Document:

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                                                                    Exhibit 10.3

                      HORACE MANN NONQUALIFIED SUPPLEMENTAL
                           MONEY PURCHASE PENSION PLAN

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                      HORACE MANN NONQUALIFIED SUPPLEMENTAL
                           MONEY PURCHASE PENSION PLAN

                                   ARTICLE I.

                        ESTABLISHMENT AND PURPOSE OF PLAN
                        ---------------------------------

     1.1  Plan Establishment. Horace Mann Service Corporation hereby
          ------------------
establishes the Horace Mann Nonqualified Supplemental Money Purchase Pension
Plan (the "Plan") effective April 1, 2002.

     1.2  Purpose of Plan. The purpose of the Plan is to provide supplemental
          ---------------
retirement benefits to certain executives and other key employees of Horace Mann
Service Corporation who are members of a select group of management or highly
compensated employees of Horace Mann Service Corporation within the meaning of
Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Plan is designed to
provide certain benefits not available under the HMSC Money Purchase Pension
Plan, a qualified plan under Section 401(a) of the Code, due to limitations
imposed by the Code. Previously such benefits were provided as the "NQMPPP
Feature" of the Horace Mann Executive Supplemental Employee Retirement Plan (the
"ESERP"). The ESERP was frozen effective March 31, 2002. For those participants
in the ESERP on March 31, 2002 who are also Participants in the Plan on April 1,
2002, the benefit under the ESERP represented by the value of the participant's
NQMPPP Feature account (a memorandum account) as of March 31, 2002, has been
transferred to the Plan as provided under the ESERP and as referenced hereunder.

                                   ARTICLE II.

                                   DEFINITIONS
                                   -----------

     The following terms shall have the following meanings when used herein:

     2.1  Account means a memorandum account maintained by the Committee for
          -------
each Participant for bookkeeping purpose only, to which is credited, if
applicable, the Prior Plan Benefit as of April 1, 2002 and the annual Company
Contribution, and which is adjusted annually to reflect the Investment Return.

     2.2  Beneficiary means the individual, individuals, trust or estate
          -----------
designated by the Participant on the beneficiary designation form provided to
the Participant (with only the last such beneficiary designation to be
effective), but if the Participant has made no effective beneficiary designation
as of the date of the Participant's death, then Beneficiary shall mean the
beneficiary of the Participant's accrued benefit under the HMSC MPPP.

     2.3  Code means the Internal Revenue Code of 1986 as from time to time
          ----
amended.

     2.4  Committee means the Committee appointed by HMSC for the purpose of
          ---------
administering the Plan.

                                       -2-

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     2.5  Company or HMSC means Horace Mann Service Corporation and any
          -------    ----
successor thereto.

     2.6  Company Contribution means the amount credited to a Participant's
          --------------------
Account under the provisions of section 3.1 or 3.2, whichever applicable.

     2.7  Compensation means compensation as defined in the HMSC MPPP except not
          ------------
subject to any limitation imposed under Section 401(a)(17) of the Code.

     2.8  Eligible Participant means a Participant who is an employee of HMSC
          --------------------
and who has not been designated by HMSC as ineligible to be credited with a
Company Contribution for a particular Year.

     2.9  ERISA means the Employee Retirement Income Security Act of 1974 as
          -----
from time to time amended

     2.10 Excess Compensation means the excess of Compensation over compensation
          -------------------
as defined in the HMSC MPPP.

     2.11 HMEC means Horace Mann Educators Corporation, the parent company of
          ----
HMSC.

     2.12 HMSC MPPP means the HMSC Money Purchase Pension Plan as currently in
          ---------
effect and as from time to time amended.

     2.13 Investment Return means the positive or negative rate of return
          -----------------
(taking into account earnings, gains and losses) applicable during the relevant
period hereunder to those assets of the HMSC MPPP which represent contributions
made to the HMSC MPPP prior to July 1, 2002 (as adjusted for earnings, gains and
losses).

     2.14 Participant means an employee of HMSC (a) whose Compensation exceeds
          -----------
the maximum amount of compensation allowable to be taken into account by a
qualified plan under Section 401(a)(17) of the Code, (b) who is a member of a
select group of management or highly compensated employees of HMSC, and (c) who
has been designated by HMSC as a participant in the Plan. Participant also
includes a former employee of HMSC for whom an account is maintained under the
Plan and a current employee of HMSC who is not currently an Eligible Participant
but for whom an account is maintained under the Plan.

     2.15 Plan means the Horace Mann Nonqualified Supplemental Money Purchase
          ----
Pension Plan as set forth herein and as from time to time amended.

     2.16 Plan Year or Year means the 12-month period beginning each January 1
          -----------------
and ending each succeeding December 31.

     2.17 Prior Plan Benefit means the benefit of a Participant under the Horace
          ------------------
Mann Executive Supplemental Employee Retirement Plan ("ESERP") represented by
the Participant's "NQMPPP Feature account" which benefit was transferred to the
Plan pursuant to the provisions of the ESERP and credited to the Participant's
Account in the Plan as of April 1, 2002.

                                       -3-

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     2.18 Years of Vesting Service at any particular time means the same number
          ------------------------
of years of vesting service credited to the Participant at such time under the
provisions of the HMSC MPPP.

                                  ARTICLE III.

                   COMPANY CONTRIBUTIONS AND INVESTMENT RETURN
                   -------------------------------------------

     3.1 Company Contributions for Eligible Participants With 5 or More Years
         --------------------------------------------------------------------
of Vesting Service as of April 1, 2002. As of the last day of each Plan Year the
--------------------------------------
Committee will credit to the Account of each Participant who (a) is an Eligible
Participant as of such day, and (b) as of April 1, 2002 had 5 or more Years of
Vesting Service, an amount equal to a percentage of the Participant's Excess
Compensation for such Plan Year as determined under the following schedule:

                  Vesting Service Completed by              Amount of Employer's
                  Participant                               Contribution

                  5 years but less than 15 years            6%
                  15 years or more                          7%

         Notwithstanding the preceding provisions of this section 3.1, if a
Participant terminates employment prior to the last day of the Plan Year and (a)
the Participant was an Eligible Participant immediately prior to such
Participant's termination of employment, and (b) the Participant had 5 or more
Years of Vesting Service as of April 1, 2002, then the Committee will credit to
the Account of the Participant as of the date of the Participant's termination
of employment a percentage of the Participant's Excess Compensation for such
Plan Year, if any, determined in accordance with the preceding schedule under
this section 3.1.

     3.2 Company Contributions for Eligible Participants With Less Than 5 Years
         ----------------------------------------------------------------------
of Vesting Service as of April 1, 2002. As of the last day of each Plan Year the
--------------------------------------
Committee will credit to the Account of each Participant who (a) is an Eligible
Participant as of such day, or if a Participant terminated employment during the
Plan Year then was an Eligible Participant immediately prior to such termination
of employment, and (b) as of April 1, 2002 had less than 5 Years of Vesting
Service, an amount equal to 5% of the Participant's Excess Compensation for such
Plan Year. Notwithstanding the preceding sentence of this section 3.2, if a
Participant terminates employment prior to the last day of the Plan Year and (a)
the Participant was an Eligible Participant immediately prior to such
Participant's termination of employment, and (b) the Participant had less than 5
Years of Vesting Service as of April 1, 2002, then the Committee will credit to
the Account of the Participant as of the date of the Participant's termination
of employment an amount equal to 5% of the Participant's Excess Compensation for
such Plan Year, if any.

     3.3 Adjustments to Accounts for Investment Return. As of the last day of
         ---------------------------------------------
each Plan Year, or if a Participant terminates employment during the Plan Year
then as of the date of

                                       -4-

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the Participant's termination of employment, a Participant's Account shall be
adjusted to reflect the Investment Return applicable to the Participant's
Account for the Plan Year as determined by the Committee. The Investment Return
with respect to amounts credited to an Account as of the first day of a Plan
Year and as of the last day of a Plan Year shall be credited as an annual
return. The Investment Return with respect to amounts credited to a
Participant's Account for only a portion of the Plan Year shall be determined
based only upon such portion of the Plan Year.

                                   ARTICLE IV.

                            DETERMINATION OF BENEFIT
                            ------------------------

     4.1 Vesting. A Participant who is fully vested under the provisions of the
         -------
HMSC MPPP at any particular time shall also be fully vested at such time in such
Participant's benefit under the Plan.

     4.2 Amount of Benefit. The amount of the benefit of a Participant who is
         -----------------
fully vested hereunder shall be equal to the amount credited to the
Participant's Account as of the date of the Participant's termination of
employment after all credits and adjustments to the Participant's Account to be
made under the provisions of Article III have been made.

                                   ARTICLE V.

                               PAYMENT OF BENEFIT
                               ------------------

     5.1 Time of Payment of Benefit. A fully vested Participant's benefit
         --------------------------
hereunder as determined under section 4.2 will be paid to the Participant no
later than ninety (90) days following the Participant's termination of
employment with the Company.

     5.2 Method of Payment of Benefit. A Participant's benefit hereunder will be
         ----------------------------
paid in the form of a lump sum cash payment.

     5.3 Death of Participant. In the event of a fully vested Participant's
         --------------------
termination of employment on account of the Participant's death, the benefit
that would have been paid to the Participant hereunder had the Participant not
died but terminated employment on the date of the Participant's death will be
paid to the Participant's Beneficiary. In the event of the death of a fully
vested Participant after the Participant's termination of employment and prior
to the payment to the Participant of the Participant's benefit hereunder, the
benefit that would otherwise have been paid to the Participant hereunder will be
paid to the Participant's Beneficiary.

     5.4 Special Rule Upon Change of Control. If the Plan is terminated and not
         -----------------------------------
replaced as a result of a Change of Control of Horace Mann Educators Corporation
(the parent company of HMSC), or as a result of a divestiture of HMSC by Horace
Mann Educators Corporation, every Participant will receive a lump sum payment of
his or her benefit determined hereunder as of the date of the termination of the
Plan after all credits and adjustments to the

                                       -5-

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Participant's Accounts to be made under the provisions of Article III, if any,
have been made. All such payments will be made in a reasonable period after the
triggering event has occurred.

     A Change of Control shall be deemed to have occurred if (a) there shall be
consummated (1) any consolidation or merger of HMEC in which HMEC is not the
continuing or surviving corporation, or pursuant to which shares of HMEC's
common stock would be converted into cash, securities or other property, other
than a merger of HMEC in which no HMEC shareholder's ownership percentage in the
surviving corporation immediately after the merger is less than such
shareholder's ownership percentage in HMEC immediately prior to such merger by
ten percent (10%) or more, or (2) any sale, lease exchange or other transfer (in
one transaction or a series of related transactions) of all, or substantially
all of the assets of HMEC; (b) the shareholders of HMEC approve any plan or
proposal for the liquidation or dissolution of HMEC which is a part of a sale of
assets, merger, or reorganization of HMEC or other similar transaction; (c) any
"person" as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), is or becomes, directly
or indirectly, the "beneficial owner," as defined in Rule 13d-3 under the
Exchange Act, of securities of HMEC that represent 51 % or more of the combined
voting power of HMEC's then outstanding securities; or (d) a majority of the
members of HMEC's Board of Directors are persons who are then serving on the
Board of Directors without having been elected by the Board of Directors or
having been nominated by HMEC for election by its shareholders.

                                   ARTICLE VI.

                                 ADMINISTRATION
                                 --------------

     6.1 Committee Authority. The Committee is the Plan Administrator of the
         -------------------
Plan. The Committee is authorized to establish rules and procedures as it deems
advisable or necessary for the administration of the Plan. The Committee has the
sole and absolute discretion to construe and interpret the Plan. In the
administration of the Plan the Committee may, from time to time, (a) delegate
its duties, (b) employ agents and delegate to them such duties as it sees fit,
and (c) consult with legal counsel.

     6.2 Claims Procedure. If a Participant believes he or she is being denied a
         ----------------
benefit to which he or she is entitled under the Plan, the Participant may file
a written request for such benefit with the Committee setting forth his or her
claim. Upon receipt of the claim, the Committee shall advise the Participant
that a reply will be forthcoming within ninety (90) days and shall deliver such
reply within such period, unless Committee extends the reply period for an
additional ninety (90) days for reasonable cause. If the claim is denied in
whole or in part, the Committee shall so advise the Participant in writing
setting forth: (a) the specific reason or reasons for such denial; (b) the
specific reference to pertinent provisions of the Plan on which such denial is
based; (c) a description of any additional material or information necessary for
the Participant to perfect his or her claim and an explanation why such material
or such information is necessary; and (d) appropriate information as to the
steps to be taken if the Participant wishes to submit the claim for review. Any
request for review must be submitted in writing by the Participant to the
Committee in care of the Committee at its principal place of business within
sixty (60) days after the receipt by the Participant of the denial of the
Participant's claim. The

                                       -6-

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Participant or his or her duly authorized representative may, but need not,
review the pertinent documents and submit issues and comments in writing for
consideration by the Committee. If the Participant does not request a review of
the Committee's determination within such sixty (60) day period, the Participant
shall be barred and estopped from challenging the Committee's determination.
Within sixty (60) days after the Committee's receipt of a request for review, it
will review its determination. After considering all materials presented by the
Participant, the Committee will render a written opinion, written in a manner
calculated to be understood by the Participant, setting forth the specific
reasons for the decision and containing specific references to the pertinent
provisions of the Plan on which the decision is based. If special circumstances
require that the sixty (60) day time period be extended, the Committee will so
notify the Participant and will render the decision as soon as possible, but no
later than one hundred twenty (120) days after receipt of the request for
review.

                                  ARTICLE VII.

                                  MISCELLANEOUS

     7.1 Amendment or Termination. The Company reserves the right to amend or
terminate the Plan when, in the sole opinion of the Company, such amendment or
termination is advisable. Any such amendment or termination shall be made
pursuant to a resolution of the board of directors of the Company and shall be
effective as of the date of such resolution.

     7.2 No Contract of Employment. Nothing contained in this Plan will confer
upon any Participant the right to be retained in the service of the Company nor
limit the right of the Company to discharge or otherwise deal with Participants
without regard to the existence of the Plan.

     7.3 Unfunded. The Plan at all times shall be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
the Company for payment of any benefits hereunder. The Plan does not have a
trust or trust fund arrangement. No Participant or Beneficiary or any other
person shall have any interest in any particular assets of the Company by reason
of the right to receive a benefit under the Plan and any such Participant or
Beneficiary or other person shall have only the rights of a general unsecured
creditor of the Company with respect to any rights under the Plan. Nothing
contained in the Plan shall constitute a guaranty by the Company or any other
entity or person that the assets of the Company will be sufficient to pay any
benefit hereunder.

     7.4 Nonalienation of Benefits. No benefit payable under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or charge prior to actual receipt thereof by the payee; and
any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber
or charge prior to such receipt shall be void; and the Company shall not be
liable in any manner for or subject to the debts, contracts, liabilities,
engagements or torts of any person entitled to any benefit under the Plan.

     7.5 Taxes. The Company will cause taxes (including, but not limited to,
employment taxes or federal or state income taxes) to be withheld from amounts
paid hereunder as required

                                       -7-

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by law. A Participant should seek the advice of a tax consultant or financial
advisor regarding his or her personal tax situation.

     7.6 No Trust Relationship. Nothing contained herein and no actions taken
pursuant to the Plan shall create or be construed to create a trust of any kind
or a fiduciary relationship between the Company and any Participant. The Company
shall not be considered a trustee by reason of any provision of this Plan.

     7.7 Corporate Successors. The Plan shall not be automatically terminated by
a transfer or sale of assets of the Company or by the merger or consolidation of
the Company into or with any other corporation or other entity, but the Plan
shall be continued after such sale, merger or consolidation only if and to the
extent that the transferee, purchaser or successor entity agrees to continue the
Plan. In the event the Plan is not continued by the transferee, purchaser or
successor entity, then the Plan shall terminate subject to the provisions of
section 5.4.

     7.8 Governing Law. The Plan is established under and will be construed
according to the laws of the State of Illinois, to the extent that such laws are
not preempted by ERISA, and regulations thereunder.

     7.9 Invalidity of Certain Provisions. If any provision of this Plan shall
be held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof and the Plan shall be construed and enforced
as if such provisions, to the extent invalid or unenforceable, had not been
included.

     7.10 Limitations on Liability and Indemnification. Notwithstanding any of
the preceding provisions of the Plan, neither the Company, Plan Administrator,
nor any individual acting as an employee or agent of the Company or as a member
of the Pension Committee shall be liable to any Participant, former Participant,
surviving spouse or any other person for any claim, loss, liability or expense
incurred in connection with the Plan. Further, the Company shall indemnify and
hold harmless each member of the Committee, the Plan Administrator, and each
officer and employee of the Company to whom are delegated duties,
responsibilities and authority with respect to the Plan against all claims,
liabilities, fines and penalties, and all expenses reasonably incurred by or
imposed upon such person (including but not limited to reasonable attorney fees)
which are not the result of intentional acts knowingly in violations of the Plan
or the law.

     7.11 Headings. The headings of articles are included solely for convenience
of reference, and if there is any conflict between such headings and the text of
this Plan, the text shall control.

Executed effective as of April 1, 2002.

                                            HORACE MANN SERVICE CORPORATION

                                            By:  /s/ Kathryn E. Karr
                                                --------------------------------

                                                 Plan Administrator
                                                --------------------------------

                                       -8-<PAGE>

                                                                    Exhibit 10.4

                CATASTROPHE EQUITY SECURITIES ISSUANCE OPTION AND
                          REINSURANCE OPTION AGREEMENT

     This Catastrophe Equity Securities Issuance Option and Reinsurance Option
Agreement (this "Agreement") is entered into as of May 7, 2002 between Horace
Mann Educators Corporation, a Delaware corporation ("HM") and the option writers
listed in Exhibit A attached hereto (referred to herein as "Option Writer" and
"Reinsurance Option Writer").

                                    RECITALS

     WHEREAS, HM is an insurance holding company with certain subsidiaries which
insure life and property/casualty risks;

     WHEREAS, Reinsurance Option Writer is a reinsurance company in the business
of reinsuring certain property/casualty insurance risks;

     WHEREAS, HM, Option Writer and Reinsurance Option Writer wish to enter into
an agreement under which, during a specified time period, HM will have (i) the
option (the "Securities Issuance Option", as defined in Section 1.35) to require
Option Writer to purchase shares of HM preferred stock (the "Preferred Shares",
as defined in Section 1.26), or (ii) the right (the "Quota Share Reinsurance
Right", as defined in Section 1.29) to require Reinsurance Option Writer to
participate in a ten percent (10%) quota share reinsurance treaty on the terms
set forth in the attached Schedule 1.29, in each case in the event that HM
incurs a Qualifying Catastrophic Event (as defined in Section 1.28); and

     WHEREAS, HM, Option Writer and Reinsurance Option Writer desire to
memorialize their agreement with respect to the Securities Issuance Option and
the Quota Share Reinsurance Right on the terms and conditions set forth below;

     NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, HM and Option Writer agree as follows:

                                    AGREEMENT

     1. Definitions. Terms used in this Agreement shall have the respective
        -----------
meanings ascribed to them below.

          1.1 "Agreement Year" means the period beginning at 12:00 A.M. Central
Time on the Effective Date and ending at 12:00 A.M. Central Time on the one year
anniversary of the Effective Date, and each subsequent one (1) year period,
during the Exposure Period.

          1.2 "Annual Reports" has the meaning assigned thereto in Section 3.9.

          1.3 "Annual Statement" means the annual statement required by statute
to be prepared by an insurance company and submitted to the department of
insurance in its state of

<PAGE>

domicile.

