLI
|
|
|
Jennifer Donovan
|
|
Name: Michael A. Nespoli
|
|
|
SVP
|
|
Title: Executive Director
|
B-29
Table of Contents
EXHIBIT A
FORM
OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES D JUNIOR PARTICIPATING PREFERRED STOCK
OF
CNO FINANCIAL GROUP, INC.
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
CNO
Financial Group, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "
Company
"), hereby
certifies that the following resolution was duly adopted by the Board of Directors of the Company (hereinafter being referred to as the "
Board of Directors
" or the
"
Board
") as required by Section 151 of the General Corporation Law of the State of Delaware on October 3, 2017:
RESOLVED,
that pursuant to the authority vested in the Board of Directors of the Company in accordance with the provisions of the Company's Amended and Restated Certificate of
Incorporation, (hereinafter being referred to as the "
Certificate of Incorporation
"), the Board of Directors hereby creates a series of preferred stock, par value $0.01
per share, of the Company, to be designated the "Series D Junior Participating Preferred Stock" and hereby adopts the resolution establishing the designations, number of shares, preferences,
voting powers and other rights, and the restrictions and limitations thereof, of the shares of such series as set forth below:
Section 1.
Designation
and Amount
. The shares of such series shall be designated as "Series D Junior Participating
Preferred Stock" (the "
Series D Preferred Stock
") and the number of shares constituting the Series D Preferred Stock shall be 2,000,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided
, that no decrease shall reduce the number of shares of Series D Preferred
Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the Company convertible into Series D Preferred Stock.
Section 2.
Dividends
and Distributions
.
(A) Subject
to the rights of the holders of any shares of any series of Preferred Stock of the Company (the "
Preferred Stock
") (or any similar
stock) ranking prior and superior to the Series D Preferred Stock with respect to dividends, the holders of shares of Series D Preferred Stock, in preference to the holders of Common
Stock, par value $0.01 per share, of the Company (the "
Common Stock
") and of any other stock of the Company ranking
junior to the Series D Preferred Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the last day of January, April, July, and October in each year (each such date being referred to herein as a "
Dividend Payment Date
"), commencing on the
first Dividend Payment Date after the first issuance of a share or fraction of a share of Series D Preferred Stock (the "
Issue Date
"), in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock,
B-30
Table of Contents
declared
on the Common Stock since the immediately preceding Dividend Payment Date or, with respect to the first Dividend Payment Date, since the first issuance of any share or fraction of a share of
Series D Preferred Stock. In the event the Company shall at any time after the Issue Date declare and pay any dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series D Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(B) The
Company shall declare a dividend or distribution on the Series D Preferred Stock as provided in paragraph (A) of this Section immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock);
provided
that, in the event no dividend or distribution
shall have been declared on the Common Stock during the period between any Dividend Payment Date and the next subsequent Dividend Payment Date, a dividend of $1 per share on the Series D
Preferred Stock shall nevertheless be payable, when, as and if declared, on such subsequent Dividend Payment Date.
(C) Dividends
shall begin to accrue and be cumulative, whether or not declared, on outstanding shares of Series D Preferred Stock from the Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of issue is a Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series D
Preferred Stock entitled to receive a quarterly dividend and before such Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series D Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series D Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.
Section 3.
Voting
Rights
. The holders of shares of Series D Preferred Stock shall have the following voting rights:
(A) Subject
to the provision for adjustment hereinafter set forth and except as otherwise provided in the Certificate of Incorporation or required by law, each share of
Series D Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters upon which the holders of the Common Stock of the Company are entitled to vote. In the event the Company
shall at any time after the Issue Date declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series D Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
B-31
Table of Contents
(B) Except
as otherwise provided herein, in the Certificate of Incorporation or in any other certificate of designations creating a series of Preferred Stock or any similar
stock, and except as otherwise required by law, the holders of shares of Series D Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Company having
general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Company.
(C) Except
as set forth herein, or as otherwise provided by law, holders of Series D Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.
(D) If,
at the time of any annual meeting of stockholders for the election of directors, the equivalent of six quarterly dividends (whether or not consecutive) payable on
any share or shares of Series D Preferred Stock are in default, the number of directors constituting the Board of Directors of the Company shall be increased by two. In addition to voting
together with the holders of Common Stock for the election of other directors of the Company, the holders of record of the Series D Preferred Stock, voting separately as a class to the
exclusion of the holders of Common Stock shall be entitled at said meeting of stockholders (and at each subsequent annual meeting of stockholders), unless all dividends in arrears on the
Series D Preferred Stock have been paid or declared and set apart for payment prior thereto, to vote for the election of two directors of the Company, the holders of any Series D
Preferred Stock being entitled to cast a number of votes per share of Series D Preferred Stock as is specified in paragraph (A) of this Section 3. Each such additional director
shall serve until the next annual meeting
of stockholders for the election of directors, or until his or her successor shall be elected and shall qualify, or until his or her right to hold such office terminates pursuant to the provisions of
this Section 3(D). Until the default in payments of all dividends which permitted the election of said directors shall cease to exist, any director who shall have been so elected pursuant to
the provisions of this Section 3(D) may be removed at anytime, without cause, only by the affirmative vote of the holders of the shares of Series D Preferred Stock at the time entitled
to cast a majority of the votes entitled to be cast for the election of any such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by
the vote of such holders. If and when such default shall cease to exist, the holders of the Series D Preferred Stock shall be divested of the foregoing special voting rights, subject to
revesting in the event of each and every subsequent like default in payments of dividends. Upon the termination of the foregoing special voting rights, the terms of office of all persons who may have
been elected directors pursuant to said special voting rights shall forthwith terminate, and the number of directors constituting the Board of Directors shall be reduced by two. The voting rights
granted by this Section 3(D) shall be in addition to any other voting rights granted to the holders of the Series D Preferred Stock in this Section 3.
Section 4.
Certain
Restrictions
.
(A) Whenever
quarterly dividends or other dividends or distributions payable on the Series D Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether or not earned or declared, on shares of Series D Preferred Stock outstanding shall have been paid in full, the
Company shall not:
(i) declare
or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series D Preferred Stock;
(ii) declare
or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series D Preferred Stock, except dividends paid ratably on the Series D Preferred Stock and
B-32
Table of Contents
all
such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
(iii) redeem
or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series D Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the
Company ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series D Preferred Stock or rights, warrants or options to acquire such junior stock; or
(iv) redeem
or purchase or otherwise acquire for consideration any shares of Series D Preferred Stock, or any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series D Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.
(B) The
Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company
could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5.
Reacquired
Shares
. Any shares of Series D Preferred Stock purchased or otherwise acquired by the Company
in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to any conditions and restrictions on issuance set forth
herein.
Section 6.
Liquidation,
Dissolution or Winding Up
. Upon any liquidation, dissolution or winding up of the Company, no
distribution shall be made (A) to the holders of the Common Stock or of shares of any other stock of the Company ranking junior, upon liquidation, dissolution or winding up, to the
Series D Preferred Stock unless, prior thereto, the holders of shares of Series D Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not earned or declared, to the date of such payment, provided that the holders of shares of Series D Preferred Stock shall be entitled to receive
an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common
Stock, or (B) to the holders of shares of stock ranking on a parity upon liquidation, dissolution or winding up with the Series D Preferred Stock, except distributions made ratably on
the Series D Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up.
In the event, however, that there are not sufficient assets available to permit payment in full of the Series D liquidation preference and the liquidation preferences of all other classes and
series of stock of the Company, if any, that rank on a parity with the Series D Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably
to the holders of the Series D Preferred Stock and the holders of such parity shares in the proportion to their respective liquidation preferences. In the event the Company shall at any time
after the Issue Date declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount
to which holders of shares of Series D Preferred Stock were entitled immediately prior to such event under the proviso in clause (A) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of
B-33
Table of Contents
which
is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to
such event.
Neither
the merger or consolidation of the Company into or with another entity nor the merger or consolidation of any other entity into or with the Company (nor the sale of all or
substantially all of the assets of the Company) shall be deemed to be a liquidation, dissolution or winding up of the Company within the meaning of this Section 6.