          1.4 "Attachment Point" means (i) with respect to a single Event,
US$75,000,000 and (ii) with respect to multiple Events, US$210,000,000;
provided, however, at the beginning of each Agreement Year, starting on the one
year anniversary of the Effective Date, the Attachment Point shall be increased
by a dollar amount equal to the result obtained by multiplying (x) the
percentage increase, if any, in excess of five percent (5%), in the number of
property units insured by the HM Insurance Subsidiaries in the calendar year
immediately preceding the relevant Agreement Year, compared to the calendar year
second preceding the relevant Agreement Year times (y) the Attachment Point then
in effect. The number of property units insured by the HM Insurance Subsidiaries
in calendar year 2001 was 283,411.

          1.5 "Business Day" means any day other than a Saturday, Sunday or a
day on which banking institutions in New York, New York or Zurich, Switzerland
are not required to be open.

          1.6 "Certificate of Designations" means the Certificate of
Designations for the Preferred Shares, substantially in the form attached as
Schedule 1.6, to be adopted by the Board of Directors of HM and filed with the
Secretary of State of Delaware in accordance with Section 151 of the Delaware
General Corporation Law of 1953, as amended.

          1.7 "Change of Control" means, with respect to HM, (i) the acquisition
of ownership by any Person or "group" within the meaning of Sections 13(d) and
13(g) of the Exchange Act required to file a Schedule 13D under the Exchange Act
(other than a Person or "group" owning greater than 20% and less than 50% of the
voting power of the capital stock of HM that otherwise meets the requirements of
a Person or "group" eligible to file a Schedule 13G in lieu of a Schedule 13D)
of greater than 30% of the voting power of the capital stock of HM (whether by
sale or other transfer of capital stock, merger, consolidation or other
reorganization or means, including a reorganization under bankruptcy or
insolvency laws) or (ii) the consummation of a sale, transfer or other
disposition of greater than 30% of the assets of HM (determined on a combined
and consolidated fair market value basis) in one or a series of related
transactions to any Person that is not an affiliate of HM.

          1.8 "Effective Date" means May 8, 2002.

          1.9 "Event" means a "loss occurrence" as defined in the Property
Catastrophe Reinsurance agreements, a copy of which definition is attached as
Schedule 1.9; provided, however, that such definition shall not be materially
changed or amended without the prior written consent of Option Writer, which
consent shall not be unreasonably withheld.

          1.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder.

          1.11 "Exercise Date" means the date of purchase and sale of Preferred
Shares pursuant to an exercise of the Securities Issuance Option which date
shall be specified in the Notice of Exercise and shall, subject to the proviso
set forth below, be the later of forty-five (45)

                                       2

<PAGE>

days following delivery of a Notice of Exercise or ten (10) Business Days
following receipt of all necessary insurance regulatory approvals (including
without limitation, any Form A approvals required for the issuance and sale of
the Preferred Shares), provided that the Exercise Date shall not be later than
the one hundred eightieth (180th) day after the date of delivery of the Notice
of Exercise, or such later date, if any, resulting from alternative dispute
resolution under Section 8, which date shall be ten (10) Business Days after the
rendering of a final decision pursuant to Section 8.

          1.12 "Exercise Term" means (a) with respect to a single Event, the one
(1) year period commencing upon the occurrence of a Qualifying Catastrophic
Event and ending at 12:00 A.M. Central Time on the first anniversary of such
occurrence during which HM has the right to exercise the Option, or (b) with
respect to multiple Events, the period commencing upon the occurrence of a
Qualifying Catastrophic Event and ending at 12:00 A.M. Central Time on the
anniversary of the Effective Date next following the end of the Agreement Year
during which such Qualifying Catastrophic Event occurs during which HM has the
right to exercise the Option.

          1.13 "Exposure Period" means the period beginning at 12:00 A.M.
Central Time on the Effective Date and ending at 12:00 A.M. Central Time on the
three year anniversary of the Effective Date.

          1.14 "GAAP" means United States generally accepted accounting
principles, consistently applied.

          1.15 "HM" means Horace Mann Educators Corporation, a Delaware
corporation.

          1.16 "HM Common Stock" means the common stock of HM, par value
US$0.001 per share.

          1.17 "HM Insurance Subsidiaries" means Horace Mann Insurance Company,
an insurance company formed under the laws of Illinois; Horace Mann Property &
Casualty Insurance Company f/k/a Allegiance Insurance Company, an insurance
company formed under the laws of California; Teachers Insurance Company, an
insurance company formed under the laws of Illinois; Horace Mann Life Insurance
Company, an insurance company formed under the laws of Illinois; Allegiance Life
Insurance Company, an insurance company formed under the laws of Illinois;
Educators Life Insurance Company of America, an insurance company formed under
the laws of Arizona; Horace Mann Lloyds, a Lloyds plan formed under the laws of
Texas; and such other insurance company subsidiaries of HM as may be agreed in
writing between HM and Option Writer.

          1.18 "Notice of Exercise" means the written notice of HM's intent to
exercise the Securities Issuance Option as described in Section 2.3.

          1.19 "Notice of Objection" means Option Writer's written notice of
objection to a Notice of Exercise, as described in Section 2.3.

                                       3

<PAGE>

          1.20 "Option" means the right described in Section 2.1.

          1.21 "Option Fee" means the amounts to be paid by HM to Option Writer
as consideration for the Option, on the dates set forth in Section 2.1, in each
case equal to 1.25% of (i) US$75,000,000, less (ii) the Original Value of all
Preferred Shares purchased pursuant to exercise of the Securities Issuance
Option; provided, however, that if at the time the Option Fee is due, HM's S&P
Rating is below A+, the percentage used to calculate the Option Fee shall be
adjusted as follows:

HM S&P Rating           Percentage Used to Calculate

      A                              1.3%
      A-                            1.45%
     BBB+                           1.75%
     BBB                            2.25%.

          1.22 "Original Value" means the Preferred Share Purchase Price for
each Preferred Share, as proportionally adjusted for all stock splits, stock
dividends, and any other subdivisions, combinations, reclassifications, or
recapitalizations affecting the Preferred Shares.

          1.23 "Option Writer" and "Reinsurance Option Writer" shall mean the
respective entities listed on Exhibit A.

          1.24 "Person" shall mean any individual, partnership, joint venture,
corporation, limited liability company, association, joint stock company, trust
or unincorporated organization or association, or a government or any department
or agency or political subdivision thereof.

          1.25 "Preferred Share Purchase Price" means US$1,000 per Preferred
Share payable by Option Writer to HM as set forth in Section 2.3.

          1.26 "Preferred Shares" means the Series A Cumulative Convertible
Preferred Stock of HM described in the Certificate of Designations, par value
US$0.001 per share.

          1.27 "Property Catastrophe Reinsurance" means the property catastrophe
reinsurance maintained by the HM Insurance Subsidiaries as described in Section
5.8.

          1.28 "Qualifying Catastrophic Event" means (a) with respect to a
single Event, any single Event taking place during an Agreement Year from which
HM incurs an Ultimate Loss in an amount greater than the Attachment Point, or
(b) with respect to multiple Events taking place during an Agreement Year,
multiple Events from which HM incurs an Ultimate Loss in the aggregate from such
Events in an amount greater than the Attachment Point. A single Event that takes
place during the Exposure Period but which has not developed into a Qualifying
Catastrophic Event prior to the first anniversary of such Event shall not
constitute a Qualifying Catastrophic Event for purposes of this Agreement. A
single Event that takes place

                                       4

<PAGE>

during the Exposure Period and which develops into a Qualifying Catastrophic
Event prior to the first anniversary of such Event, but after expiration of the
Exposure Period, shall constitute a Qualifying Catastrophic Event for purposes
of this Agreement. Multiple Events that have taken place during any Agreement
Year within the Exposure Period but which have not developed into a Qualifying
Catastrophic Event prior to the end of six (6) months after the end of such
Agreement Year shall not constitute a Qualifying Catastrophic Event for purposes
of this Agreement. Multiple Events that have taken place during any Agreement
Year within the Exposure Period and which develop into a Qualifying Catastrophic
Event prior to the end of six (6) months after the end of such Agreement Year
shall constitute a Qualifying Catastrophic Event for purposes of this Agreement.

          1.29 "Quota Share Reinsurance Right" means HM's right, but not
obligation, to bind Reinsurance Option Writer to participate in a ten percent
(10%) quota share reinsurance treaty (the "Treaty") on the terms set forth in
the attached Schedule 1.29.

          1.30 "Registration Rights Agreement" means the Registration Rights
Agreement between HM and Option Writer in the form attached hereto as Schedule
1.30.

          1.31 "S&P Rating" means the financial strength rating (or, with
respect to Option Writer, the counterparty rating), as published from time to
time, by the Standard & Poor's Division of The McGraw-Hill Companies or any
successor.

          1.32 "SAP" means statutory accounting principles, consistently
applied.

          1.33 "SEC" means the United States Securities and Exchange Commission.

          1.34 "Securities Act" means the Securities Act of 1933, as amended,
and all rules and regulations promulgated thereunder.

          1.35 "Securities Issuance Option" means HM's option to obligate Option
Writer to purchase Preferred Shares with an Original Value of up to
US$75,000,000, subject to the terms and conditions set forth in this Agreement.

          1.36 "Transaction Agreements" means this Agreement, its schedules and
exhibits, the Registration Rights Agreement, the Treaty and the Certificate of
Designations.

          1.37 "Ultimate Loss" means the actual direct losses (including the
paid loss, all reserves for unpaid losses, and coinsurance paid by the HM
Insurance Subsidiaries) incurred by the HM Insurance Subsidiaries from an Event
or multiple Events during the applicable Agreement Year, without accounting for
the Property Catastrophe Reinsurance in place at the time such Event or Events
took place, but after accounting for all other reinsurance. A loss shall not be
included in the calculation of Ultimate Loss for more than one Qualifying
Catastrophic Event.

     2.   Securities Issuance Option and Quota Share Reinsurance Right.
          ------------------------------------------------------------

                                       5

<PAGE>

          2.1 Option Fee. To acquire the right (the "Option") to exercise (a)
              ----------
the Securities Issuance Option during the Exercise Term with respect to a
Qualifying Catastrophic Event or (b) the Quota Share Reinsurance Right, all on
the terms contained herein, HM shall pay to Option Writer an Option Fee (the
"Option Fee") for each Agreement Year. The first Option Fee payment shall be
delivered on the Effective Date for the year commencing on the Effective Date),
and subsequent Option Fee payments shall be delivered on each anniversary of the
Effective Date (or the next following Business Day) within the Exposure Period.
In consideration of the payment of the Option Fee, Option Writer hereby grants
to HM the right to exercise the Option on the terms set forth in this Agreement.

          2.2 Exercise Rights. HM shall have the right to exercise the
              ---------------
Securities Issuance Option subject to the following limitations:

               a. The first exercise of the Securities Issuance Option must be
made with respect to a number of Preferred Shares having a minimum aggregate
Original Value of US$25,000,000, and may only be made in integral multiples of
US$1,000,000 above such minimum amount; provided, however, HM shall be entitled
to exercise the Securities Issuance Option in an amount in excess of
US$37,500,000 only if gross losses resulting from a single Event are greater
than US$105,000,000.

               b. The second or any subsequent exercise of the Securities
Issuance Option must be made with respect to a number of Preferred Shares having
a minimum aggregate Original Value of US$5,000,000, and may only be made in
integral multiples of US$1,000,000 above such minimum amount.

               c. In no event shall the Preferred Shares issued pursuant to all
exercises of the Securities Issuance Option have an aggregate Original Value in
excess of US$75,000,000.

               d. In no event shall HM exercise the Securities Issuance Option
more than one time (i) per Qualifying Catastrophic Event resulting from any
single Event, (ii) per Qualifying Catastrophic Event resulting from multiple
Events occurring during any one (1) Agreement Year or (iii) with respect to any
one Agreement Year (regardless of the number of Qualifying Catastrophic Events
occurring during such Agreement Year).

          2.3 Method of Exercise. In the event that HM desires to exercise the
              ------------------
Securities Issuance Option with respect to a Qualifying Catastrophic Event, HM
shall provide written notice to Option Writer during the Exercise Term of its
intent to exercise the Securities Issuance Option (a "Notice of Exercise"),
together with such information as may be necessary to evidence the satisfaction
by HM of, or the ability of HM to satisfy prior to delivery of Preferred Shares,
the conditions to exercise set forth in Article 5. The Notice of Exercise shall
specify the number of Preferred Shares to be issued pursuant to the exercise of
the Securities Issuance Option, the aggregate Preferred Share Purchase Price
payable for such Preferred Shares based on Original Value and the proposed
Exercise Date and, with respect to the applicable Qualifying Catastrophic Event,
the amount of the Ultimate Loss relating to such Qualifying Catastrophic Event,
including the amount of (i) paid losses, (ii) losses reported but not yet paid
and (iii) losses

                                       6

<PAGE>

incurred but not yet then reported, including assumptions underlying the
calculation of item (iii). Option Writer shall have until the end of the
forty-five (45) day period following delivery of the Notice of Exercise in
accordance with Section 10.2 to investigate whether the conditions to exercise
of the Securities Issuance Option have been satisfied and shall, by the end of
such 45 day period, either issue a Notice of Objection (hereinafter defined) or
state its intent not to issue a Notice of Objection based on its investigation
theretofore conducted; provided, however, that if the Exercise Date is extended
for more than an additional forty-five (45) days (beyond the initial forty-five
(45) day notice period) for any reason, Option Writer shall have a period of ten
(10) business days to update its investigation, which ten (10) business day
period shall commence on the date that is the later of (a) the date that HM
certifies to Option Writer that all conditions to exercise of the Securities
Issuance Option set forth in Article 5 hereof shall have been satisfied or (b)
the 45th day immediately preceding the actual Exercise Date. In connection with
such investigation, HM shall provide Option Writer, or its designated agent,
reasonable access to its loss records relating to the Qualifying Catastrophic
Event in question (including, without limitation, policy files, claim files and
loss and loss reserve files or information), during normal business hours, in
order to allow Option Writer to undertake such investigation. In the event that
Option Writer determines that the conditions to exercise of the Securities
Issuance Option set forth in Article 5 have been satisfied, or such is
determined pursuant to Article 8, Option Writer shall deliver, on the Exercise
Date (or the next following Business Day if the Exercise Date is not a Business
Day), by wire transfer of immediately available funds, in U.S. dollars, the
aggregate Preferred Share Purchase Price specified in the Notice of Exercise,
against the delivery by HM of the corresponding number of Preferred Shares. In
the event that Option Writer determines that the conditions for exercise of the
Securities Issuance Option have not been met, Option Writer shall deliver a
written notice of objection to exercise of the Securities Issuance Option (the
"Notice of Objection") to HM within such forty-five (45) day period or the ten
(10) business day update period described above, as applicable. Such Notice of
Objection shall specify in reasonable detail the reason(s) for Option Writer's
objection to the exercise of the Securities Issuance Option. If, within twenty
(20) days following delivery of the Notice of Objection to HM, HM and Option
Writer cannot reach an agreement regarding the exercise of the Securities
Issuance Option, their dispute shall be submitted to dispute resolution in
accordance with Article 8 below. If Option Writer has not delivered a Notice of
Objection to HM or a Notice of Objection has been resolved in HM's favor, Option
Writer and HM shall cooperate and shall use their commercially reasonable
efforts to cause the conditions listed in Section 5.5 which involve obligations
of Option Writer or HM, as applicable, to be satisfied as soon as reasonably
practicable, including without limitation making any Form A filings required
under applicable state insurance laws, rules and regulations.

          2.4 Quota Share Exercise. If HM has satisfied all conditions to
              --------------------
exercise of the Securities Issuance Option other than those contained in
Sections 5.9 and 5.12, HM may elect, as an alternative to such exercise, on one
occasion and prior to the issuance of any Preferred Shares pursuant to Section
2.3, to exercise the Quota Share Reinsurance Right. In such a case, HM shall
provide written notice to Reinsurance Option Writer during the Exercise Term of
its intent to exercise the Quota Share Reinsurance Right, which shall contain
the same information as a Notice of Exercise other than information regarding
Preferred Shares. Following delivery of that notice in accordance with Section
10.2, the procedures for Reinsurance Option Writer to object to that notice and
for resolution of that objection shall be consistent with those set forth above
in

                                       7

<PAGE>

Section 2.3. If Reinsurance Option Writer has not objected to such an
exercise or such an objection has been resolved in HM's favor, Reinsurance
Option Writer and HM shall cooperate and shall use their commercially reasonable
efforts to cause the conditions listed in Section 5.5 which involve obligations
of Reinsurance Option Writer or HM, as applicable, to be satisfied as soon as
reasonably practicable. Any election by HM to exercise the Quota Share
Reinsurance Right shall terminate the obligation of Reinsurance Option Writer to
purchase Preferred Shares pursuant to this Agreement.

     3. Representations and Warranties of HM. HM, on its behalf and on behalf of
        ------------------------------------
each of the HM Insurance Subsidiaries, represents and warrants to Option Writer
and Reinsurance Option Writer (which representations and warranties shall be
deemed to be repeated by HM on each Exercise Date and which representations and
warranties shall be deemed to include any certification made by any officer of
HM pursuant to the terms of this Agreement) as follows:

          3.1 Existence and Qualifications of HM. Each of HM and the HM
              ----------------------------------
Insurance Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and each of HM and the HM
Insurance Subsidiaries has the full corporate power and authority to conduct its
business as currently being conducted and to execute and deliver the Transaction
Agreements to which it is a party, and to perform its obligations under, and to
consummate the transactions contemplated by, the Transaction Agreements to which
it is a party, including, without limitation, the delivery of the Preferred
Shares pursuant to the exercise of the Securities Issuance Option.

          3.2 No Violation or Conflict. The execution and delivery of the
              ------------------------
Transaction Agreements to which it is a party by HM, and the performance of HM
under such Transaction Agreements, will not be in violation or conflict with any
applicable law, any provision of HM's or HM's Insurance Subsidiaries'
organizational documents or any order or judgment of any court or other
government agency applicable to HM or any of its assets or subsidiary or
affiliated companies, to the extent that any such order or judgment would have a
material adverse effect on the rights and privileges of Option Writer under this
Agreement, or any contractual restriction binding upon or affecting HM or any of
its assets or subsidiary or affiliated companies. HM and the HM Subsidiaries, as
applicable, have complied, in all material respects, with all representations,
warranties, covenants and agreements contained in any Transaction Agreements.

          3.3 Consents. All governmental and other consents that are required to
              --------
have been obtained by HM with respect to the execution and delivery of this
Agreement have been obtained and are in full force and effect and all conditions
of any such consents have been complied with.

          3.4 Binding Obligations. The execution of the Transaction Agreements
              -------------------
to which it is a party has been duly authorized by all necessary corporate
action of HM, and such Transaction Agreements (a) have been duly executed and
delivered by HM, (b) constitute legal, valid and binding obligations of HM and
(c) are enforceable against HM in accordance with their terms (subject to
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws

                                       8

<PAGE>

affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general application).

          3.5 Absence of Litigation. There is not pending or, to its knowledge,
              ---------------------
threatened against HM or any of its subsidiaries or affiliates, any action, suit
or proceeding before any court, tribunal, governmental body, agency or official
or any arbitrator or mediator that would reasonably be expected to materially
and adversely affect the legality, validity and enforceability of the
Transaction Agreements against HM or materially adversely affect the financial
condition of HM or any of the HM Insurance Subsidiaries.

          3.6 Preferred Shares. HM has, or will have as of the applicable
              ----------------
Exercise Date, 75,000 authorized Preferred Shares, and such Preferred Shares,
when issued pursuant to the exercise of the Securities Issuance Option, shall,
upon delivery of payment therefor, be validly issued, fully paid and
non-assessable. Upon issuance pursuant to this Agreement, the Preferred Shares
shall be free and clear of any lien, encumbrance or other restriction (other
than as set forth in the Transaction Agreements), and upon delivery of and
payment for the Preferred Shares as provided in this Agreement, Option Writer
will acquire good title to the Preferred Shares purchased under this Agreement,
free and clear of any lien, encumbrance or other restriction (other than as set
forth in the Transaction Agreements).

          3.7 HM Common Stock. The shares of HM Common Stock into which the
              ---------------
Preferred Shares may be converted, as set forth in the Certificate of
Designations, shall, upon issuance pursuant to such conversion, be validly
issued, fully paid and non-assessable. Such shares of HM Common Stock shall be
free and clear of any lien, encumbrance or other restriction (other than as set
forth in the Transaction Agreements), and upon conversion as provided in the
Certificate of Designations, Option Writer will acquire good title to the
requisite number of shares of HM Common Stock, free and clear of any lien,
encumbrance or other restriction (other than as set forth in the Transaction
Agreements). Such shares of HM Common Stock shall be subject to the Registration
Rights Agreement.

          3.8 Options or Other Rights. Except for this Agreement, there is no
              -----------------------
outstanding right, subscription, warrant, call, unsatisfied preemptive right,
option or other agreement of any kind to purchase or otherwise to receive from
HM any authorized but unissued, unauthorized or treasury shares of the Preferred
Shares.

          3.9 Financial Statements. Option Writer has had access to true and
              --------------------
complete copies of (a) the Annual Statements of the HM Insurance Subsidiaries
containing audited balance sheets as of December 31, 2000 and 2001 and
statements of earnings for the years ended December 31, 2000 and 2001, and (b)
the Annual Report on Form 10-K and Annual Report to Shareholders of HM for the
year ended December 31, 2001 (collectively, the "Annual Reports"). The Annual
Statements have been prepared in accordance with SAP and the Annual Reports have
been prepared in accordance with GAAP, and both the Annual Statements and the
Annual Reports present fairly in all material respects the financial position of
HM and/or the HM Insurance Subsidiaries, and the results of their respective
operations, as of the dates indicated and for the periods then ended.

                                       9

<PAGE>

          3.10 Licenses and Permits. HM and the HM Insurance Subsidiaries have
               --------------------
all requisite licenses, permits and authority (collectively, "Licenses") that
are necessary for the conduct of their respective insurance and other
businesses, if any, such Licenses are in full force and effect and no proceeding
is pending or threatened to suspend, revoke or limit any License which is
material to the operations of any such insurance company.

          3.11 Regulatory Filings. All previous regulatory filings by HM with
               ------------------
the SEC and applicable insurance regulatory authorities, at the time of filing,
(a) in the case of filings with the SEC, did not contain any material
misstatements or omissions, and (b) in the case of filings with applicable
insurance regulatory authorities, were appropriately responsive to, and in
compliance with, the insurance regulatory requirements in all material respects.
All previous regulatory filings by the HM Insurance Subsidiaries with applicable
insurance regulatory authorities were, at the time of filing, appropriately
responsive to, and in compliance with, the insurance regulatory requirements in
all material respects.

          3.12 No Insolvency or Bankruptcy. Neither HM nor any HM Insurance
               ---------------------------
Subsidiary (a) is the subject of any voluntary or involuntary petition under any
bankruptcy, insolvency or similar law affecting creditors generally, (b) is the
subject of any liquidation, transformation or rehabilitation proceeding or (c)
has had a receiver or similar person or entity appointed for any of its
property.

          3.13 1934 Act Compliance. HM's most recent Annual Report filed on Form
               --------------------
10-K and its Quarterly Reports filed on Form 10-Q and any Current Reports filed
on Form 8-K filed after the date of such Form 10-K, at the time they were filed
with the SEC and as of the Effective Date, complied and comply in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC under the Exchange Act and, at the Effective Date, do not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

     4. Representations and Warranties of Option Writer. Each of Option Writer
        -----------------------------------------------
and Reinsurance Option Writer represents and warrants to HM (which
representations and warranties shall be deemed repeated by Option Writer and/or
Reinsurance Option Writer, to the extent applicable, on each Exercise Date) as
follows (with each reference to Option Writer being construed as a reference to
which of Option Writer or Reinsurance Option Writer is making the
representations below, except for Section 4.6 which shall be limited to Option
Writer):

          4.1 Existence and Qualifications of Option Writer. Option Writer is a
              ---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the state of domicile noted on Exhibit A, and Option Writer has the full
corporate power and authority to conduct its business as currently being
conducted and to execute and deliver the Transaction Agreements to which it is a
party, and to perform its obligations under, and consummate the transactions
contemplated by the Transaction Agreements to which it is a party, including,
without limitation, the purchase of the Preferred Shares pursuant to the
exercise of the Securities Issuance Option.

                                       10

<PAGE>

          4.2 No Violation or Conflict. The execution and delivery of the
              ------------------------
Transaction Agreements to which it is a party by Option Writer, and the
performance of Option Writer under such Transaction Agreements, do not violate
or conflict with any applicable law, any provision of Option Writer's
organizational documents or any order or judgment of any court or other
government agency applicable to Option Writer or any of its assets or subsidiary
or affiliated companies to the extent that any such order or judgment would have
a material adverse effect on the rights and privileges of HM under this
Agreement, or any contractual restriction binding upon or affecting Option
Writer or any of its assets or subsidiary or affiliated companies. Option Writer
has complied, in all material respects, with all representations, warranties,
covenants and agreements contained in any Transaction Agreements to the extent
that such compliance will not have a material adverse effect on the rights and
privileges of HM under this Agreement.

          4.3 Consents. All governmental and other consents that are required to
              --------
have been obtained by Option Writer with respect to the execution and delivery
of this Agreement have been obtained and are in full force and effect and all
conditions of any such consents have been complied with.

          4.4 Binding Obligations. The execution of the Transaction Agreements
              -------------------
to which it is a party has been duly authorized by all necessary corporate
action of Option Writer, and such Transaction Agreements (a) have been duly
executed and delivered by Option Writer, (b) constitute legal, valid and binding
obligations of Option Writer and (c) are enforceable against Option Writer in
accordance with their terms (subject to applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general application).

          4.5 Absence of Litigation. There is not pending or to its knowledge,
              ---------------------
threatened against Option Writer or any of its subsidiaries or affiliates, any
action, suit or proceeding before any court, tribunal, governmental body, agency
or official or any arbitrator or mediator that would reasonably be expected to
materially and adversely affect the legality, validity and enforceability of the
Transaction Agreements against Option Writer.

          4.6 Investment Representation. Option Writer understands that the
              -------------------------
issuance of Preferred Shares under this Agreement and the issuance of HM Common
Stock upon conversion of Preferred Shares have not been and will not (except as
contemplated pursuant to the Registration Rights Agreement) be registered under
the Securities Act and such Preferred Shares and HM Common Stock will be issued
in reliance upon the exemption afforded by Section 4(2) of the Securities Act
for transactions by an issuer not involving any public offering. Option Writer
represents that (a) it is acquiring the Preferred Shares and such HM Common
Stock solely for its own account, for investment purposes only, and not with a
view to distribution, fractionalization or resale thereof, (b) it will not sell
or otherwise dispose of the Preferred Shares and such HM Common Stock except in
compliance with the registration requirements or exemption provisions of
applicable securities laws including the Securities Act, (c) it has not relied
on HM for any explanation of the application of the various state and federal
securities laws with regard to the acquisition of the Preferred Shares and such
HM Common Stock, (d) assuming the accuracy of HM's representations and
warranties set forth in Article 3

                                       11

<PAGE>

hereof, it has access to adequate information regarding the business and
finances of HM, and has received, read and understood the contents of the Annual
Statements and the Annual Reports and Notice of Meeting and Proxy Statements for
HM and the HM Insurance Subsidiaries as of and for each of the years ended
December 31, 1999, 2000 and 2001, (e) it has such knowledge and experience in
business and financial matters that it has been able to fully understand and
completely evaluate the risks and merits of holding the Preferred Shares and
such HM Common Stock as provided in this Agreement and (f) it is able to bear
the economic risk and limitation in liquidity of an investment in the Preferred
Shares and such HM Common Stock.

     5. Conditions to Exercise of Option. With respect to each exercise of the
        --------------------------------
Option, the right of HM to effect such exercise shall be subject to the
satisfaction by HM at, or waiver by Option Writer at or prior to, the Exercise
Date, of the following conditions:

          5.1 Occurrence of Event. A Qualifying Catastrophic Event shall have
              -------------------
occurred with respect to the HM Insurance Subsidiaries collectively.

          5.2 HM Net Worth. With respect to the first exercise of the Option,
              ------------
after accounting for the Qualifying Catastrophic Event, but prior to payment for
any Preferred Shares to be purchased upon such first exercise of the Option, the
consolidated stockholders' equity of HM and its consolidated subsidiaries, as
determined in accordance with GAAP (the "HM Net Worth") shall not be less than
US$215,000,000, excluding goodwill. With respect to any subsequent exercise of
the Option, after accounting for the Qualifying Catastrophic Event but prior to
accounting for any payment for Preferred Shares previously issued pursuant to an
exercise of the Securities Issuance Option, the HM Net Worth shall not be less
than US$215,000,000, excluding goodwill.

          5.3 Financial Leverage. Prior to accounting for the Qualifying
              ------------------
Catastrophic Event, the total amount of HM long-term debt and short-term debt
divided by the total amount of HM long-term debt and shareholders equity
(excluding any payment received for the Preferred Shares), determined in
accordance with GAAP, shall not be more than 47.5%.

          5.4 Rating. Prior to the Qualifying Catastrophic Event, the S&P Rating
              ------
of HM shall not have fallen below BBB.

          5.5 Compliance with Laws and Consents. With respect to the exercise of
              ---------------------------------
only the Securities Issuance Option, HM shall have complied with all laws and
regulations applicable to the authorization and issuance of the Preferred
Shares, and subject to the following sentence, the conversion of the Preferred
Shares into HM Common Stock, including the adoption by the Board of Directors of
HM of the Certificate of Designations, and the filing of such Certificate of
Designations with the Secretary of State of Delaware. HM and Option Writer shall
have obtained all consents and approvals (whether shareholder, regulatory,
contractual or otherwise) necessary for the authorization and issuance of the
Preferred Shares, the conversion of the Preferred Shares into HM Common Stock,
and the authorization and issuance of such HM Common Stock, including without
limitation the filing and approval of any Form A application with the applicable
insurance departments (but excluding any filings required under the
Hart-

                                       12

<PAGE>

Scott-Rodino Antitrust Improvements Act of 1976, as amended); provided that, if
any insurance regulator shall for any reason decline to approve the conversion
of the Preferred Shares and/or the issuance of HM Common Stock pursuant to such
conversion, but shall approve the authorization and issuance of the Preferred
Shares then such approval of the conversion of the Preferred Shares and/or the
issuance of HM Common Stock pursuant to such conversion, as applicable, shall
not be a condition to exercise of the Securities Issuance Option, provided
further, however, that HM has reasonably cooperated with Option Writer to obtain
such approvals.

          5.6 Review of Financial Statements by Auditor. HM's regular outside
              -----------------------------------------
auditor or accounting firm shall have reviewed HM's consolidated balance sheet
and statement of earnings for the most recent quarter ending prior to the date
of the applicable Notice of Exercise, and shall have issued its review report on
such quarterly financial statements, and HM shall provide an adjusted
consolidated balance sheet for HM for the period up to the Exercise Date, and HM
shall represent and warrant, as of the Exercise Date, that such adjusted
consolidated balance sheet presents fairly in all material respects the
financial position of HM as of the date indicated. In addition, HM shall supply
Option Writer with such information as Option Writer may reasonably request to
permit Option Writer to determine satisfaction by HM of the conditions to
exercise set forth in Sections 5.1, 5.2, 5.3, 5.4, 5.6, 5.8, 5.9 and 5.13 of
this Agreement.

          5.7 No Insolvency or Bankruptcy. None of HM or the HM Insurance
              ---------------------------
Subsidiaries shall (a) be the subject of any voluntary or involuntary petition
under any bankruptcy, insolvency or similar law affecting creditors generally,
(b) be the subject of any liquidation, transformation or rehabilitation
proceeding, (c) be under the supervision of any governmental regulatory body or
(d) have had a receiver or similar person or entity appointed for any of its
property.

          5.8 Maintenance of Current HM Reinsurance Program. HM shall have in
              ---------------------------------------------
effect a property catastrophe reinsurance program, of reasonably consistent
quality with its reinsurance program in effect on the Effective Date, with a
total retention and coinsurance of no more than $30,000,000 below the then
applicable Attachment Point for a single Event.

          5.9 HM Common Stock Ownership Threshold. With respect to the exercise
              -----------------------------------
of only the Securities Issuance Option, the purchase of Preferred Shares
pursuant to an exercise of the Securities Issuance Option shall not (when taking
into account all shares of HM Common Stock in which Option Writer then holds
direct, indirect or beneficial ownership) result in Option Writer having direct,
indirect or beneficial ownership of more than fifty percent (50%) of the issued
and outstanding shares of HM Common Stock, assuming that such Preferred Shares,
together with any other Preferred Shares already then held directly, indirectly
or beneficially by Option Writer, were converted into shares of HM Common Stock
on the Exercise Date.

          5.10 Accuracy of Representations, Warranties and Covenants. Each of
               -----------------------------------------------------
the representations and warranties of HM made in Article 3 of this Agreement
shall be true in all material respects on and as of the Exercise Date and with
the same effect as though such representations and warranties had been made on
and as of such date except as otherwise

                                       13

<PAGE>

contemplated or permitted by this Agreement, and HM shall not be in breach of
any of the covenants of HM made in Article 6 of this Agreement; and Option
Writer shall have received a certificate to that effect, in the form attached as
Schedule 5.10, dated the Exercise Date and executed on behalf of HM by a duly
authorized officer.

          5.11 Payment of Fees. All Option Fee payments then due shall have been
               ---------------
paid in full.

          5.12 Legal Opinion. Option Writer shall have received, from counsel
               -------------
for HM, an opinion of counsel dated as of the Exercise Date which is
substantially in the form attached as Schedule 5.12.

          5.13 Consents. All governmental and other consents, including those of
               --------
HM's shareholders, that are required to have been obtained by HM with respect to
the execution, delivery and performance of the Transaction Agreements or the
issuance of the Preferred Shares shall have been obtained by HM and shall be in
full force and effect and all conditions of any such consents shall have been
complied with.

     6. Covenants and Agreements. Option Writer and HM make the following
        ------------------------
covenants and agreements:

          6.1 Redemption Rights. The Preferred Shares shall be subject to the
              -----------------
provisions of the Certificate of Designations.

          6.2 Registration Rights. Holders of Registrable Securities (as defined
              -------------------
in the Registration Rights Agreement) shall have registration rights in
accordance with the terms of the Registration Rights Agreement, which
Registration Rights Agreement shall be executed by HM and Option Writer
concurrently with this Agreement.

          6.3 Resale Rights.
              -------------

               a. Option Writer shall be able to sell or transfer Preferred
Shares to its affiliates and affiliated investment funds; provided, however,
that any such sale or transfer shall not subject HM to any material cost or
expense, and provided further, that if such affiliate is foreign, there would be
no material adverse effect on HM due to the fact that such affiliate is a
foreign entity. Other than as so provided, the Preferred Shares will be freely
transferable subject only to restrictions imposed by Federal and state
securities laws.

               b. Prior to the registration of the Preferred Shares, pursuant to
the Registration Rights Agreement or otherwise, the certificates evidencing the
Preferred Shares shall bear a legend which evidences restrictions upon
transferability of the Preferred Shares. The legend shall read as follows:

          THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933,

                                       14

<PAGE>

          AS AMENDED, OR UNDER ANY STATE OR FOREIGN SECURITIES LAWS, AND
          MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
          REGISTRATION STATEMENT OR AN EXEMPTION FROM REGISTRATION
          THEREUNDER OR A WRITTEN OPINION OF COUNSEL REASONABLY ACCEPTABLE
          TO HORACE MANN EDUCATORS CORPORATION TO THE EFFECT THAT NO SUCH
          REGISTRATION IS REQUIRED. THE SECURITIES REPRESENTED BY THIS
          CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
          TRANSFER SET FORTH IN A CATASTROPHE EQUITY SECURITIES ISSUANCE
          OPTION AND REINSURANCE OPTION AGREEMENT BETWEEN HORACE MANN
          EDUCATORS CORPORATION AND THE OPTION WRITER NAMED THEREIN DATED
          AS OF MAY 7, 2002, AS AMENDED AND MODIFIED FROM TIME TO TIME. A
          COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT
          HORACE MANN EDUCATORS CORPORATION'S PRINCIPAL PLACE OF BUSINESS
          WITHOUT CHARGE.

The first sentence of the legend (and the eighth and eleventh words of the
second sentence) shall be removed from any certificate representing Preferred
Shares (i) sold under an effective registration statement under the Securities
Act or (ii) as to which, in an opinion of counsel reasonably satisfactory to HM
(which opinion shall be paid for solely by the holder of such Preferred Shares),
such registration is not necessary or required, and that the transfer will not
otherwise violate the Securities Act, the Exchange Act or applicable state or
foreign securities laws; and any stop transfer instructions previously given to
HM's transfer agent shall be revoked as to such Preferred Shares upon the
occurrence of (i) or (ii) above.

               c. The shares of HM Common Stock into which the Preferred Shares
may be convertible shall not be subject to any restrictions on sale or transfer
by Option Writer pursuant to this Agreement.

               d. Prior to the registration of any shares of HM Common Stock
into which the Preferred Shares are converted, pursuant to the Registration
Rights Agreement or otherwise, the certificates representing such shares of HM
Common Stock shall bear a legend which evidences restrictions upon
transferability of such shares of HM Common Stock. Such legend shall read as
follows:

          THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
          ANY STATE OR FOREIGN SECURITIES LAWS, AND MAY NOT BE SOLD OR
          TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
          OR AN EXEMPTION FROM REGISTRATION THEREUNDER OR A WRITTEN OPINION
          OF COUNSEL REASONABLY ACCEPTABLE TO HORACE MANN EDUCATORS

                                       15

<PAGE>

          CORPORATION IS OBTAINED TO THE EFFECT THAT NO SUCH REGISTRATION
          IS REQUIRED.

The legend shall be removed from any certificate representing either (i) shares
of HM Common Stock sold under an effective registration statement under the
Securities Act or (ii) shares of HM Common Stock as to which, in an opinion of
counsel reasonably satisfactory to HM (which opinion shall be paid for solely by
the holder of such shares of HM Common Stock), such registration is not
necessary or required, and that the transfer will not otherwise violate the
Securities Act, the Exchange Act or applicable state or foreign securities laws;
and stop transfer instructions previously given to HM's transfer agent shall be
revoked as to such shares of HM Common Stock upon the occurrence of (i) or (ii)
above.

          6.4 Preferred Share Preference. The liquidation preference of the
              --------------------------
Preferred Shares shall be at least equal to the highest liquidation preference
of any other class of preferred shares of HM issued and outstanding at the time
of liquidation. During the term of this Agreement and during the period when any
Preferred Shares remain issued and outstanding, HM shall not issue any debt
securities convertible into equity securities of HM or any preferred or other
capital stock, in any such case which ranks equal or senior to the Preferred
Shares with respect to dividend or distribution rights or rights to
distributions on liquidation, without the prior written approval, which approval
shall not be unreasonably withheld, of (i) Option Writer if no Preferred Shares
are then outstanding, or (ii) the holders of more than sixty-six and two-thirds
percent (66 2/3%) of the outstanding Preferred Shares if Preferred Shares are
then outstanding.