Section 7.
Consolidation,
Merger, etc
. In case the Company shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are converted into, exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of
Series D Preferred Stock shall at the same time be similarly converted into, exchanged for or changed into an amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is converted,
exchanged or converted. In the event the Company shall at any time after the Issue Date declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the conversion, exchange or change of shares of Series D Preferred Stock shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8.
No
Redemption
. The shares of Series D Preferred Stock shall not be redeemable from any holder.
Section 9.
Rank
. The
Series D Preferred Stock shall rank, with respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution or winding up of the Company, junior to all other series of Preferred Stock and senior to the Common Stock.
Section 10.
Amendment
. If
any proposed amendment to the Certificate of Incorporation (including this Certificate of
Designations) would alter, change or repeal any of the preferences, powers or special rights given to the Series D Preferred Stock so as to affect the Series D Preferred Stock adversely,
then the holders of the Series D Preferred Stock shall be entitled to vote separately as a class upon such amendment, and the affirmative vote of two-thirds of the outstanding shares of the
Series D Preferred Stock, voting separately as a class, shall be necessary for the
adoption thereof, in addition to such other vote as may be required by the General Corporation Law of the State of Delaware.
Section 11.
Fractional
Shares
. Series D Preferred Stock may be issued in fractions of a share that shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of
Series D Preferred Stock.
B-34
Table of Contents
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Company by its
and attested by its
Secretary this 3
rd
day of October, 2017.
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
Title:
|
|
|
Attest:
|
|
|
|
|
|
|
Secretary
|
|
|
|
|
|
|
B-35
Table of Contents
EXHIBIT B
FORM OF RIGHT CERTIFICATE
|
|
|
Certificate No. R-
|
|
Rights
|
NOT
EXERCISABLE AFTER NOVEMBER 13, 2020, OR SUCH EARLIER DATE AS PROVIDED BY THE RIGHTS AGREEMENT OR IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $0.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY
PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
Right Certificate
CNO FINANCIAL GROUP, INC.
This
certifies that [ ] or registered assigns, is the registered owner of the number of Rights set forth above,
each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Third Amended and Restated Section 382 Rights Agreement, dated as of October 3, 2017, as the same may be amended from time
to time (the "
Rights Agreement
"), between CNO Financial Group, Inc., a Delaware corporation (the "
Company
"), and American Stock
Transfer & Trust Company, LLC, as rights agent (the "
Rights Agent
") unless the Rights evidenced hereby shall have been previously redeemed or exchanged by
the Company, to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., New York City time, on
November 13, 2020, or such earlier date as provided by the Rights Agreement at the office or agency of the Rights Agent designated for such purpose, or of its successor as Rights Agent, one
one-thousandth of a fully paid non-assessable share of Series D Junior Participating Preferred Stock, par value $0.01 per share (the "
Preferred Stock
"), of the
Company, at a purchase price of $[
·
] per one one-thousandth of a share of
Preferred Stock (the "
Purchase Price
") payable in cash, upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed.
The
number of Rights evidenced by this Right Certificate (and the number of one one-thousandths of a share of Preferred Stock which may be purchased upon exercise hereof) set forth
above, and the Purchase Price set forth above, are the number and Purchase Price as of November 13, 2017, based on the Preferred Stock as constituted at such date. As provided in the Rights
Agreement, the Purchase Price and the number and kind of securities or property which may be purchased upon the exercise of each Right and the number of Rights evidenced by this Right Certificate are
subject to modification and adjustment upon the happening of certain events.
B-36
Table of Contents
This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are
hereby
incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company. The
Company will mail to the holder of this Right Certificate a copy of the Rights Agreement without charge after receipt of a written request therefor.
This
Right Certificate, with or without other Right Certificates, upon surrender at the office or agency of the Rights Agent designated for such purpose, may be exchanged for another
Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number and kind of securities or property as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon
surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised.