          6.5 Restrictions on HM and Option Writer. During the period when any
              ------------------------------------
Preferred Shares remain issued and outstanding, without the prior written
consent of the holders of more than sixty-six and two-thirds percent (66 2/3%)
of such Preferred Shares, which consent shall not be unreasonably withheld, (a)
HM and the HM Insurance Subsidiaries shall not (i) pay dividends on, make
redemptions of, or make other distributions with respect to, any capital stock
of HM other than the Preferred Shares except that subsidiaries of HM may pay
dividends to HM and HM may pay dividends on the HM Common Stock at any time if
all dividends theretofore accrued on the Preferred Shares shall be paid in full
in cash to the holders of Preferred Shares before the declaration or payment of
any such dividends on the HM Common Stock, (ii) enter into related party
transactions at other than arm's length or (iii) except in the ordinary course
of business, make any loan or advance to, or investment in, any person or
entity, and (b) HM shall not dispose of its interest in any material subsidiary
(i.e., any subsidiary which contains more than ten percent (10%) of the
consolidated assets or produces more than ten percent (10%) of the consolidated
annual revenue of HM); provided, however, that the restrictions set forth in
clauses (a)(iii) and (b) above shall only apply in the event that HM has not
then paid all dividends then accrued and payable with respect to such Preferred
Shares.

          6.6 Option Writer Filings. Notwithstanding anything in this Agreement
              ---------------------
to the contrary, Option Writer shall be responsible for making any filing
required of it under Section 13(d) or Section 16 of the Exchange Act, but the
making of such filings shall not be a condition to the exercise of the
Securities Issuance Option.

                                       16

<PAGE>

          6.7 Regulatory Filings for Conversion. HM, Option Writer and their
              ---------------------------------
respective affiliates shall make all regulatory filings, including without
limitation all filings under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, which are necessary or desirable to permit Option Writer to
convert any Preferred Shares into shares of HM Common Stock in accordance with
its terms as promptly as possible following any request by Option Writer. Option
Writer and HM shall cooperate and use commercially reasonable efforts to obtain
any insurance regulatory approvals for such conversion not theretofore obtained,
including without limitation any Form A filings required under applicable
insurance laws, rules and regulations.

          6.8 Change of Control. In the event of a Change of Control, at the
              -----------------
option of Option Writer, to be exercised within thirty (30) Business Days after
the earlier of notice from HM to Option Writer of a pending, or an occurrence of
a, Change of Control, (i) this Agreement shall be terminated as of the earlier
of the date of such Change of Control or the end of the Agreement Year in which
notice of such Change of Control is received by Option Writer and (ii) HM shall
be obligated either to redeem any issued and outstanding Preferred Shares or
convert such Preferred Shares into Common Shares, in each case on the terms and
conditions set forth in the Certificate of Designations, provided, however, that
in the event of the cancellation of this Agreement, a portion of the annual
Option Fee shall be returned to HM in an amount equal to the amount of the
annual Option Fee paid for the year in which the Change of Control occurs,
multiplied by a fraction, the numerator of which is the number of days between
the date of the Change of Control and the end of the Agreement Year and the
denominator of which is 365, and provided further, however, that this Agreement
shall be reinstated in the event the redemption price for the Preferred Shares
must be refunded or returned by Option Writer due to any preferential transfer
or fraudulent conveyance claim.

          6.9 Option Writer Credit Support. Each of Option Writer and
              ----------------------------
Reinsurance Option Writer shall, promptly upon request by HM, in the event that
the S&P Rating of Option Writer or Reinsurance Option Writer, as applicable,
falls below AA- during any period during which HM has the ability to exercise
the Option, purchase at Option Writer's or Reinsurance Option Writer's, as
applicable, sole expense an irrevocable standby letter of credit drawable in New
York, from a financial institution reasonably acceptable to HM, which letter of
credit secures the performance of Option Writer or Reinsurance Option Writer, as
applicable, under this Agreement and effectively raises the payment ability of
Option Writer or Reinsurance Option, as applicable, under this Agreement to an
S&P Rating of AAA. Such letter of credit shall remain in effect until the
earlier of (a) five (5) days following the end of the period during which HM has
the ability to exercise the Option, and (b) the date that the S&P Rating of
Option Writer or Reinsurance Option Writer, as applicable, shall be at least
AA-. Such letter of credit shall initially be in a principal amount equal to the
Original Value of the Preferred Shares subject to the Securities Issuance Option
which are not then issued and outstanding, and such principal amount shall
subsequently be adjusted from time to time based on adjustments to the total
Original Value of the Preferred Shares subject to the Securities Issuance
Option, whether due to exercises of the Securities Issuance Option, redemption
of Preferred Shares which are reincluded in the Preferred Shares subject to the
Securities Issuance Option, or otherwise.

                                       17

<PAGE>

          6.10 Option Writer Common Stock Ownership. Option Writer shall not
               ------------------------------------
acquire or own HM Common Stock (other than through the acquisition of Preferred
Shares by exercise of the Securities Issuance Option and the subsequent
conversion of such Preferred Shares into HM Common Stock) if such acquisition or
ownership could result in the inability to satisfy the condition contained in
Section 5.9.

          6.11 Maintenance of Reinsurance. During the Exposure Period and
               --------------------------
Exercise Term, if any, and during any period in which any Preferred Shares
remain outstanding, HM shall maintain the reinsurance program described in
Section 5.8.

          6.12 Plans and Reports. HM shall promptly deliver, or cause to be
               -----------------
delivered, to Option Writer copies of (a) HM's most recent two (2) year future
business plan, which plan will generally be available on or about March 1 of
each calendar year, (b) HM's most recent Annual Report on Form 10-K and Annual
Report to Shareholders, and (c) the most recent Annual Statements for the HM
Insurance Subsidiaries. The failure of HM to deliver any such items shall not be
deemed a breach of this Agreement unless such item is actually available, has
been requested in writing by Option Writer and has not been delivered by HM
within thirty (30) days after HM's receipt of such request. Option Writer shall
keep all documents or information delivered to Option Writer pursuant to this
Section 6.12 (except for the Form 10-K and Annual Report and statements
described in clauses (b) and (c) above) in strictest confidence and shall use
them solely in connection with the Transaction Agreements, except as otherwise
required by law.

          6.13 Stock Dividends or Distributions. In the event that Option
               --------------------------------
Writer, whether as a holder of Common Stock or as a holder of Preferred Shares,
receives (or is entitled to receive upon conversion of such Preferred Shares, as
the case may be) a distribution (by stock dividend or otherwise) of any
securities, the sale of which is registered, not required to be registered or
exempt from such registration under the Securities Act in the hands of public
holders of the HM Common Stock, but the sale of which is not registered, and is
required to be registered or exempt from registration under the Securities Act
in the hands of Option Writer, HM shall at its option, within a reasonable time
period following a request by Option Writer, either (a) notify Option Writer
that it will be permitted to include such securities as "Registrable Securities"
as defined in the Registration Rights Agreement, or (b) repurchase such
securities from Option Writer at market value as determined in the public
market. In the event that there is no public market for such securities, HM and
Option Writer shall appoint a mutually agreeable third-party appraiser to
establish the value of such securities, provided that if the parties fail to
agree on such third-party appraiser, the value will be determined pursuant to
Article 8.

          6.14 Press Releases and Confidentiality. Neither HM nor Option Writer
               ----------------------------------
shall issue any press release or other announcements to the public relating to
the execution of the Transaction Agreements or the transactions contemplated
thereunder without the prior written consent of the other party. Each of Option
Writer and HM shall hold confidential all financial and other information
supplied by the other party in respect of the Transaction Agreements or the
transactions contemplated therein; provided that such confidentiality obligation
shall apply only to non-public information, and information which was not
available to the other party on a non-confidential basis from a third party.
Notwithstanding any provision of this Section to the

                                       18

<PAGE>

contrary, either Option Writer or HM may make any disclosure required to be made
by it under applicable law (including federal securities law) if it determines
in good faith that it is necessary to do so, and gives prior notice to the other
party and discusses such disclosure with such other party. In addition, either
Option Writer or HM may make any disclosure to which the other party gives its
prior written consent.

          6.15 Default Notice. HM shall promptly give notice to Option Writer of
               --------------
any breach of the representations and warranties contained in Article 3 of this
Agreement of which HM is aware.

     7. Termination. This Agreement and the transactions contemplated by this
        -----------
Agreement shall be terminated (a) by HM at any time prior to the end of the
Exposure Period, (b) in accordance with Section 6.8, (c) at the option of Option
Writer and Reinsurance Option Writer, upon the receipt of a notice in accordance
with Section 6.15 of a breach that would, if not cured, have a material adverse
effect on the rights and privileges of Option Writer or Reinsurance Option
Writer under this Agreement and such breach has not been cured by HM within
thirty (30) days of such notice or (d) if none of (a) through (c) occur, upon
the latest to occur of (i) the expiration of the Exposure Period, (ii) the
expiration of the Exercise Term for the latest Qualifying Catastrophic Event
(including an Event that develops into a Qualifying Catastrophic Event outside
the Exposure Period), (iii) the Exercise Date for which a Notice of Exercise was
properly delivered during the Exercise Term, as such date may be extended
pursuant to the submission of any matter to alternative dispute resolution under
Article 8 or (iv) the first day on which no Preferred Shares issued pursuant to
this Agreement (including without limitation Preferred Shares issued on the
Exercise Date specified in (iii) above) remain issued and outstanding; provided,
however, that Articles 8 and 9 shall survive such termination and remain in full
force and effect.

     8. Alternative Dispute Resolution.
        ------------------------------

          (a) In the event of a dispute regarding the satisfaction of any of the
conditions set forth in Sections 5.1, 5.2, 5.3, 5.4 and 5.6 of this Agreement,
such dispute shall be referred to a mutually acceptable public accounting firm
except for any such accounting firm which serves as a then current accountant or
outside auditor for either HM or Option Writer (the "Accountant"). Either party
may submit a dispute to the Accountant by making a written submission to the
Accountant and the other party, which written submission shall include the
submitting party's documentation of such dispute and the submitting party's
position on the issue(s). The other party shall then have ten (10) Business Days
to submit to the Accountant and the first party its documentation of the dispute
and its position on the issue(s); provided, however, that if such other party
fails to make a timely and complete submission to the Accountant, such other
party shall be deemed to have conceded the dispute. Upon receipt of submissions
from both parties with respect to a given dispute, the Accountant shall then
have ten (10) Business Days in which to resolve the dispute by selecting one
party's position or the other's. The decision of the Accountant in the event of
alternative dispute resolution under this

                                       19

<PAGE>

Article 8 shall be final and binding upon the parties, and each party shall bear
its own costs plus one-half (1/2) of the costs of the Accountant.

          (b) In the event of a dispute regarding the satisfaction of any of the
conditions set forth in Article 5 of this Agreement other than in Sections 5.1,
5.2, 5.3, 5.4 and 5.6, such dispute shall be referred to a panel of three
arbitrators. The place of arbitration shall be New York, New York. Notice
requesting arbitration must be in writing in accordance with Section 10.2 of
this Agreement.

          (c) One arbitrator shall be chosen by each party within twenty (20)
Business Days of delivery of a written notice of request for arbitration by a
party. The two arbitrators shall, before instituting the hearing, choose a third
arbitrator who shall preside at the hearing. If either party fails to appoint
its arbitrator within twenty (20) Business Days of the notice of request for
arbitration, the other party, after ten (10) Business Days notice of its
intention to do so, may appoint the second arbitrator. If the two arbitrators
are unable to agree upon the third arbitrator within fifteen (15) Business Days
of their appointment, the two arbitrators shall request the American Arbitration
Association to appoint the third arbitrator with the qualifications identified
herein.

          (d) All arbitrators shall be impartial, and unless the parties
otherwise agree, all arbitrators shall be attorneys with at least fifteen (15)
years of corporate law experience.

          (e) The procedure to be followed in the arbitration hereunder shall be
as prescribed herein and in such directives as shall be issued by the
arbitrators.

          (f) Either party may submit a dispute to the arbitration panel by
making a written submission to the panel and the other party, which written
submission shall include the submitting party's documentation of such dispute,
and the submitting party's position on the issue(s). The other party shall then
have ten (10) Business Days to submit to the panel and the other party its
documentation of the dispute and its position on the issue(s); provided,
however, that if such party fails to make a timely and complete submission to
the panel, such other party shall be deemed to have conceded the dispute.

          (g) Upon receipt of submissions from both parties with respect to a
given dispute, the panel shall then have ten (10) Business Days in which to
resolve the dispute by determining whether the condition has been satisfied. The
decision of any two arbitrators when rendered in writing shall be final and
binding. The arbitration award shall be based on and accompanied by a written
opinion containing findings of fact and conclusions of law. Each party shall
bear its own expenses and the expense of its own arbitrator and shall jointly
and equally bear with the other party the cost of the third arbitrator.

     9. Broker's Fees.
        -------------

          9.1 HM Indemnification for Broker's Fees. HM agrees to indemnify,
              ------------------------------------
defend and hold harmless Option Writer and its affiliates from any and all
claims, costs and expenses

                                       20

<PAGE>

(including reasonable attorney's fees and disbursements) in respect of the
assertions of any broker, finder, agent or other person seeking compensation
with respect to the transactions contemplated herein on the basis of alleged
representation of HM or alleged arrangements undertaken by HM or for other
expenses incurred in connection with such transactions.

          9.2 Option Writer Indemnification for Broker's Fees. Option Writer
              -----------------------------------------------
agrees to indemnify, defend and hold harmless HM and its affiliates from any and
all claims, costs and expenses (including reasonable attorney's fees and
disbursements) in respect of the assertions of any broker, finder, agent or
other person seeking compensation with respect to the transactions contemplated
herein on the basis of alleged representation of Option Writer or alleged
arrangements undertaken by Option Writer or for other expenses incurred in
connection with such transactions.

          9.3 Acknowledgement. HM acknowledges and agrees that Option Writer has
              ---------------
not provided HM with any financial, accounting, tax or other advice with respect
to the transactions contemplated herein.

     10. Miscellaneous.
         -------------

          10.1 Amendments. The provisions of this Agreement may not be waived,
               ----------
altered, amended or repealed, in whole or in part, except by the written consent
of both parties to this agreement.

          10.2 Notices. Any notice or other communication required or permitted
               -------
under this Agreement shall be in writing and shall be deemed to have been given
(a) on the date of delivery if delivered personally or sent by facsimile
transmission (which transmission shall be confirmed by telephone), (b) on the
next Business Day if sent by overnight delivery service or (c) fifteen (15) days
after mailing if sent by certified, registered or express mail, postage prepaid,
if properly addressed or directed to such party at the appropriate address or
facsimile number set forth below, or such address or facsimile number as such
party may designate by written notice to the other parties:

     (i)  if to HM to:

          Horace Mann Educators Corporation
          Mail No. G 016
          One Horace Mann Plaza
          Springfield, Illinois  62715-0001
          Attention: George Zock
          Fax No.:  (217) 788-5798

          with a copy to:

          Gibson, Dunn & Crutcher LLP
          200 Park Avenue

                                       21

<PAGE>

          New York, NY 10166-0193
          Attention: Conor Reilly
          Fax No.:  (212) 351-5247

          and a copy to:

          Aon Securities Corporation
          200 E. Randolph Street
          Chicago, Illinois 60601
          Attention: Bryon Ehrhart
          Fax No.:  (312) 381-0162

     (ii) if to Option Writer or Reinsurance Option Writer to the "Contact
Information" set forth in Exhibit A,

          with a copy to:

          Sidley Austin Brown & Wood LLP
          875 Third Avenue
          New York, NY 10022
          Attention:  Robert J. Donatucci
          Fax No.:  (212) 906-2130

          10.3 Entire Agreement. This Agreement (including the Exhibits and the
               ----------------
Schedules) contains the entire agreement between the parties, and supersedes all
prior agreements, written or oral, with respect to the Option.

          10.4 Governing Law. This Agreement shall be governed by and construed
               -------------
in accordance with the laws of the State of New York (without regard to any
choice of law or conflict of law rules that would cause the application of any
laws or rules of any jurisdiction other than the State of New York).

          10.5 Successors and Assigns. This Agreement shall be binding upon and
               ----------------------
inure to the benefit of the parties and their respective successors and assigns,
and any references to a specific party in this Agreement shall include such
party's permitted successors or assigns. Neither party shall have the right to
assign or otherwise transfer its rights or obligations under this Agreement
without the prior written consent of the other party, provided, however, that
any holder of Preferred Shares, or Common Stock into which such Preferred Shares
are convertible, shall be a third-party beneficiary under this Agreement having
all the rights of Option Writer, subject to the obligations of, and limitations
on, Option Writer contained in this Agreement, and provided, further, that
Option Writer may assign this Agreement to any affiliate of Option Writer
provided that such affiliate agrees to and complies with the terms and
conditions applicable to Option Writer under this Agreement, including without
limitation the terms set forth in Section 6.9.

                                       22

<PAGE>

          10.6 Severability. Each term, covenant, condition or provision of this
               ------------
Agreement shall be viewed as separate and distinct, and in the event that any
such term, covenant, condition or provision shall be deemed by a court of
competent jurisdiction to be invalid, the remaining provisions shall continue in
full force and effect.

          10.7 Necessary Acts. Each party to this Agreement shall perform any
               --------------
further acts and execute and deliver any additional agreements, assignments,
documents or instruments that may be reasonably necessary or desirable to carry
out the provisions or effectuate the purposes of this Agreement.

                                       23

<PAGE>

          10.8 Legal Expenses. If any legal action or any arbitration or other
               --------------
proceeding is brought to enforce the provisions of this Agreement, or because of
an alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Agreement, the successful or prevailing party or
parties, whether or not such party or parties have instituted the action, shall
be entitled to recover all attorneys' fees and other costs incurred in such
action or proceeding, in addition to any other relief to which it or they may be
entitled. Notwithstanding the forgoing, in the event of alternative dispute
resolution under Section 8, each party shall bear its own costs as set forth in
Section 8.

          10.9 Counterparts. This Agreement may be executed in separate
               ------------
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.

          10.10 Headings. The headings in this Agreement are for reference only,
                --------
and shall not affect the interpretation of this Agreement.

IN WITNESS WHEREOF, the parties to this Agreement have caused it to be duly
executed as of the date first written above.

Horace Mann Educators Corporation

By: /s/ George J. Zock
    ----------------------------
Title:  Executive Vice President

Swiss Re Financial Products Corporation (Option Writer)

By: /s/ Danyal Ozizmir
    ----------------------------
Title:  Senior Managing Director

Swiss Reinsurance America Corporation (Reinsurance Option Writer)

By: /s/ Alan B. Binder
    ----------------------------
Title:  Director, Non-Traditional Underwriting

                                       24

<PAGE>

                                    EXHIBIT A
                                    ---------

Option Writer
-------------

Swiss Re Financial Products Corporation, a Delaware corporation

The contact information is:

Swiss Re Financial Products Corporation
55 East 52nd Street
New York, New York  10055
Attention:  General Counsel
Telephone No.:  212-317-5400
Fax No.:  212-317-5450

With a copy to:

Swiss Re Financial Products Corporation
55 East 52nd Street
New York, New York  10055
Attention:  Treasurer
Telephone No.:  212-317-5400
Fax No.:  212-317-5450

Reinsurance Option Writer
-------------------------

Swiss Reinsurance America Corporation, a New York corporation

The contact information is:

Swiss Reinsurance America Corporation
c/o Swiss Re Financial Products Corporation
55 East 52nd Street
New York, New York  10055
Attention:  General Counsel
Telephone No.:  212-317-5400
Fax No.:  212-317-5450

With a copy to:

Swiss Reinsurance America Corporation
c/o Swiss Re Financial Products Corporation
55 East 52nd Street
New York, New York  10055
Attention:  Treasurer
Telephone No.:  212-317-5400
Fax No.:  212-317-5450

<PAGE>

                                SCHEDULE 1.6

                        HORACE MANN EDUCATORS CORPORATION

                           CERTIFICATE OF DESIGNATIONS

               Pursuant to Section 151 of the General Corporation
                          Law of the State of Delaware

                         SERIES A CUMULATIVE CONVERTIBLE
                                 PREFERRED STOCK

================================================================================

RESOLVED, that, pursuant to the authority vested in the Board of Directors of
Horace Mann Educators Corporation (the "Corporation") in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock of
the Corporation be, and hereby is, created and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
or other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereon, are as follows:

Section 1. Designation. The series of Preferred Stock established hereby shall
---------- -----------
be designated the "Series A Cumulative Convertible Preferred Stock" (the "Series
A Preferred Shares") and the authorized number of Series A Preferred Shares
shall be 75,000 shares.