Subject
to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may be redeemed by the Company at its option at a redemption price of $0.01 per
Right or (ii) may be exchanged in whole or in part for shares of Preferred Stock or shares of the Company's Common Stock, par value $0.01 per share.
No
fractional shares of Preferred Stock or Common Stock will be issued upon the exercise or exchange of any Right or Rights evidenced hereby (other than fractions of Preferred Stock
which are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment
will be made, as provided in the Rights Agreement.
No
holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Stock or of any other securities of
the Company which may at any time be issuable on the exercise or exchange hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such,
any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement) or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised or exchanged as provided in the Rights Agreement.
This
Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.
B-37
Table of Contents
WITNESS
the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of
,
.
|
|
|
|
|
|
|
ATTEST:
|
|
CNO FINANCIAL GROUP, INC.
|
By:
|
|
|
|
By:
|
|
|
Countersigned:
|
|
|
|
|
AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC,
as Rights Agent
|
B-38
Table of Contents
Form
of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To
be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR
VALUE RECEIVED
hereby sells, assigns and transfers unto
|
|
|
|
|
|
|
(
Please print name and address of transferee
)
|
|
|
|
|
|
|
|
Rights
represented by this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint
Attorney, to transfer said
Rights on the books of the within-named Company, with full power of substitution.
Dated:
,
Signature
Guaranteed:
Signatures
must be guaranteed by a bank, trust company, broker, dealer or other eligible institution participating in a recognized signature guarantee medallion program.
The
undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by, were not acquired by the undersigned from, and are not being sold,
assigned or transferred to, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement).
B-39
Table of Contents
Form
of Reverse Side of Right Certificate
continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate
)
To
the Rights Agent:
The
undersigned hereby irrevocably elects to exercise
Rights represented by this
Right Certificate to purchase the shares of Preferred Stock
(or other securities or property) issuable upon the exercise of such Rights and requests that certificates for such shares of Preferred Stock (or such other securities) be issued in the name of:
|
|
|
(
Please print name and address
)
|
|
|
|
|
|
If
such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and
delivered to:
Please
insert social security
or other identifying number:
|
|
|
(
Please print name and address
)
|
|
|
|
|
|
Dated:
,
|
|
|
|
|
|
|
Signature
|
|
|
|
|
(Signature must conform to holder
specified on Right Certificate)
|
|
|
Signature
Guaranteed:
Signatures
must be guaranteed by a bank, trust company, broker, dealer or other eligible institution participating in a recognized signature guarantee medallion program.
The
undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by, were not acquired by the undersigned from, and are not being sold,
assigned or transferred to, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement).
B-40
Table of Contents
Form
of Reverse Side of Right Certificate
continued
NOTICE
The
signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.
In
the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, such Assignment or Election to
Purchase will not be honored.
B-41
Table of Contents
EXHIBIT C
UNDER
CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN
TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE SHARES OF PREFERRED STOCK OF CNO
FINANCIAL GROUP, INC.
On
October 3, 2017, CNO Financial Group, Inc. (the "
Company
") entered into a Third Amended and Restated Section 382
Rights Agreement dated as of October 3, 2017 (as the same may be amended from time to time, the "
Rights Agreement
") with American Stock Transfer & Trust
Company, LLC, as rights agent (the "
Rights Agent
"). The Rights Agreement shall take effect on November 13, 2017. The Board of Directors of the Company had
previously declared a dividend of one preferred share purchase right (a "
Right
") for each outstanding share of common stock, par value $0.01 per share, of the Company (the
"
Common Stock
") that was paid to the stockholders of record as of the close of business on January 30, 2009 (the "
Record Date
"). Each
Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series D Junior Participating Preferred Stock, par value $0.01 per share (the
"
Preferred Stock
") of the Company at a price of $90.00 per one one-thousandth of a share of Preferred Stock (as the same may be adjusted, the "
Purchase
Price
"). The description and terms of the Rights are as set forth in the Rights Agreement.
The
Rights Agreement is intended to help protect the Company's tax net operating loss carryforwards. The Board of Directors may redeem the Rights, as discussed more fully below. The
Rights Agreement is intended to act as a deterrent to any person (other than an Exempted Person (as defined below) or any person who has the status of a Threshold Holder (as defined below) on the date
of the Rights Agreement so long as such person does not increase its ownership above an additional 1% of Company 382 Securities (as defined below) then outstanding) from becoming or obtaining the
right to become, a person who or which, together with all affiliates and associates of such person, is the beneficial owner of 4.99% or more of the shares of Common Stock or any other class of Company
382 Securities then outstanding (each such person, a "
Threshold Holder
"), without the approval of the Board of Directors.
Until
the close of business on the earlier of (i) the tenth business day after the first date of a public announcement that a person (other than an Exempted Person (as defined
below) or Grandfathered Person (as defined below)) or group of affiliated or associated persons (an "
Acquiring Person
") has become a Threshold Holder or (ii) the
tenth business day (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated persons becomes an Acquiring Person) after the
date of commencement of, or the first public announcement of an intention to commence, a tender offer or exchange offer, the consummation of which would result in any person (other than an Exempted
Person) becoming an Acquiring Person (the earlier of such dates being herein referred to as the "
Distribution Date
"), the Rights will be evidenced by the shares of Common
Stock represented by the certificates for Common Stock or uncertificated book entry shares outstanding as of the Record Date, together with a copy of the summary of rights disseminated in connection
with the original dividend of Rights.
"
Approved
Acquisition
" shall mean (i) any acquisition of Company 382 Securities that would cause a person to qualify as a Threshold Holder and that
is approved in advance by the Board of Directors, or (ii) a conversion (or other exchange) of Company 382 Securities for other Company 382 Securities where such conversion (or other exchange)
does not increase the beneficial ownership in the Company by any person for purposes of Section 382 of the Internal Revenue Code of 1986, as amended.
"
Company
382 Securities
" shall mean the Common Stock of the Company and any other interest that would be treated as "stock" of the Company for purposes of
Section 382 of the Internal Revenue Code of 1986, as amended (including pursuant to Treasury Regulation Section 1.382-2T(f)(18)).
B-42
Table of Contents
"
Exempted
Person
" shall mean (i) the Company, (ii) any subsidiary of the Company, (in the case of subclauses (i) and
(ii) including, without limitation, in its fiduciary capacity), (iii) any employee benefit plan or compensation arrangement of the Company or of any subsidiary of the Company
(iv) any entity or trustee holding (or acting in a fiduciary capacity in respect of) Company 382 Securities to the extent organized, appointed or established by the Company or any subsidiary of
the Company for or pursuant to the terms of any such plan or for the purpose of funding any such employee benefit plan or compensation arrangement, (v) any person (together with its affiliates
and associates) whose status as a Threshold Holder will, in the sole judgment of the Board of Directors, not jeopardize or endanger the availability to the Company of its net operating loss
carryforwards to be used to offset its taxable income in such year or future years (but in the case of any person determined by the Board of Directors to be an Exempted Person pursuant to this
subparagraph (v) only for so long as such person's status as a Threshold Holder continues not to jeopardize or endanger the availability of such net operating loss carryforwards, as determined
by the Board of Directors in its good faith discretion), or (vi) any person who or which would qualify as a Threshold Holder as a result of an Approved Acquisition and, to the extent approved
by the Board of Directors, any person who or which acquires Company 382 Securities from any such person.
"
Grandfathered
Person
" shall mean any person who or which, together with all affiliates and associates of such person, was as of the date of the Rights
Agreement, the beneficial owner of 4.99% or more of the Company 382 Securities outstanding on such date, unless and until such time as such person after the date of the Rights Agreement acquires
beneficial ownership of additional shares or other interests in Company 382 Securities representing more than 1% of the Company 382 Securities then outstanding. Any Grandfathered Person who, together
with all of its affiliates and associates, subsequently becomes the beneficial owner of less than 4.99% of the Company 382 Securities shall cease to be a Grandfathered Person.