Section 2. Dividends.
           ----------

          (a) Holders of outstanding Series A Preferred Shares shall be entitled
to receive, if, when and as declared by the Board of Directors out of funds
legally available therefore, cash dividend payments in the amount of the
Dividend Yield on each Series A Preferred Share, payable quarterly for each of
the quarters ending March, June, September and December of each year, payable in
arrears on the first Business Day of each succeeding April, July, October and
January, respectively (each such date being hereinafter referred to as a
"Preferred Dividend Payment Date". The first dividend shall be payable on the
 -------------------------------
Preferred Dividend Payment Date corresponding to the quarter in which the
Issuance Date falls. Each such dividend will be payable to holders of record as
they appear on the stock books of the Corporation on such record dates, not less
than 10 nor more than 50 days preceding the related Preferred Dividend Payment
Date, as shall be fixed by the Board of Directors. Dividends on each Series A
Preferred Share shall accrue on a daily basis and compound quarterly commencing
on the Issuance Date for such share and continuing to, but not including, the
Redemption Date, or Conversion Date for such share (or other date on which such
Series A Preferred Share is no longer outstanding) and accrued dividends for
each quarterly dividend period shall accumulate as

<PAGE>

Unpaid Dividend Yield, to the extent not paid, on the Preferred Dividend Payment
Date for the quarter in which they accrued. Dividend payments under this
paragraph (a) shall accrue whether or not the Corporation shall have earnings,
whether or not there shall be funds legally available for the payment of such
dividends and whether or not such dividends are declared.

          (b) So long as any Series A Preferred Shares shall remain outstanding,
no dividend (other than a dividend payable in shares of Common Stock or rights
to obtain Common Stock or any class of capital stock of the Corporation which is
junior to the Series A Preferred Shares as to dividends and upon liquidation)
shall be declared, nor shall the Corporation make any other distribution or
payment or set aside anything of value for distribution or payment on, or
redeem, repurchase or otherwise acquire any shares of, the Common Stock of the
Corporation or any other class of stock or series thereof ranking junior to the
Series A Preferred Shares in the payment of dividends or upon liquidation (other
than a redemption or purchase of shares of Common Stock of the Corporation made
for purposes of an employee incentive or benefit plan of the Corporation or any
of its subsidiaries) unless the full amount of Unpaid Dividend Yield, if any,
accumulated on all outstanding Series A Preferred Shares through all past
Preferred Dividend Payment Dates shall have been paid and not refunded. No
dividend shall be declared on any share or shares on any class of stock of the
Corporation or series thereof ranking on a parity with the Series A Preferred
Shares in respect of payment of dividends or upon liquidation for any prior
dividend payment period of said parity stock unless there shall have been
declared on all shares then outstanding of the Series A Preferred Shares like
proportional dividends determined ratably in proportion to the respective Unpaid
Dividend Yield accumulated to date for all previous quarterly dividend periods
on all outstanding Series A Preferred Shares and the dividends accumulated on
all outstanding shares of said parity stock.

Section 3. Cash Redemption by the Corporation.
---------- -----------------------------------

          (a) Redemption at Option of Corporation. At any time and from time to
              ------------------------------------
time on or after issuance of the Series A Preferred Shares, the Corporation may,
at its option, with proper notice as set forth in paragraph (b) of this Section
3, redeem any or all of the outstanding Series A Preferred Shares, as of a
Proposed Redemption Date specified in the notice to holders, for cash in an
amount equal to the Redemption Price per share.

          (b) Notice of Redemption. In order to properly effect the redemption
              --------------------
of Series A Preferred Shares, the Corporation shall provide notice, to holders
of record of the Series A Preferred Shares to be redeemed, not less than (i)
thirty (30) days prior to the Proposed Redemption Date if the Proposed
Redemption Date is three (3) years, eight (8) months and fifteen (15) days or
less from the Issuance Date of such Series A Preferred Shares, and (ii)
forty-five (45) days prior to the Proposed Redemption Date if the Proposed
Redemption Date is more than three (3) years, eight (8) months and fifteen (15)
days after the Issuance Date of such Series A Preferred Shares. Such notice may
be provided by mail, first class postage prepaid, to the holders of record of
the Series A Preferred Shares at their respective addresses as the same shall
appear on the books of the Corporation or any transfer agent for the Series A
Preferred Shares, or by facsimile or telecopy, as set forth in paragraph (a) of
Section 9 herein. Each such notice shall state, as appropriate: (1) the Proposed

                                       2

<PAGE>

Redemption Date; (2) the total number of Series A Preferred Shares to be
redeemed and, if fewer than all Series A Preferred Shares are to be redeemed,
the number of such shares held by such holder to be redeemed; (3) the Redemption
Price; (4) the place or places where certificates for such shares are to be
surrendered for redemption; and (5) that dividends on the Series A Preferred
Shares to be redeemed will cease to accrue on the Proposed Redemption Date.

          Each holder of Series A Preferred Shares called for redemption shall
surrender the certificates evidencing such shares to the Corporation at the
place designated in such notice and shall thereupon be entitled to receive the
cash payable upon such redemption. In case less than all of the shares
represented by any such surrendered certificate are redeemed, a new certificate
shall be issued promptly at the expense of the Corporation representing the
balance of the shares. If proper notice of redemption shall have been duly
provided to holders of the Series A Preferred Shares in accordance with this
paragraph (b), and payment therefor has been made or duly provided for, then,
notwithstanding that the certificates evidencing any of such shares so called
for redemption shall not have been surrendered, as of the close of business on
the Redemption Date the shares represented thereby shall be deemed no longer
outstanding, dividends with respect to such Series A Preferred Shares shall
cease to accrue and all rights of the holder with respect to such Series A
Preferred Shares shall forthwith cease and terminate, except for the right of
the holders to receive the cash payable upon such redemption, without interest,
upon surrender of the certificates therefor.

          (c) Revocation of Notice to Redeem. The Corporation's election to
              ------------------------------
redeem the Series A Preferred Shares pursuant to paragraph (a) of this Section 3
shall be fully or partially revocable, and any notice to holders of Series A
Preferred Shares provided in accordance with paragraph (b) of this Section 3
shall be subject to revocation or amendment by the Corporation. In order to
properly effect the revocation or amendment of such notice, the Corporation
shall provide notice of its revocation or amendment, not less than five Business
Days prior to the Proposed Redemption Date, to holders of record of the Series A
Preferred Shares. Such notice may be provided in any of the manners permissible
for providing notice of redemption under paragraph (b) of this Section 3. Such
notice of revocation or amendment shall clearly state that: (1) on the Proposed
Redemption Date, the Corporation will not redeem any of the Series A Preferred
Shares, or if notice of partial revocation, the amended number of Series A
Preferred Shares held by such holder to be redeemed, and the balance of Series A
Preferred Shares held by such holder not being redeemed; and (2) dividends on
the Series A Preferred Shares not being redeemed will continue to accrue on and
after the Proposed Redemption Date without interruption.

          (d) Ratable Redemption. If fewer than all outstanding Series A
              ------------------
Preferred Shares are to be redeemed on any Redemption Date, the shares to be
redeemed (which shall be a whole number) shall be selected by the Corporation
from outstanding Series A Preferred Shares not previously called for redemption
by lot or pro rata (to the extent possible without redeeming fractional shares)
or by any other method determined by the Corporation in its sole discretion to
be equitable.

                                       3

<PAGE>

          (e) Redemption at the Option of the Holders Upon a Change of Control.
              ----------------------------------------------------------------
Within 30 Business Days after the earlier of notice from the Corporation of a
pending, or an occurrence of a, Change of Control, a holder of Series A
Preferred Shares may, at its option, with proper notice to the Corporation as
set forth in paragraph (f) of this Section 3, require the Corporation to redeem
any or all of such holder's outstanding Series A Preferred Shares, as of the
date specified in such notice (a "Special Redemption Date") for cash, in an
                                  -----------------------
amount equal to the Redemption Price per share.

          (f) Notice of Optional Redemption. Any holder desiring to exercise the
              -----------------------------
right to require the Corporation to redeem such holder's Series A Preferred
Shares shall provide notice to the Corporation not less than 30 days prior to
the proposed Special Redemption Date. Such notice may be provided by mail, first
class postage prepaid, to the Corporation, at its principal executive offices,
or by facsimile or telegram, as set forth in paragraph (a) of Section 9 herein.
Each such notice shall state (1) the proposed Special Redemption Date and (2)
the total number of Series A Preferred Shares to be redeemed.

          (g) Cancellation of Shares. All Series A Preferred Shares redeemed by
              ----------------------
the Corporation as provided in this Section 3 (or otherwise acquired by the
Corporation) shall be retired and thereupon restored to the status of authorized
but unissued Series A Preferred Shares.

Section 4. Conversion by Holders into Common Stock.
---------- ---------------------------------------

          (a) Right of Conversion. Except as provided in paragraph (b) of this
              -------------------
Section 4, no holder of Series A Preferred Shares may convert such shares into
shares of Common Stock at any time prior to the close of business of the fourth
anniversary of the Issuance Date of such Series A Preferred Shares. At any time
and from time to time after such anniversary date, on the terms and subject to
the conditions set forth in this Section 4, any holder of Series A Preferred
Shares shall be entitled, at the option of such holder, to cause any or all of
such shares to be converted into shares of Common Stock of the Corporation at an
initial per share rate equal to the result obtained by dividing (i) the Original
Value of such Series A Preferred Share, plus Unpaid Dividend Yield accumulated
for all previous dividend periods up to and including the dividend period ending
on the Conversion Date, by (ii) the Market Price at Conversion, as such rate may
be subsequently adjusted hereunder (the "Conversion Rate"), as of the Proposed
                                         ---------------
Conversion Date specified in such holder's notice to the Corporation delivered
pursuant to paragraph (d) of this Section 4. The minimum number of Series A
Preferred Shares for which conversion may be elected shall be 1,000, or such
lesser number which constitutes all of the outstanding Series A Preferred Shares
held by such holder.

          Notwithstanding anything to the contrary in this paragraph (a), the
holder of Series A Preferred Shares may provide notice of its intention to
convert any or all of such shares prior to the fourth anniversary of the
Issuance Date of such Series A Preferred Shares, so long as the Proposed
Conversion Date specified in such notice is a date after the date of such fourth
anniversary.

                                       4

<PAGE>

          (b) Special or Change of Control Conversion Events. Notwithstanding
              ----------------------------------------------
anything to the contrary in paragraph (a) of this Section 4, at any time after
the occurrence of a Special Conversion Event or a Change of Control Conversion
Event, any holder of Series A Preferred Shares shall be entitled, at the option
of such holder, to cause any or all of such shares to be converted into shares
of Common Stock of the Corporation at the Special Conversion Rate as of the
Proposed Conversion Date specified in such holder's notice to the Corporation
delivered pursuant to paragraph (d) of this Section 4. Such notice shall be
effective only to the extent that the condition resulting in a Special
Conversion Event has not been cured prior to the delivery of such notice.

          (c) Priority of Corporation's Right of Redemption. Notwithstanding
              ---------------------------------------------
paragraphs (a) and (b) of this Section 4, no Series A Preferred Shares shall be
converted on or after the close of business on any Redemption Date for which
notice has been properly delivered in accordance with Section 3 hereof. The
Corporation's right to redeem any or all shares of Series A Preferred Stock on
or prior to any Proposed Conversion Date shall supersede any holder's right of
conversion under this Section 4, whether or not such holder's notice of
conversion was properly delivered prior to the Corporation's notice to redeem,
so long as the Corporation's notice to redeem was properly delivered in
accordance with Section 3 hereof at least (i) thirty (30) days prior to the
Proposed Conversion Date if such notice to redeem is delivered three (3) years,
eight (8) months and fifteen (15) days or less from the applicable Issuance
Date, or (ii) forty-five (45) days prior to the Proposed Conversion Date if such
notice to redeem is delivered more than (3) years, eight (8) months and nine
fifteen (15) days from the applicable Issuance Date.

          (d) Notice of Conversion. In order to properly effect the conversion
              --------------------
of Series A Preferred Shares, the holder of such shares shall provide notice to
the Corporation not less than one hundred five (105) days prior to the Proposed
Conversion Date. Such notice must be provided by first class, registered mail,
postage prepaid, to the Corporation at its principal executive offices, at the
address or number set forth in paragraph (a) of Section 9 herein. Each such
notice shall state, as appropriate: (1) the Proposed Conversion Date; (2) the
number of Series A Preferred Shares (which must be a whole number of shares) to
be converted; (3) the name or names in which such holder wishes the certificate
or certificates for Common Stock and for any Series A Preferred Shares not to be
so converted to be issued and the address to which such holder wishes delivery
to be made of the new certificates to be issued upon conversion; and (4) an
acknowledgment that the shares to be converted remain subject to the
Corporation's right of redemption in accordance with Section 3.

          Notwithstanding the preceding paragraph, for any conversion pursuant
to paragraph (b) of Section 4, the holder of Series A Preferred Shares may
properly convert such shares into shares of Common Stock upon providing notice
to the Corporation, not less than five (5) Business Days prior to the Proposed
Conversion Date, in the manner set forth in the preceding paragraph. Such notice
shall contain the information described above for conversion

                                       5

<PAGE>

pursuant to paragraph (d) of this Section 4, as well as a statement setting
forth the facts and circumstances under which the holder believes a Special
Conversion Event has occurred.

          (e) Revocation of Notice to Convert. The right of any holder of Series
              -------------------------------
A Preferred Shares electing to convert the Series A Preferred Shares pursuant to
paragraphs (a) or (b) of this Section 4 shall be fully or partially revocable,
and any notice to the Corporation provided in accordance with paragraph (d) of
this Section 4 shall be subject to revocation or amendment by the holder of the
shares to which such notice relates. In order to properly effect the revocation
or amendment of such notice, the holder shall provide notice to the Corporation
of its revocation or amendment not less than three (3) Business Days prior to
the Proposed Conversion Date. Such notice shall be provided in the same manner
specified as permissible for providing notice of conversion under paragraph (d)
of this Section 4, and shall clearly state that the holder of such Series A
Preferred Shares will not convert any of such shares, or if notice of partial
revocation, the amended number of Series A Preferred Shares held by such holder
that are to be converted.

          (f) Surrender of Series A Preferred Shares. Any holder of Series A
              --------------------------------------
Preferred Shares desiring to convert any such shares into shares of Common Stock
shall surrender the certificate or certificates representing the Series A
Preferred Shares being converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating thereto), at
the principal executive office of the Corporation or the offices of the transfer
agent for the Series A Preferred Shares or such office or offices in the
continental United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Series A Preferred Shares by the
Corporation or the transfer agent for the Series A Preferred Shares, accompanied
by a copy of the written notice of conversion previously provided to the
Corporation in accordance with paragraph (d) of this Section 4.

          (g) Delivery of Common Stock. Upon the effectiveness of a conversion
              ------------------------
of Series A Preferred Shares on the Conversion Date for such shares, the
Corporation, subject to the provisions of paragraph (j) of this Section 4
regarding fractional shares and paragraph (l) of this Section 4 regarding
payment of taxes, shall issue and send by first-class mail, postage prepaid, to
the holder thereof, or to such holder's designee, at the address designated by
such holder a certificate or certificates for the number of whole shares of
Common Stock to which such holder shall be entitled upon conversion. In case
there shall have been surrendered a certificate or certificates representing
Series A Preferred Shares only part of which are to be converted, the
Corporation, subject to the provisions of paragraph (l) of this Section 4
regarding payment of taxes, shall issue and deliver to such holder or such
holder's designee a new certificate or certificates for the number of Series A
Preferred Shares which shall not have been converted.

          (h) Effectiveness of Conversion. Any conversion of Series A Preferred
              ---------------------------
Shares into shares of Common Stock made at the option of the holder thereof
shall be effective immediately following the close of business on the Conversion
Date. At and after the effective time on the Conversion Date, the person or
persons entitled to receive the Common Stock

                                       6

<PAGE>

issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock.

          (i) Conversion Price Adjustments. The Conversion Rate of any Series A
              ----------------------------
Preferred Shares shall be subject to the following adjustments:

               (A) If any capital reorganization or reclassification of the
capital stock of the Corporation, or any consolidation or merger of the
Corporation with another corporation, or the sale of all or substantially all of
its assets to another corporation, or any other transaction, shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger, sale
or other transactions, lawful and adequate provisions (in form authorized and
approved by the Board of Directors of the Corporation) shall be made whereby
each holder of any Series A Preferred Shares shall thereafter have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock of the Corporation immediately theretofore
receivable upon the conversion of such Series A Preferred Shares, such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of Common Stock immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger, sale or other
transactions, not taken place, and in any such case appropriate provision shall
be made with respect to the rights and interests of such holder to the end that
the provisions hereof (including, without limitation, provisions for adjustments
of the Conversion Rate) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights. If applicable, the Corporation
shall reserve as provided by paragraph (k) of this Section 4 such shares of
common stock, other capital stock or other securities of the Corporation as may
be issuable upon conversion of Series A Preferred Shares as provided by this
Section 4 and shall comply with the other requirements of paragraph (k) of this
Section 4 in respect of such shares or other securities so as to permit their
issuance to holders of Series A Preferred Shares upon conversion thereof.

               The Corporation shall not effect any such consolidation or
merger, or any sale of all or substantially all of its assets or properties,
unless (i) prior to the consummation thereof the successor corporation (if other
than the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume, by written instrument (in form
authorized and approved by the Board of Directors), executed and mailed or
delivered to each holder of shares of Series A Preferred Stock at the last
address of such holder appearing on the books of the Corporation, the obligation
to deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to receive
or (ii) the Series A Preferred Stock shall have been redeemed by the Corporation
pursuant to paragraph (a) or (e) of Section 3 hereof.

               (B) In any case in which (i) this Section 4 shall require that an
adjustment as a result of any event become effective after the opening of
business on a

                                       7

<PAGE>

specified business day following a record date, and (ii) the date fixed for
conversion pursuant to paragraph (d) of this Section 4 occurs after such record
date but before the occurrence of the event on such date, then the Corporation
may elect to defer until after the occurrence of such event (1) issuing to the
holder of any Series A Preferred Shares surrendered for conversion certificates
representing the shares or securities issuable upon such conversion, and (2)
paying to such holder any amount in cash in lieu of a fractional share of Common
Stock in accordance with paragraph (j) of this Section 4, provided, however,
that such deferral is not for an unreasonable period of time.

          (j) Fractional Shares. No fractional shares of Common Stock shall be
              -----------------
issued upon conversion of any Series A Preferred Shares but, in lieu of any
fraction of a share of Common Stock which would otherwise be issuable in respect
of the aggregate number of Series A Preferred Shares surrendered for conversion
at one time by the same holder, the Corporation shall pay an amount in cash
equal to the same fraction of the Conversion Price (based on the Market Price at
Conversion).

          (k) Reservation of Shares. The Corporation shall at all times reserve
              ---------------------
and keep available out of the authorized but unissued shares of Common Stock the
maximum number of shares of Common Stock into which all Series A Preferred
Shares from time to time outstanding are convertible, but shares of Common Stock
held in the treasury of the Corporation may in its discretion be delivered upon
any conversion of Series A Preferred Shares.

          (l) Taxes. The Corporation shall pay any and all stock transfer and
              -----
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of Common Stock or any other securities issued upon
conversion of the Series A Preferred Shares pursuant hereto. The Corporation
shall not, however, be required to pay any such tax which may be payable in
respect of any transfer involved in the issuance and delivery of shares of
Common Stock or other securities in a name other than that in which the Series A
Preferred Shares with respect to which such shares are issued were registered,
or any payment to any person other than the registered holder thereof, and shall
not be required to make any such issuance or delivery unless and until the
person otherwise entitled to such issuance or payment has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid or is not payable.

          (m) Cancellation of Shares. All Series A Preferred Shares converted
              ----------------------
into shares of Common Stock, other capital stock or other securities of the
Corporation as provided in this Section 4 (or otherwise acquired by the
Corporation) shall be retired and thereupon restored to the status of authorized
but unissued shares of preferred stock, par value $0.001 per share, undesignated
as to series.

Section 5. Liquidation Rights.
---------- -------------------

          (a) In the event of any Liquidation, after payment or provision for
payment has been made of the debts and other liabilities of the Corporation, the
holders of Series A

                                       8

<PAGE>

Preferred Shares shall be entitled to receive, out of the net assets of the
Corporation, for each share its Original Value plus an amount equal to the sum
of Unpaid Dividend Yield (whether or not declared) accrued and unpaid thereon
for all previous periods and the current period, whether or not accumulated, and
no more. After such amount is paid in full, no further distributions or payments
shall be made in respect of Series A Preferred Shares, such Series A Preferred
Shares shall no longer be deemed to be outstanding or be entitled to any other
powers, preferences, rights or privileges, including voting rights, and such
Series A Preferred Shares shall be surrendered for cancellation to the
Corporation.

          (b) The full amount payable to the holders of Series A Preferred
Shares shall be paid before any distribution shall be made to the holders of any
class of common stock of the Corporation or any other class of stock or series
thereof ranking junior to the Series A Preferred Shares with respect to the
distribution of assets upon a Liquidation. No payment on account of any
Liquidation shall be made to the holders of any class or series of stock ranking
on a parity with the Series A Preferred Shares in respect of the distribution of
assets upon Liquidation unless there shall likewise be paid at the same time to
the holders of the Series A Preferred Shares like proportionate amounts
determined ratably in proportion to the full amounts to which the holders of all
outstanding Series A Preferred Shares and the holders of all outstanding shares
of such parity stock are respectively entitled with respect to such
distribution.

          (c) If the assets distributed to the holders of Series A Preferred
Shares upon any Liquidation shall be insufficient to permit the payment to such
holders of the full amount to which they are entitled in such circumstances,
then such assets or the proceeds thereof shall be distributed among such holders
ratably in proportion to the sums which would be payable to such holders if all
sums were paid in full.

          (d) Once any payment required upon any Liquidation is made to any
holder of Series A Preferred Shares, there shall not be any conversion rights in
respect of such shares pursuant to Section 4 hereof unless the full amount of
all such distributions and payment made in respect of such shares being
converted is remitted to the Corporation prior to or concurrently with the
conversion of such shares.

          (e) Neither the merger nor consolidation of the Corporation into or
with any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor a sale, transfer or lease of all
or any part of the assets of the Corporation, shall be deemed to be a
Liquidation for purposes of this Section 5.

          (f) Written notice of any Liquidation, stating the payment date or
dates when and the place or places where the amounts distributable in such
circumstances shall be payable, shall be given by first class mail, postage
prepaid, not less than thirty (30) days prior to any payment date stated
therein, to the holders of record of the Series A Preferred Shares at their
respective addresses as the same shall appear on the books of the Corporation or
any transfer agent for the Series A Preferred Shares.

                                       9

<PAGE>

Section 6. Voting Rights.
---------- --------------

          (a) Except as otherwise provided by paragraph (b) of this Section 6 or
required by law, the holders of Series A Preferred Shares shall not be entitled
to vote on any matter on which the holders of any voting securities of the
Corporation shall be entitled to vote.

          (b) So long as any Series A Preferred Shares remain outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by applicable law) of the holders of more than sixty-six
and two-thirds percent (66 2/3%) of the then outstanding Series A Preferred
Shares, voting together as a single class:

               (A) alter or change the rights, preferences or privileges of the
Series A Preferred Shares so as to affect adversely such Series A Preferred
Shares;

               (B) sell, convey or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a corporation owned by or under common
ownership with the Corporation), provided, however, that the holders of Series A
Preferred Shares shall have no voting rights under this subparagraph (B) of
paragraph (b) of this Section 6 with respect to an event or occurrence which
constitutes a Special Redemption Event;

               (C) increase the authorized number of Series A Preferred Shares;
or

               (D) create any new class or series of stock, or any other
securities convertible into equity securities of the Corporation having rights
or preferences over, or on a parity with, the Series A Preferred Shares.

          (c) For purposes of any vote of the holders of Series A Preferred
Shares pursuant to the foregoing provisions of this Section 6, each Series A
Preferred Share shall have one (1) vote per share.

Section 7. Sinking Fund. No sinking fund or other mechanism for the segregation
---------- ------------
of funds shall be established for the purpose of redemption or repurchase of the
Series A Preferred Shares or payment of dividends thereon.

Section 8. Certain Definitions. For purposes of this Certificate of
---------  -------------------
Designations, the following terms shall have the meanings as set forth below.

          "Average Market Price" means, with respect to a share of Common Stock
           ---------------------
on any date of determination, the lesser of (a) the average of the daily Closing
Prices for the thirty (30) consecutive Trading Days ending on the date of
determination or (b) the average of the daily Closing Prices for the fifteen
(15) consecutive Trading Days ending on the date of determination; provided,
however, that in averaging the daily Closing Prices for such Trading

                                       10

<PAGE>

Days, all adjustments shall be made as are necessary to reflect any subdivision,
reclassification, recapitalization or combination of, or dividend paid or
distribution made on, shares of Common Stock during such period of Trading Days.

          "Business Day" means any day other than a Saturday, Sunday or a day on
           ------------
which banking institutions in New York, New York, London, England or Zurich,
Switzerland are not required to be open.

          "Change of Control" means, with respect to the Corporation, (i) the
           -----------------
acquisition of ownership (by any Person or "group" within the meaning of
Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) required to file a Schedule 13D under the Exchange Act (other
 ------------
than a Person or "group" owning greater than 20% and less than 50% of the voting
power of the capital stock of the Corporation that otherwise meets the
requirements of a Person or "group" eligible to file a Schedule 13G in lieu of a
Schedule 13D) of greater than 30% of the voting power of the capital stock of
the Corporation (whether by sale or other transfer of capital stock, merger,
consolidation or other reorganization or means, including a reorganization under
bankruptcy or insolvency laws) or (ii) the consummation of a sale, transfer or
other disposition of greater than 30% of the assets of the Corporation
(determined on a combined and consolidated fair market value basis) in one or a
series of related transactions to any Person that is not an affiliate of the
Corporation.

          "Change of Control Conversion Event" means the occurrence of a Change
           ----------------------------------
of Control without the written consent of the holders of more than 66 2/3% of
the Series A Preferred Shares then outstanding.

          "Closing Price" on any Trading Day shall mean the closing sales price
           -------------
regular way on such day for one share of Common Stock or, in case no such sale
takes place on such day, the average of the reported closing bid and asked
prices regular way, in each case on the New York Stock Exchange, or, if the
Common Stock is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or, if not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked prices of the
Common Stock on the over-the-counter market on the day in question as reported
by the National Quotation Bureau Incorporated, or a similarly generally accepted
reporting service, or if not so available in such manner as furnished by any New
York Stock Exchange member-firm selected from time to time by the Board of
Directors of the Corporation for that purpose.

          "Common Stock" means common stock of the Corporation, par value $0.001
           -------------
per share.

          "Conversion Date" shall be the same day as the Proposed Conversion
           ---------------
Date, provided that (i) the holder of Series A Preferred Shares has not
delivered a notice of revocation in accordance with paragraph (e) of Section 4
and (ii) the Corporation has not properly delivered a notice of redemption
pursuant to paragraph (b) of Section 3 naming any date on or prior to the
Proposed Conversion Date as the Proposed Redemption Date, and such

                                       11

<PAGE>

notice to redeem has not been revoked prior to such date in accordance with
paragraph (b) of Section 3. Notwithstanding the foregoing, in the event that the
holders of more than sixty-six and two-thirds percent (66 2/3%) of the
outstanding Series A Preferred Shares hold registration rights with respect to
Common Stock into which such Series A Preferred Shares can be converted, and
such holders have delivered to the Corporation, concurrently with any notice of
conversion under paragraph (d) of Section 4, a notice requesting registration of
such Common Stock upon conversion in an underwritten securities offering, then
the Conversion Date shall be delayed so that it occurs (i) on or after the
effective date of such registration and (ii) immediately prior to the purchase
of such Common Stock by the underwriter(s) undertaking such offering.

          "Corporation" has the meaning set forth in the first paragraph hereof.
           -----------

          "Dividend Yield" means, with respect to each Series A Preferred Share
           --------------
for each quarter, or such lesser period as may arise in connection with the
issuance, redemption or conversion of such share, or with any Liquidation, the
amount accruing on such share during the quarter, or such lesser period, at an
annual rate equal to the Preferred Dividend Yield Rate, applied to the sum of
(A) such share's Original Value, plus (B) Unpaid Dividend Yield thereon for all
prior periods. Dividend Yield for any period shorter than a full quarterly
dividend period shall be computed on the basis of the actual number of days
elapsed over a 360 day year. Dividend Yield shall begin accruing on each Series
A Preferred Share on the Issuance Date of such share and shall accrue to, but
not including, the Redemption Date, Special Redemption Date or Conversion Date
for such share (or other date on which such Series A Preferred Share is no
longer outstanding).

          "GAAP" means United States generally accepted accounting principles,
           ----
consistently applied.

          "Issuance Date" means, for each Series A Preferred Share, the date on
           -------------
which such share was originally issued by the Corporation.

          "LIBOR" means an interest rate per annum equal to (a) the rate of
           ------
interest for deposits in U.S. Dollars having a term of three months appearing on
Telerate Page 3750 (as defined in the 2000 ISDA Definitions as published by the
International Swaps and Derivatives Association, Inc., as modified and amended
from time to time (the "Definitions") ("Page 3750") at approximately 11:00 a.m.
                        -----------     ---------
London time, on the day that is two Business Days prior to the applicable
Issuance Date or Preferred Dividend Payment Date, (b) in the event such rate is
not available from Page 3750, the rate of interest for deposits in U.S. Dollars
having a term of three months appearing on the Reuters Screen ISDA Page (as
defined in the Definitions) (the "ISDA Page") at approximately 11:00 a.m. London
                                  ---- ----
time on the day that is two Business Days prior to the applicable Issuance Date
or Preferred Dividend Payment Date, (c) in the event such rate is not available
from the ISDA Page, the rate per annum for deposits in U.S. Dollars having a
term of three months equal to the USD-LIBOR-Reference Banks rate (as defined in
the Definitions) at approximately 11:00 a.m. London time on the day that is two
Business Days prior to the applicable Issuance Date or Preferred Dividend
Payment Date or (d) in the event

                                       12

<PAGE>

such rate is not available from the USD-LIBOR-Reference Banks, if determined for
a Preferred Dividend Payment Date, the rate per annum for deposits in U.S.
Dollars having a term of three months equal to LIBOR in effect for the previous
Issuance Date or Preferred Dividend Payment Date, as the case may be, or, if
determined for the Issuance Date, the most recent such rate available from the
USD-LIBOR Reference Banks. For purposes of calculating the Preferred Dividend
Yield Rate for any particular Series A Preferred Shares, LIBOR shall be such
rate as reported on the applicable Issuance Date; provided, such rate shall be
adjusted up or down, effective on the first day of each subsequent calendar
quarter (i.e., January 1, April 1, July 1 and October 1), to reflect the current
published rate on the last Trading Day of the prior calendar quarter, until such
time that no Series A Preferred Shares remain outstanding.

          "Liquidation" means any dissolution, liquidation or winding up of the
           -----------
affairs of the Corporation, whether voluntary or involuntary.

          "Market Price at Conversion" means the Average Market Price of one
           --------------------------
share of Common Stock determined as of the Proposed Conversion Date.

          "Original Issuance Date" means the first date on which any Series A
           ----------------------
Preferred Shares were originally issued by the Corporation.

          "Original Value" of each Series A Preferred Share shall be equal to
           ---------------
$1,000, as proportionally adjusted for all stock splits, stock dividends, and
any other subdivisions, combinations, reclassifications or recapitalization
affecting the Series A Preferred Shares.

          "Person" means any individual, partnership, joint venture,
           -------
corporation, limited liability company, association, joint stock company, trust
or unincorporated organization or association, or a government or any department
or agency or political subdivision thereof.

          "Preferred Dividend Payment Date" has the meaning set forth in
           ----------------------------------
paragraph (a) of Section 2.

          "Preferred Dividend Tax Adjustment Factor" has the meaning set forth
           ----------------------------------------
in paragraph (c) of Section 2.

          "Preferred Dividend Yield Rate" means (A) the sum of (i) LIBOR,
           -----------------------------
expressed as an annual percentage, and (ii) an additional percentage amount
based on the S&P Rating of the Series A Preferred Shares (adjusted annually) as
set forth in the table below:

S&P Rating                 Additional Percentage Amount
----------                 ----------------------------
AA                         0.50%
AA-                        0.75%
A+                         1.00%
A                          1.25%
A-                         1.50%

                                       13

<PAGE>

BBB+                       2.00%
BBB                        2.50%
BBB-                       3.00%
BB+                        4.00%
BB                         5.50%
BB-                        6.50%
Less than BB- or unrated   8.50%

          Upon the occurrence of a Special Conversion Event, the Preferred
Dividend Yield Rate shall be adjusted effective as of the Preferred Dividend
Payment Date next succeeding the date of such Special Conversion Event based on
the S&P Rating as adjusted pursuant to such Special Conversion Event.

          With respect to any Series A Preferred Shares that have been issued
and outstanding for four (4) years or more, the additional percentage amounts
listed in the right hand column of the above table shall be modified on each
anniversary of the Issuance Date for such Series A Preferred Shares, beginning
on the fourth (4th) anniversary of such Issuance Date, by adding to such
percentage amount an amount equal to: 12.5 basis points times the number of
such anniversaries of the Issuance Date that have passed after the third (3rd)
anniversary (i.e., the fourth (4th) anniversary shall be counted as the first
(1st) anniversary that has so passed, the fifth (5th) anniversary shall be
counted as the second (2nd) anniversary that has so passed, etc.) for all rating
classes from AA through A-; and 50 basis points times the number of such
anniversaries of the Issuance Date that have passed after the third (3rd)
anniversary (i.e., the fourth (4th) anniversary shall be counted as the first
(1st) anniversary that has so passed, the fifth (5th) anniversary shall be
counted as the second (2nd) anniversary that has so passed, etc.) for rating
classes BBB+ or lower.

          "Proposed Conversion Date" shall mean the date on which a holder of
           ------------------------
Series A Preferred Shares proposes to convert any or all of the Series A
Preferred Shares, as set forth in its notice to the Corporation properly
delivered in accordance with paragraph (d) of Section 4.

          "Proposed Redemption Date" shall mean the date on which the
           ------------------------
Corporation proposes to redeem any or all of the Series A Preferred Shares, as
set forth in its notice to holders of Series A Preferred Shares properly
delivered in accordance with paragraph (b) of Section 3.

          "Redemption Date" shall be the same day as the Proposed Redemption
           ---------------
Date, provided that (i) the Corporation has not withdrawn its intention to
redeem the Series A Preferred Shares pursuant to paragraph (c) of Section 3; and
(ii) proper provision for the payment of the Redemption Price to holders of
Series A Preferred Shares being redeemed has been made in accordance with
paragraph (b) of Section 3 by the close of business on the Proposed Redemption
Date.

                                       14

<PAGE>

          "Redemption Price" for each Series A Preferred Share shall be equal to
           ----------------
the sum of (A) the Original Value, plus (B) Unpaid Dividend Yield to and
including the Redemption Date on such share.

          "S&P Rating" means the Preferred Stock Rating of the Series A
           ----------
Preferred Shares as in effect from time to time by the Standard & Poor's
Division of The McGraw-Hill Companies or any successor. The Corporation shall
use its reasonable best efforts to obtain an S&P Rating with respect to the
Series A Preferred Shares as soon as practicable after the applicable Issuance
Date or Special Conversion Event, if any.

          "Series A Preferred Shares" has the meaning set forth in Section 1.
           -------------------------

          "Special Conversion Event" means the occurrence of the following
           ------------------------
event: the consolidated stockholders' equity of the Corporation and its
consolidated subsidiaries, as determined in accordance with GAAP, is less than
US$215,000,000, excluding goodwill and prior to giving effect to the invested
capital relating to any issued and outstanding Series A Preferred Shares, and
such condition remains uncured for over sixty (60) days.

          "Special Conversion Rate" means, with respect to the conversion of
           -----------------------
Series A Preferred Stock to shares of Common Stock in the event of a Special
Conversion Event or a Change of Control Conversion Event, the conversion of each
Series A Preferred Share into the number of Common Stock shares resulting from
dividing (i) the Original Value of such Series A Preferred Share, plus Unpaid
Dividend Yield accumulated to date for all previous dividend periods up to and
including the dividend period ending on the Conversion Date, by (ii) the Market
Price at Conversion.

          "Special Redemption Date" has the meaning set forth in Section 3(e).
           -----------------------

          "Trading Day" shall mean a date on which the New York Stock Exchange
           -----------
(or if different, the principal national securities exchange on which the Common
Stock is listed or admitted to trading) is open for the transaction of business.

          "Unpaid Dividend Yield" of any Series A Preferred Share means, for any
           ---------------------
particular quarterly period (or lesser period, as may arise in connection with
the issuance, redemption or conversion of such shares, or with any Liquidation),
an amount equal to the excess, if any, of (A) the aggregate Dividend Yield
accrued on such share in such period, over (B) the aggregate amount of cash
dividends or distributions paid by the Corporation in satisfaction of Dividend
Yield on such shares for such period.

Section 9. Miscellaneous.
           -------------

          (a) Any notice or other communication required or permitted hereunder
shall be in writing and shall be deemed to have been given (a) on the date of
delivery if delivered personally or sent by facsimile transmission (which
transmission shall be confirmed by telephone), (b) on the next Business Day if
sent by overnight delivery service or (c) fifteen (15)

                                       15

<PAGE>

days after mailing if sent by certified, registered or express mail, postage
prepaid, if properly addressed or directed to such party at the appropriate
address or facsimile number set forth below, or such address or facsimile number
as such party may designate by written notice to the other parties:

          (i)  if to the Corporation to:

               Horace Mann Educators Corporation
               Mail No. G 016
               One Horace Mann Plaza
               Springfield, Illinois  62715-0001
               Attention:  George Zock
                           Executive Vice President

               with a copy to:

               Gibson, Dunn & Crutcher LLP
               200 Park Avenue
               New York, NY 10166-0193
               Attention:  Conor Reilly

               (ii) if to a holder of the Series A Preferred Shares: to such
holder at the address for such holder as listed in the stock record books of the
Corporation (which may include the records of any transfer agent for the Series
A Preferred Shares if appropriate).

          (b) In the event a holder of Series A Preferred Shares shall not by
written notice designate the name to whom payment upon redemption of Series A
Preferred Shares should be made or the address to which the certificate or
certificates representing such shares, or such payment, should be sent, the
Corporation shall be entitled to register such shares, and make such payment, in
the name of the holder of such Series A Preferred Shares as shown on the records
of the Corporation and to send the certificate or certificates representing such
shares, or such payment, to the address of such holder shown on the records of
the Corporation.