The
Rights Agreement provides that, until the Distribution Date (or earlier expiration of the Rights), new Common Stock certificates issued after the Record Date will contain a notation
incorporating the Rights Agreement by reference and, with respect to any uncertificated book entry shares issued after the Record Date, proper notice will be provided that incorporates the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the Rights will be transferable only in connection with the transfer of Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for shares of Common Stock (or uncertificated book entry shares) outstanding as of
the Record Date, even without a notation incorporating the Rights Agreement by reference (or such notice, in the case of uncertificated book entry shares) or a copy of this Summary of Rights, will
also constitute the transfer of the Rights associated with the shares of Common Stock represented by such certificate or uncertificated book entry shares, as the case may be. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
(
"
Right Certificates
") will be mailed to holders of record of the
Common Stock as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights.
The
Rights are not exercisable until the Distribution Date and will expire at the earlier of (i) the close of business on November 13, 2020, (ii) the close of
business on October 3, 2018 if shareholder approval of the Rights Agreement has not been received by or on such date, (iii) at the adjournment of the first annual meeting of the
stockholders of the Company following November 13, 2017 if stockholder approval of the Rights Agreement has not been received prior to such time, (iv) the repeal of Section 382 or
any successor statute if the Board of Directors determines that the Rights Agreement is no longer necessary for the preservation of tax benefits or (v) the beginning of a taxable year of the
Company to which the Board of Directors determines that no tax benefits may be carried forward (the "
Final Expiration Date
"), subject to (x) the extension of the
Rights Agreement by the Board of Directors by the amendment of the Rights Agreement or (y) the redemption or exchange of the Rights by the Company, as described below.
The
Purchase Price payable, and the number of shares of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time
to prevent dilution (i) in the
B-43
Table of Contents
event
of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights or warrants to
subscribe for or purchase Preferred Stock at a price, or securities convertible into Preferred Stock with a conversion price, less than the then-current market price of the Preferred Stock or
(iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends or dividends payable in Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
The
Rights are also subject to adjustment in the event of a stock dividend on the Common Stock payable in shares of Common Stock or subdivisions, consolidations or combinations of the
Common Stock occurring, in any such case, prior to the Distribution Date.
Shares
of Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of Preferred Stock will be entitled, when, as and if declared, to a minimum
preferential quarterly dividend payment of the greater of (a) $1 per share and (b) an amount equal to 1,000 times the dividend declared per share of Common Stock. In the event of
liquidation, dissolution or winding up of the Company, the holders of the Preferred Stock will be entitled to a minimum preferential liquidation payment of $1,000 per share (plus any accrued but
unpaid dividends) but will be entitled to an aggregate 1,000 times the payment made per share of Common Stock. Each share of Preferred Stock will have 1,000 votes, voting together with the Common
Stock. Finally, in the event of any merger, consolidation or other transaction in which shares of Common Stock are converted or exchanged, each share of Preferred Stock will be entitled to receive
1,000 times the amount received per share of Common Stock. These rights are protected by customary antidilution provisions.
Because
of the nature of the Preferred Stock's dividend, liquidation and voting rights, the value of the one one-thousandth interest in a share of Preferred Stock purchasable upon
exercise of each Right should approximate the value of one share of Common Stock.
In
the event that any person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right, other than Rights beneficially owned by the Acquiring
Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a Right and payment of the Purchase Price, that number of shares of Common Stock and/or other
securities or property having a market value of two times the Purchase Price.
In
the event that, after a person or group has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold, proper provision will be made so that each holder of a Right (other than Rights beneficially owned by an Acquiring Person which will have become void)
will thereafter have the right to receive, upon the exercise thereof at the then-current exercise price of the Right, that number of shares of common stock of the person with whom the Company has
engaged in the foregoing transaction (or its parent), which number of shares at the time of such transaction will have a market value of two times the Purchase Price.
At
any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding shares of Common Stock or the
occurrence of an event described in the prior paragraph, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group which will have become void), in
whole or in part, at an exchange ratio of one share of Common Stock, or a fractional share of Preferred Stock (or of a share of a similar class or series of the Company's preferred stock having
similar rights, preferences and privileges) of equivalent value, per Right (subject to adjustment).
With
certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional
shares of Preferred Stock or Common Stock will be issued (other than fractions of Preferred Stock which are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts) and
B-44
Table of Contents
in
lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock or the Common Stock on the last trading day prior to the date of exercise.
At
any time prior to the time an Acquiring Person becomes such, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date of adoption of the Rights Agreement (the "
Redemption
Price
") payable, at the option of the Company, in cash, shares of Common Stock or such other form of consideration as the Board of Directors of the Company shall determine. The
redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption of
the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price.
For
so long as the Rights are then redeemable, the Company may, except with respect to the Redemption Price, amend the Rights Agreement in any manner. After the Rights are no longer
redeemable, the Company may, except with respect to the Redemption Price, amend the Rights Agreement in any manner that does not adversely affect the interests of holders of the Rights.
Until
a Right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive
dividends.
A
copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Current Report on Form 8-K dated October 3, 2017. A copy of
the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights
Agreement, as the same may be amended from time to time, which is hereby incorporated herein by reference.
B-45
you can consent to receiving all future proxy statements, proxy cards and annual reports proxy card in hand when you call and then follow the instructions. Mark, sign and date your proxy card and return it in the postage-paid envelope we have John Sample 234567 234567 123,456,789,012.12345 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees Gary C. Bhojwani For 0 0 0 0 0 0 0 0 0 Against 0 0 0 0 0 0 0 0 0 Abstain 0 0 0 0 0 0 0 0 0 1A The Board of Directors recommends you vote FOR proposals 2, 3, 4 and 5: For 0 0 0 Against 0 0 0 Abstain 0 0 0 1B Ellyn L. Brown 2. Approval of the Company's Employee Stock Purchase Plan. Approval of the adoption of the Amended and Restated Section 382 Shareholders Rights Plan. Ratification of the appointment of Pricewaterhouse Coopers LLP as the Company's independent registered public accounting firm for 2018. 1C Stephen N. David 3. 1D Robert C. Greving 4. 1E Mary R. Henderson 0 0 0 1F Charles J. Jacklin 5. Approval, by non-binding advisory vote, of the compensation of the Company's named executive officers. 1G Daniel R. Maurer 1H Neal C. Schneider NOTE: Such other business as may properly come before the meeting and any adjournment or postponement thereof. 1I Frederick J. Sievert Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date 02 0000000000 1 OF 1 1 2 0000359625_1 R1.0.1.17 SHARES CUSIP # JOB #SEQUENCE # VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your VOTE BY MAIL provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, 1234567NY 11717. 1234567 NAME THE COMPANY NAME INC. - COMMON THE COMPANY NAME INC. - CLASS A THE COMPANY NAME INC. - CLASS B THE COMPANY NAME INC. - CLASS C THE COMPANY NAME INC. - CLASS D THE COMPANY NAME INC. - CLASS E THE COMPANY NAME INC. - CLASS F THE COMPA N Y NAME INC. - 401 K CONTROL # SHARES123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 x PAGE1 OF 2 CNO FINANCIAL GROUP, INC. 11825 N PENNSYLVANIA ST CARMEL, IN 46032 Investor Address Line 1 Investor Address Line 2 Investor Address Line 3 Investor Address Line 4 Investor Address Line 5 8 8 8 1 1234 ANYWHERE STREET ANY CITY, ONA1A 1A1 234567 234567 234567
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report and Notice & Proxy Statement are available at www.proxyvote.com . CNO FINANCIAL GROUP, INC. Annual Meeting of Shareholders May 9, 2018 8:00 AM This proxy is solicited by the Board of Directors The shareholder(s) hereby appoint(s) Erik M. Helding, Eric R. Johnson and John R. Kline, or any of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this card, all of the shares of Common Stock of CNO FINANCIAL GROUP, INC. that the shareholder(s) is/are entitled to vote at the Annual Meeting of Shareholders to be held at 8:00 AM, EDT on May 9, 2018, at 11825 N. Pennsylvania St., Carmel, Indiana, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. Continued and to be signed on reverse side 0000359625_2 R1.0.1.17