          (c) All payments in the form of dividends and distributions and
distributions upon any Liquidation or otherwise made upon the Series A Preferred
Shares and any other shares of stock ranking on a parity with the Series A
Preferred Shares with respect to such dividend or distribution shall be made pro
rata, so that amounts paid per share on the Series A Preferred Shares and such
other shares of stock shall in all cases bear to each other the same ratio that
the required dividends, distributions or payments, as the case may be, payable
per share on the Series A Preferred Shares and such other shares of stock bear
to each other.

          (d) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the Series A Preferred Shares.

                                       16

<PAGE>

                                  SCHEDULE 1.9

                          DEFINITION OF LOSS OCCURRENCE
                          -----------------------------

"Loss occurrence" will mean the sum of all individual losses directly occasioned
by any one disaster, accident, or loss or series of disasters, accidents, or
losses arising out of one event, which occurs within the area of one state of
the United States or province of Canada and states or provinces contiguous
thereto and to one another. The duration and extent of any one "loss occurrence"
will be limited to all individual losses sustained by the Company occurring
during any period of 168 consecutive hours arising out of and directly
occasioned by the same event except that the term "loss occurrence" will be
further defined as follows:

     A.   As regards windstorm, hail, tornado, hurricane, and cyclone, including
          ensuing collapse and water damage, all individual losses sustained by
          the Company occurring during any period of 72 consecutive hours
          arising out of and directly occasioned by the same event. The event
          need not be limited to one state or province or states or provinces
          contiguous thereto.

     B.   As regards riot, riot attending a strike, civil commotion, vandalism,
          and malicious mischief, all individual losses sustained by the Company
          occurring during any period of 72 consecutive hours within the area of
          one municipality or county and the municipalities or counties
          contiguous thereto arising out of and directly occasioned by the same
          event. The maximum duration of 72 consecutive hours may be extended in
          respect of individual losses that occur beyond such 72 consecutive
          hours during the continued occupation of an insured's premises by
          strikers, provided such occupation commenced during the aforesaid
          period.

     C.   As regards earthquake (the epicenter of which need not necessarily be
          within the territorial confines referred to in the opening paragraph
          of this Article) and fire following directly occasioned by the
          earthquake, only those individual fire losses that commence during the
          period of 168 consecutive hours may be included in the Company's "loss
          occurrence."

     D.   As regards "freeze," only individual losses directly occasioned by
          collapse, breakage of glass, and water damage (caused by bursting of
          frozen pipes and tanks) may be included in the Company's "loss
          occurrence."

For all "loss occurrences" other than those referred to in B. above, the Company
may choose the date and time when any such period of consecutive hours commences
provided that it is not earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Company arising out of that
disaster, accident, or loss and provided that only one such period of 168
consecutive hours will apply with respect to one event, except for those "loss
occurrences" referred to in A. above where only one such period of 72
consecutive hours will apply with respect to one event.

<PAGE>

As respects those "loss occurrences" referred to in B. above, if the disaster,
accident, or loss occasioned by the event is of greater duration than 72
consecutive hours, then the Company may divide that disaster, accident, or loss
into two or more "loss occurrences" provided no two periods overlap and no
individual loss is included in more than one such period and provided that no
period commences earlier than the date and time of the occurrence of the first
recorded individual loss sustained by the Company arising out of that disaster,
accident, or loss.

No individual losses occasioned by an event that would be covered by 72 hours
provisions may be included in any "loss occurrence" claimed under the 168 hours
provisions.

Losses directly or indirectly occasioned by:

     (i)  loss of, alteration of, or damage to

     (ii) a reduction in the functionality, availability or operation of

a computer system, hardware, programme, software, data, information repository,
microchip, integrated circuit or similar device in computer equipment or
non-computer equipment, whether the property of the policyholder of the Company
or not, do not in and of themselves constitute an event unless arising out of
one or more of the following perils:

     fire, lightning, explosion, aircraft or vehicle impact, falling objects,
     windstorm, hail, tornado, cyclone, hurricane, earthquake, volcano, tsunami,
     flood, freeze or weight of snow.

                                       2

<PAGE>

                                  SCHEDULE 1.29

                              BINDER OF REINSURANCE
                              MULTILINE QUOTA SHARE
                              REINSURANCE AGREEMENT
                  (hereinafter referred to as the "Agreement")

                                     Between

                         HORACE MANN INSURANCE COMPANIES
                              Springfield, Illinois
                   (hereinafter referred to as the "Company")

                                       and

                      SWISS REINSURANCE AMERICA CORPORATION
                                Armonk, New York
                  (hereinafter referred to as the "Reinsurer")

BUSINESS COVERED:   The Company obligates itself to cede to the Reinsurer and
----------------    the Reinsurer obligates itself to accept from the Company a
                    10% Quota Share participation of the Company's Ultimate Net
                    Liability for the Policies in force as of the Inception
                    Date, and new and renewal Policies becoming effective on or
                    after said date as respects losses occurring on or after the
                    Inception Date.

                    Under this Agreement, the indemnity for reinsured loss
                    applies to Homeowners, Personal Automobile Liability and
                    Personal Automobile Physical Damage except as excluded under
                    this Agreement.

INCEPTION DATE
--------------
AND TERMINATION
---------------
DATE:               This Agreement shall become effective with respect to in
----                force, new and renewal business effective on or after the
                    Inception Date and shall remain in force for 12 months from
                    the Inception Date, such date to be the Termination Date.

                    As of the Termination Date of this Agreement, all
                    reinsurance hereunder shall be automatically cancelled as of
                    the Termination Date and the Reinsurer shall be released of
                    all liability as respects losses occurring subsequent to the
                    Termination Date. The Reinsurer shall return to the Company
                    the unearned premiums on the hereunder at the Termination
                    Date, less the commission allowed thereon.

<PAGE>

                    The Inception Date shall be determined based on the terms
                    and conditions of the CLOCS agreement with SRFP.

TERRITORY:          United States of America, its territories and possessions,
----------          and Canada, except as respects Inland Marine business
                    covered hereunder where the territorial limits shall be
                    those of the policies concerned.

LIMIT AND
---------
RETENTION:          This Quota Share Agreement is subject to a maximum cession
---------           limit of $750,000 Ultimate Net Liability each Occurrence
                    (10% share of the Company's Ultimate Net Liability of
                    $7,500,000 each occurrence).

                    If the Company's Accident Year Loss Ratio for the period
                    exceeds 77.0%, the Company will retain as a loss corridor
                    deductible, loss and Loss Adjustment Expense for which the
                    Reinsurer would otherwise be liable for the difference
                    between the actual Accident Year Loss Ratio and 77.0%,
                    calculated per the following paragraph.

                    The Loss Ratio percentage points comprising the loss
                    corridor deductible shall be 13.0 Loss Ratio percentage
                    points adjusted by the difference in the cumulative trend
                    percent less cumulative rate change percent from January 1,
                    2002 until the Inception Date, subject to a minimum loss
                    corridor deductible of 13.0 Loss Ratio percentage points.

                    The Reinsurer will then be liable for its 10% share of the
                    next 15.0 Loss Ratio percentage points in excess of the
                    number of loss corridor deductible Loss Ratio percentage
                    points, and shall have no liability excess of such amount of
                    Accident Year Loss Ratio percentage points.

DEFINITION OF
-------------
ULTIMATE
--------
NET LIABILITY:      The term "Ultimate Net Liability" shall mean the of the
--------------      remaining portion of the Company's gross liability including
                    90% ECO and 90% XPL (within the Agreement limits) as defined
                    herein, from each Occurrence reinsured under this Agreement
                    after deducting recoveries from all other reinsurance
                    (excluding the aggregate cover), if any, whether specific or
                    general and whether collectible or not.

REINSURANCE
-----------
PREMIUM:            The Company shall cede to the Reinsurer 10% of the Company's
--------            unearned premiums on its Ultimate Net Liability in force as
                    of the Inception Date on the business covered hereunder.

<PAGE>

                    The Company shall cede to the Reinsurer 10% of the Company's
                    Net Premiums Written applicable to new and renewal Policies
                    becoming effective on or after the Inception Date, with
                    respect to its Ultimate Net Liability on the business
                    covered hereunder.

                    The term "Net Premiums Written" shall mean gross and
                    additional premiums less return premiums, less premiums
                    ceded on all other reinsurance.

CEDING COMMISSION:  The Reinsurer shall allow to the Company a ceding commission
-----------------   allowance of 20.0% of the Net Premiums Written, ceded
                    hereunder.

ACCIDENT YEAR
-------------
LOSS RATIO:         In calculating the Accident Year Loss Ratio, direct earned
----------          premium less all ceded reinsurance earned premium will be
                    used to determine Net Earned Premium. Net Incurred Loss will
                    be equal to the total of all Ultimate Net Liability.
                    Accident Year Loss Ratio will equal Net Incurred Loss
                    divided by Net Earned Premium.

                    The term "incurred losses" means all losses and Loss
                    Adjustment Expenses paid less recoveries, including salvage
                    and subrogation, plus Losses and Loss Adjustment Expenses
                    outstanding (including IBNR) as respects losses which
                    occurred during the term.

REPORTS AND
-----------
REMITTANCES:        Within 5 days after receiving a signed binder of reinsurance
-----------         the Company shall pay to the Reinsurer the Reinsurer's pro
                    rata share of the Company's unearned premium reserve
                    segregated by Line of Business on the business in force as
                    of the Inception Date.

                    Within 30 days after the close of each quarter the Company
                    shall forward a quarterly account summarizing the following
                    transactions under this Agreement during the quarter:

                    Net Premiums written ceded segregated by Line of business;

                    Commissions;

                    Loss and LAE paid less recoveries, segregated by Line of
                    Business, by year of loss;

<PAGE>

                    Unearned Premium Reserves segregated by Line of Business at
                    the end of the quarter and calculated on a monthly pro rata
                    basis;

                    Estimated loss and LAE reserves outstanding at the end of
                    the quarter segregated by Line of Business, by year of loss.

                    The balance due either party shall be paid within 45 days
                    after the close of each quarter for the transactions during
                    such quarter.

EXCLUSIONS:         See Attached.
----------

OTHER CLAUSES:      .    90% ECO and 90% XPL Covered up to limits.
-------------       .    Definition of Occurrence - No Reinstatement (attached)
                    .    Catastrophe Reinsurance
                    .    Currency
                    .    Definition of Risk
                    .    Dispute Resolution
                    .    Errors or omissions
                    .    Insolvency
                    .    Losses, Loss Adjustment Expenses and Salvages
                    .    Offset
                    .    Special Termination
                    .    Taxes
                    .    Others to be Agreed

Upon signature by a duly authorized representative of the Reinsurer, this Binder
of Reinsurance shall be effective until superseded by an Agreement of
Reinsurance signed by duly authorized representatives of the Reinsurer and the
Company.

<PAGE>

SRA Participation Accepted Hereon: 100% of 10%

Authorized Signature:
                     -------------------------

Date:
     -------------------------

Horace Mann Authorized Signature:
                                 -------------------------

Date:
     -------------------------

<PAGE>

EXCLUSIONS

THIS AGREEMENT DOES NOT COVER:

A.   THE FOLLOWING GENERAL CATEGORIES

     1.   All Lines of Business not specifically listed in Business Covered.

     2.   Policies issued with a deductible of $100,000 or more; provided this
          exclusion shall not apply to Policies which customarily provide a
          percentage deductible on the perils of earthquake or windstorm.

     3.   Reinsurance assumed, except pro rata local agency reinsurance on
          specific risks.

     4.   Ex-gratia Payments.

     5.   Loss or damage occasioned by war, invasion, revolution, bombardment,
          hostilities, acts of foreign enemies, civil war, rebellion,
          insurrection, military or usurped power, martial law, or confiscation
          by order of any government or public authority, but not excluding loss
          or damage which would be covered under a standard form of Policy
          containing a standard war exclusion clause.

     6.   Insolvency Funds as per the attached Insolvency Funds Exclusion
          Clause, which is made part of this Agreement.

     7.   Pool, Syndicate and Association business as per the attached Pools,
          Associations and Syndicates Exclusion Clause, which is made part of
          this Agreement.

     8.   Risks where the Total Insured Value, per risk, exceeds the figure
          specified as per, the attached Total Insured Value Exclusion Clause,
          which is made part of this Agreement.

B.   THE FOLLOWING CLASSES OF BUSINESS AND TYPES OF RISKS

     1.   Mortgage Impairment.

     2.   Growing and/or standing crops.

     3.   Mortality and Health covering birds, animals or fish.

     4.   All onshore and offshore gas and oil drilling rigs.

     5.   Petrochemical operations engaged in the production, refining or
          upgrading of petroleum or petroleum derivatives or natural gas.

     6.   Satellites.

     7.   All railroad business.

<PAGE>

     8.   As respects Inland Marine business:

          a.   Registered Mail and Armored Car Policies.
          b.   Jeweler's Block Policies.
          c.   Furrier's Customers Policies.
          d.   Rolling Stock.
          e.   Parcel Post when written to cover banks and financial
               institutions.
          f.   Commercial Negative Film Insurance.
          g.   Garment Contractors Policies.
          h.   Mining Equipment while underground.
          i.   Radio and Television Broadcasting Towers.
          j.   Motor Truck Cargo Insurance written for common carriers operating
               beyond a radius of 200 miles.

C.   THE FOLLOWING PERILS

     1.   Flood and/or Earthquake when written as such.

     2.   Difference in Conditions, however styled.

     3.   Pollution and Seepage as per the attached Pollution and Seepage
          Exclusion Clause, which is made part of this Agreement.

     4.   Nuclear Incident Exclusion Clauses which are attached and made part of
          this Agreement:

          a.   Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance
               - U.S.A.
          b.   Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance
               - Canada.
          c.   Nuclear Incident Exclusion Clause - Reinsurance - No. 4.

D.   In the event the Company is inadvertently bound on any risk which is
     excluded under this Agreement and identified below, the reinsurance
     provided under this Agreement shall apply to such risk until discovery by
     the Company within its Home Office of the existence of such risk and for 30
     days thereafter, and shall then cease unless within the 30 day period, the
     Company has received from the Reinsurer written notice of its approval of
     such risk.

                          SUPPLEMENT TO THE ATTACHMENTS

         DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS
         --------------------------------------------------------------

<PAGE>

A.   Wherever the term "Company" or "Reinsured" or "Reassured" or whatever other
     term is used to designate the reinsured company or companies within the
     various attachments to the reinsurance agreement, the term shall be
     understood to mean Company or Reinsured or Reassured or whatever other term
     is used in the attached reinsurance agreement to designate the reinsured
     company or companies.

B.   Wherever the term "Agreement" or "Contract" or "Policy" or whatever other
     term is used to designate the attached reinsurance agreement within the
     various attachments to the reinsurance agreement, the term shall be
     understood to mean Agreement or Contract or Policy or whatever other term
     is used to designate the attached reinsurance agreement.

C.   Wherever the term "Reinsurer" or "Reinsurers" or "Underwriters" or whatever
     other term is used to designate the reinsurer or reinsurers in the various
     attachments to the reinsurance agreement, the term shall be understood to
     mean Reinsurer or Reinsurers or Underwriters or whatever other term is used
     to designate the reinsuring company or companies.

--------------------------------------------------------------------------------

                        INSOLVENCY FUNDS EXCLUSION CLAUSE
                        ---------------------------------

This Agreement excludes all liability of the Company arising by contract,
operation of law, or otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund or from reimbursement of any
person for any such liability. "Insolvency fund" includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed, which provides for any assessment of or
payment or assumption by any person of part or all of any claim, debt, charge,
fee, or other obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.

<PAGE>

               POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE
               ---------------------------------------------------

SECTION A

Excluding:

(a)  All Business derived directly or indirectly from any Pool, Association or
     Syndicate which maintains its own reinsurance facilities.

(b)  Any Pool or Scheme (whether voluntary or mandatory) formed after March 1,
     1968, for the purpose of insuring Property whether on a country-wide basis
     or in respect of designated areas. This Exclusion shall not apply to
     so-called Automobile Insurance Plans or other Pools formed to provide
     coverage for Automobile Physical Damage.

SECTION B

It is agreed that business, written by the Company for the same perils, which is
known at the time to be insured by or in excess of underlying amounts placed in
the following Pools, Associations or Syndicates, whether by way of insurance or
reinsurance is excluded hereunder:

     Industrial Risk Insurers (successor to Factory Insurance Association and
     Oil Insurance Association); Associated Factory Mutuals; Improved Risk
     Mutuals.

     Any Pool, Association or Syndicate formed for the purpose of writing Oil,
     Gas or Petro-Chemical Plants and/or Oil or Gas Drilling Rigs.

     United States Aircraft Insurance Group, Canadian Aircraft Insurance Group,
     Associated Aviation Underwriters, American Aviation Underwriters.

SECTION B does not apply:

(a)  Where the Total Insured value over all interests of the risk in question is
     less than $250,000,000.

(b)  To interests traditionally underwritten as Inland Marine or Stock and/or
     Contents written on a Blanket basis.

(c)  To Contingent Business Interruption, except when the Company is aware that
     the key location is known at the time to be insured in any Pool,
     Association or Syndicate named above.

(d)  To risks as follows: Offices, Hotels, Apartments, Hospitals, Educational
     Establishments, Public Utilities (other than Railroad Schedules) and
     Builders Risks on the classes of risks specified in this subsection (d)
     only.

<PAGE>

                      TOTAL INSURED VALUE EXCLUSION CLAUSE
                      ------------------------------------

It is the mutual intention of the parties to exclude risks, other than Offices,
Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities
(except Railroad schedules) and Builders Risk on the above classes where, at the
time of the cession, the Total Insured Value over all interests exceeds
$250,000,000. However, the Company shall be protected hereunder, subject to the
other terms and conditions of this Agreement, if subsequently to cession being
made the Company becomes acquainted with the true facts of the case and
discovers that the mutual intention has been inadvertently breached, the Company
shall at the first opportunity, and certainly by next anniversary of the
original policy, exclude the risk in question.

It is agreed that this mutual intention does not apply to Contingent Business
Interruption or to interest traditionally underwritten as Inland Marine or to
Stock and/or Contents written on a blanket basis except where the Company is
aware that the Total Insured Value of $250,000,000 is already exceeded for
buildings, machinery, equipment and direct use and occupancy at the key
location.

It is understood and agreed that this Clause shall not apply hereunder where the
Company writes 100% of the risk.

Notwithstanding anything contained herein to the contrary, it is the mutual
intention of the parties in respect of bridges and tunnels to exclude such risks
where the Total Insured Value over all interests exceeds $250,000,000.

<PAGE>

                     POLLUTION AND SEEPAGE EXCLUSION CLAUSE
                     --------------------------------------

This Reinsurance does not apply to:

     1.   Pollution, seepage, contamination or environmental impairment
          insurances (hereinafter collectively referred to as "pollution"),
          however styled;

     2.   Loss or damage caused directly or indirectly by pollution, unless said
          loss or damage follows as a result of a loss caused directly by a
          peril covered hereunder;

     3.   Expenses resulting from any governmental direction or request that
          material present in or part of or utilized on an insured's property be
          removed or modified, except as provided in 5. below;

     4.   Expenses incurred in testing for and/or monitoring pollutants;

     5.   Expenses incurred in removing debris, unless (A) the debris results
          from a loss caused directly by a peril covered hereunder, and (B) the
          debris to be removed is itself covered hereunder, and (C) the debris
          is on the insured's premises, subject, however, to a limit of $5,000
          plus 25% of (i) the property damage loss, any risk, any one location,
          any one original insured, and (ii) any deductible applicable to the
          loss;

     6.   Expenses incurred to extract pollutants from land or water at the
          insured's premises unless (A) the release, discharge, or dispersal of
          pollutants results from a loss caused directly by a peril covered
          hereunder, and (B) such expenses shall not exceed $10,000;

     7.   Loss of income due to any increased period of time required to resume
          operations resulting from enforcement of any law regulating the
          prevention, control, repair, clean-up or restoration of environment
          damage;

     8.   Claims under 5. and/or 6. above, unless notice therefore is given to
          the Company within 180 days after the date of the loss occurrence to
          which such claims relate.

"Pollutants" means any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Where no pollution exclusion has been accepted or approved by an insurance
regulatory authority for use in a policy that is subject to this Agreement or
where a pollution exclusion that has been used in a policy is overturned, either
in whole or in part, by a court having jurisdiction, there shall be no recovery
for pollution under this Agreement unless said pollution loss or damage follows
as a result of a loss caused directly by a peril covered hereunder.

                                       1

<PAGE>

Nothing herein shall be deemed to extend the coverage afforded by this
reinsurance to property or perils specifically excluded or not covered under the
terms and conditions of the original policy involved.

                                       2

<PAGE>

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A.
--------------------------------------------------------------------------

N.M.A. 1119

1.   This Reinsurance does not cover any loss or liability accruing to the
     Reassured, directly or indirectly, and whether as Insurer or Reinsurer,
     from any Pool of Insurers or Reinsurers formed for the purpose of covering
     Atomic or Nuclear Energy risks.

2.   Without in any way restricting the operation of paragraph 1. of this
     Clause, this Reinsurance does not cover any loss or liability accruing to
     the Reassured, directly or indirectly, and whether as Insurer or Reinsurer,
     from any insurance against Physical Damage (including business interruption
     or consequential loss arising out of such Physical Damage) to:

     I.   Nuclear reactor power plants including all auxiliary property on the
          site, or

     II.  Any other nuclear reactor installation, including laboratories
          handling radioactive materials in connection with reactor
          installations, and critical facilities as such, or

     III. Installations for fabricating complete fuel elements or for processing
          substantial quantities of "special nuclear material," and for
          reprocessing, salvaging, chemically separating, storing or disposing
          of spent nuclear fuel or waste materials, or

     IV.  Installations other than those listed in paragraph 2. III. above using
          substantial quantities of radioactive isotopes or other products of
          nuclear fission.

3.   Without in any way restricting the operation of paragraphs 1. and 2. of
     this Clause, this Reinsurance does not cover any loss or liability by
     radioactive contamination accruing to the Reassured, directly or
     indirectly, and whether as Insurer or Reinsurer, from any insurance on
     property which is on the same site as a nuclear reactor power plant or
     other nuclear installation and which normally would be insured therewith,
     except that this paragraph 3. shall not operate:

     (a)  where the Reassured does not have knowledge of such nuclear reactor
          power plant or nuclear installation, or

     (b)  where the said insurance contains a provision excluding coverage for
          damage to property caused by or resulting from radioactive
          contamination, however caused. However, on and after 1st January,
          1960, this sub-paragraph (b) shall only apply provided the said
          radioactive contamination exclusion provision has been approved by the
          Governmental Authority having jurisdiction thereof.

4.   Without in any way restricting the operation of paragraphs 1., 2. and 3. of
     this Clause, this Reinsurance does not cover any loss or liability by
     radioactive contamination

                                       1

<PAGE>

     accruing to the Reassured, directly or indirectly, and whether as Insurer
     or Reinsurer, when such radioactive contamination is a named hazard
     specifically insured against.

5.   It is understood and agreed this Clause shall not extend to risks using
     radioactive isotopes in any form where the nuclear exposure is not
     considered by the Reassured to be the primary hazard.

6.   The term "special nuclear material" shall have the meaning given to it by
     the Atomic Energy Act of 1954 or by any law amendatory thereof.

7.   Reassured to be sole judge of what constitutes:

     (a)  substantial quantities, and

     (b)  the extent of installation., plant or site.

NOTE: - Without in any way restricting the operation of paragraph 1. hereof, it
is understood and agreed that

     (a)  all policies issued by the Reassured on or before 31st December, 1957
          shall be free from the application of the other provisions of this
          Clause until expiry date or 31st December, 1960 whichever first occurs
          whereupon all the provisions of this Clause shall apply,

     (b)  with respect to any risk located in Canada policies issued by the
          Reassured on or before 31st December, 1958 shall be free from the
          application of the other provisions of this Clause until expiry date
          or 31st December, 1960 whichever first occurs whereupon all the
          provisions of this Clause shall apply.

N.M.A. 1119

                                       2

<PAGE>

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - CANADA
--------------------------------------------------------------------------

N.M.A. 1980

1.   This Agreement does not cover any loss or liability accruing to the Company
     directly or indirectly, and whether as Insurer or Reinsurer, from any Pool
     of Insurers or Reinsurers formed for the purpose of covering Atomic or
     Nuclear Energy risks.

2.   Without in any way restricting the operation of paragraph 1. of this
     clause, this Agreement does not cover any loss or liability accruing to the
     Company, directly or indirectly, and whether as Insurer or Reinsurer, from
     any insurance against Physical Damage (including business interruption or
     consequential loss arising out of such Physical Damage) to:

     a.   Nuclear reactor power plants including all auxiliary property on the
          site, or

     b.   Any other nuclear reactor installation, including laboratories
          handling radioactive materials in connection with reactor
          installations, and critical facilities as such, or

     c.   Installations for fabricating complete fuel elements or for processing
          substantial quantities of prescribed substances, and for reprocessing,
          salvaging, chemically separating, storing or disposing of spent
          nuclear fuel or waste materials, or

     d.   Installations other than those listed in c. above using in substantial
          quantities of radioactive isotopes or other products of nuclear
          fission.

3.   Without in any way restricting the operation of paragraphs 1. and 2. of
     this clause, this Agreement does not cover any loss or liability by
     radioactive contamination accruing to the Company, directly or indirectly,
     and whether as Insurer or Reinsurer, from any insurance on property which
     is on the same site as a nuclear reactor power plant or other nuclear
     installation and which normally would be insured therewith, except that
     this paragraph 3. shall not operate:

     a.   where the Company does not have knowledge of such nuclear reactor
          power plant or nuclear installation, or

     b.   where the said insurance contains a provision excluding coverage for
          damage to property caused by or resulting from radioactive
          contamination, however caused.

4.   Without in any way restricting the operation of paragraphs 1., 2. and 3. of
     this clause, this Agreement does not cover any loss or liability by
     radioactive contamination accruing to the Company, directly or indirectly,
     and whether as Insurer or Reinsurer, when such radioactive contamination is
     a named hazard specifically insured against.

5.   This clause shall not extend to risks using radioactive isotopes in any
     form where the nuclear exposure is not considered by the Company to be the
     primary hazard.

                                       1

<PAGE>

6.   The term "prescribed substances" shall have the meaning given to it by the
     Atomic Energy Control Act R.S.C. 1974 or by any law amendatory thereof.

7.   Company to be sole judge of what constitutes:

     a.   substantial quantities, and

     b.   the extent of installation, plant or site.

8.   Without in any way restricting the operation of paragraphs 1., 2., 3. and
     4. of this clause, this Agreement does not cover any loss or liability
     accruing to the Company, directly or indirectly, and whether as Insurer or
     Reinsurer, caused by any nuclear incident as defined in The Nuclear
     Liability Act, nuclear explosion or contamination by radioactive material.

NOTE: Without in any way restricting the operation of paragraphs 1., 2., 3. and
     4. of this clause, paragraph 8. of this clause shall apply to all original
     contracts of the Company whether new, renewal or replacement which become
     effective on or after December 31, 1984.

N.M.A. 1980

                                       2

<PAGE>

            NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE - NO. 4
            -------------------------------------------------------

1.   The Reinsurance does not cover any loss or liability accruing to the
     Reassured as a member of, or subscriber to, any association of insurers or
     reinsurers formed for the purpose of covering nuclear energy risks or as a
     direct or indirect reinsurer of any such member, subscriber or association.

2.   Without in any way restricting the operations of Nuclear Incident Exclusion
     Clauses, - Liability, - Physical Damage, - Boiler and machinery and
     paragraph 1. of this Clause, it is understood and agreed that for all
     purposes of the reinsurance assumed by the Reinsurer from the Reinsured,
     all original insurance policies or contracts of the Reinsured (new, renewal
     and replacement) shall be deemed to include the applicable existing Nuclear
     Clause and/or Nuclear Exclusion Clause(s) in effect at the time and any
     subsequent revisions thereto as agreed upon and approved by the Insurance
     Industry and/or a qualified Advisory or Rating Bureau.

<PAGE>

                                  SCHEDULE 5.10

                              OFFICER'S CERTIFICATE
                              ---------------------

This certifies that (1) the representations and warranties of Horace Mann
Educators Corporation, a Delaware corporation (the "Company", as further defined
below) contained in Article 3 of the Agreement (as defined below), were true and
accurate in all material respects on the date of the Agreement, and are true and
accurate in all material respects as of the date of this Certificate, (2) the
Company has, as of the date of this Certificate, satisfied all conditions set
forth in Article 5 of the Agreement, (3) the Company is not, as of the date of
this Certificate, in breach of any of the covenants and agreements required to
be complied with by the Company as set forth in Article 6 of the Agreement, and
(4) the representation and warranty of the Company described in Section 5.8 of
the Agreement is true and accurate in all material respects as of the date of
this Certificate. This Certificate is being delivered pursuant to Section 5.10
of the Agreement.

For the purposes of this Certificate, the term (a) "Agreement" means that
certain Catastrophe Equity Securities Issuance Option and Reinsurance Option
Agreement dated as of May 7, 2002 between the Company and
                         , a                          corporation, including its
-------------------------    ------------------------
exhibits and schedules, and (b) the "Company" includes the HM Insurance
Subsidiaries (as defined in the Agreement), on behalf of which the Company has
the requisite power and authority to make the applicable representations and
warranties in Article 3 of the Agreement and pursuant to this Certificate.

Dated:
        -----------------                     Horace Mann Educators Corporation,
                                              a Delaware corporation

                                              By:
                                                 -------------------------------
                                              Name:
                                              Title:

<PAGE>

                                  SCHEDULE 5.12

                [Form of Opinion of Gibson, Dunn & Crutcher, LLP]

Swiss Re Financial Products Corporation
55 East 52nd Street
New York, NY 10055

          Re: Catastrophe Equity Securities Issuance Option and Reinsurance
Option Agreement dated as of May 7, 2002 (the "Agreement") between Option Writer
and Horace Mann Educators Corporation, a Delaware corporation (the "Company").

Ladies and Gentlemen:

          We have acted as special counsel to the Company in connection with the
Agreement. Capitalized terms used in this opinion and not otherwise defined
shall have the meanings assigned to them in the Agreement.

          In rendering this opinion, we have examined originals or copies
certified or otherwise identified to our satisfaction as being true copies of
the documents and instruments relevant to our opinion.

          We have, with your permission, assumed, without independent
investigation or inquiry with respect to any matter, that: the signatures on all
documents examined by us are genuine, all individuals executing such documents
had all requisite legal capacity (except in the case of documents signed on
behalf of the Company) and competency and were duly authorized (except in the
case of documents signed on behalf of the Company), the documents submitted to
us as originals are authentic and the documents submitted to us as certified or
reproduction copies conform to the originals.

          With respect to questions of fact material to the opinions expressed
below, we have, with your consent, relied upon certificates of public officials
and officers of the Company, in each case without having independently verified
the accuracy or completeness thereof.

          Based on the foregoing and in reliance thereon, and subject to the
assumptions, exceptions, qualifications and limitations set forth herein, we are
of the opinion that:

          1. Each of HM and the HM Insurance Subsidiaries incorporated in
California and Texas is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and has the full
corporate power and authority to conduct its business as currently being
conducted and to execute and deliver the Transaction Agreements to which it is a
party, and to perform its obligations under, and to consummate the transactions
contemplated by, the Transaction Agreements to which it is a party, including,
without limitation, the delivery of the Preferred Shares pursuant to the
exercise of the Securities Issuance Option.

<PAGE>

          2. The execution and delivery of the Transaction Agreements to which
it is a party by the Company, and the performance of the Company under such
Transaction Agreements, is not in violation of any applicable law, any provision
of the Company or HM's Insurance Subsidiaries' organizational documents or, to
our knowledge, any order or judgment of any court or other government agency
applicable to the Company or any of its assets or subsidiary or affiliated
companies, to the extent that any such order or judgment would have a material
adverse effect on the rights and privileges of Option Writer under the
Agreement, or to our knowledge any contractual restriction binding upon or
affecting the Company of any of its assets or subsidiary or affiliated
companies. To our knowledge, the Company and the HM Insurance Subsidiaries, as
applicable, have complied, in all material respects, with all representations,
warranties, covenants and agreements contained in any Transaction Agreements.

          3. All governmental and other consents (including without limitation
approvals under the Federal securities laws) that are required to have been
obtained by the Company with respect to the execution and delivery of the
Agreement have been obtained and are in full force and effect and all conditions
of any such consents have been complied with.

          4. The execution of the Transaction Agreements to which it is a party
have been duly authorized by all necessary corporate action of the Company, and
such Transaction Agreements (a) have been duly executed and delivered by the
Company, (b) constitute legal, valid and binding obligations of the Company and
(c) are enforceable against the Company in accordance with their terms.

          5. To our knowledge, there is not pending or threatened against the
Company or any of its subsidiaries or affiliates any action, suit or proceeding
before any court, tribunal, governmental body, agency or official or any
arbitrator or mediator that would reasonably be expected to materially and
adversely affect the legality, validity and enforceability of the Transaction
Agreements against the Company or materially adversely affect the financial
condition of the Company or any of the HM Insurance Subsidiaries.

          6. The Company has             authorized Preferred Shares, and such
                             -----------
Preferred Shares, when issued pursuant to the exercise of the Securities
Issuance Option, shall, upon delivery of payment therefor, be validly issued,
fully paid and non-assessable. Upon issuance pursuant to the Agreement, the
Preferred Shares shall be free and clear of any lien, encumbrance or other
restriction (other than as set forth in the Transaction Agreements), and upon
delivery of and payment for the Preferred Shares as provided in the Agreement,
Option Writer will acquire good title to the Preferred Shares purchased under
this Agreement, free and clear of any lien, encumbrance or other restriction
(other than as set forth in the Transaction Agreements).

          7. The shares of HM Common Stock into which the Preferred Shares may
be converted, as set forth in the Certificate of Designations, shall, upon
issuance pursuant to such conversion, be validly issued, fully paid and
non-assessable. Such shares of HM Common Stock shall be free and clear of any
lien, encumbrance or other restriction (other than as set forth in the
Transaction Agreements), and upon conversion as provided in the Certificate of
Designations, Option Writer will acquire good title to the requisite number of
shares of HM Common Stock,

                                       2

<PAGE>

free and clear of any lien, encumbrance or other restriction (other than as set
forth in the Transaction Agreements). Such shares of HM Common Stock shall be
subject to the Registration Rights Agreement.

          8. To our knowledge, except for the Agreement, there is no outstanding
right, subscription, warrant, call, unsatisfied preemptive right, option or
other agreement of any kind to purchase or otherwise to receive from the Company
any authorized but unissued, unauthorized or treasury shares of the Preferred
Shares.

          9. To our knowledge, the Company and the HM Insurance Subsidiaries
incorporated in California and Texas have all requisite licenses, permits and
authority (collectively, "Licenses") that are necessary for the conduct of their
respective insurance and other businesses, if any, such Licenses are in full
force and effect and no proceeding is pending or threatened to suspend, revoke
or limit any License which is material to the operations of any such insurance
company.

          10. To our knowledge, neither the Company nor any HM Insurance
Subsidiary (a) is the subject of any voluntary or involuntary petition under any
bankruptcy, insolvency or similar law affecting creditors generally, (b) is the
subject of any liquidation, transformation or rehabilitation proceeding or (c)
has had a receiver or similar person or entity appointed for any of its
property.

          Each of the opinions set forth above is subject to the following
exceptions, qualifications, limitations and assumptions:

          (a) Our opinions are subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, arrangement or other similar state or federal laws
affecting enforcement of debtors' and creditors' rights generally, including,
without limitation, the effect of statutory or other laws regarding fraudulent
conveyances or transfers, preferential transfers and of laws affecting
distributions by corporations to stockholders.

          (b) Our opinions are subject to the application of general principles
of equity, whether considered in a case or proceeding at law or in equity,
including, without limitation, concepts of materiality, reasonableness,
commercial reasonableness, good faith and fair dealing. Without limitation, we
express no opinion as to the availability of specific performance, injunctive
relief or other equitable relief as a remedy for noncompliance with any of the
terms of the Transaction Agreements.

          (c) We express no opinion as to the legality, validity, binding effect
or enforceability (whether according to its terms or otherwise) of any
provisions of any Transaction Agreement to the effect that rights or remedies
are not exclusive, that every right or remedy is cumulative and may be exercised
in addition to any other right or remedy, that the election of some particular
remedy does not preclude recourse to one or more other remedies or that failure
to exercise or delay in exercising rights or remedies will not operate as a
waiver of any such right or remedy.

                                       3

<PAGE>

          (d) We express no opinion as to the legality, validity, binding effect
or enforceability of any waiver (whether or not stated as such) under the
Transaction Agreements, or any consent thereunder relating to any presently
existing, unknown or future rights or the rights of any party thereto existing
or duties owing to it, as a matter of law. We express no opinion as to the
effectiveness of any waiver or consent contained in the Transaction Agreements
that is broadly or vaguely stated or does not describe the right or duty
purportedly waived or to which such consent relates with reasonable specificity.
Without limitation, we express no opinion as to any provision of any Transaction
Agreement waiving the right to object to venue in any court or waiving the right
to jury trial.

          This opinion is limited to the effect of the present laws of the
States of New York, California and Texas and the United States of America and,
to the limited extent set forth below, the General Corporation Law of the State
of Delaware. Although we are not admitted to practice in the State of Delaware,
we are generally familiar with the General Corporation Law of the State of
Delaware as presently in effect and have made such inquiries as we consider
necessary to render our opinions expressed in Paragraphs 1 through 7 hereof. In
rendering this opinion, we assume no obligation to revise or supplement this
opinion in the event of future changes in the present laws, or the
interpretation thereof, or the present facts relevant to the transaction
contemplated by the Agreement.

          This opinion is rendered to Option Writer in connection with the
Agreement and may not be relied upon by any person other than Option Writer or
by Option Writer in any other context. This opinion may not be quoted without
the prior written consent of this Firm or furnished to any other person or
entity without the prior written consent of this Firm, provided that Option
                                                       --------
Writer may provide copies of this opinion to regulatory authorities should they
so request or in connection with their normal examinations or to the independent
auditors and attorneys of Option Writer.

                                                               Very truly yours,

                                       4

<PAGE>

                  [Form of Opinion of General Counsel of HMEC]

Swiss Re Financial Products Corporation
55 East 52nd Street
New York, NY 10055

          Re: Catastrophe Equity Securities Issuance Option and Reinsurance
Option Agreement dated as of May 7, 2002 (the "Agreement") between Option Writer
and Horace Mann Educators Corporation, a Delaware corporation (the "Company").

Ladies and Gentlemen:

          I am the General Counsel of the Company and am familiar with the
Agreement. Capitalized terms used in this opinion and not otherwise defined
shall have the meanings assigned to them in the Agreement.

          In rendering this opinion, I have examined originals or copies
certified or otherwise identified to my satisfaction as being true copies of the
documents and instruments relevant to my opinion.

          I have, with your permission, assumed, without independent
investigation or inquiry with respect to any matter, that: the signatures on all
documents examined by me are genuine, all individuals executing such documents
had all requisite legal capacity (except in the case of documents signed on
behalf of the Company) and competency and were duly authorized (except in the
case of documents signed on behalf of the Company), the documents submitted to
me as originals are authentic and the documents submitted to me as certified or
reproduction copies conform to the originals.

          Based on the foregoing and in reliance thereon, and subject to the
assumptions, exceptions, qualifications and limitations set forth herein, I am
of the opinion that:

          1. Each of the HM Insurance Subsidiaries incorporated in Illinois and
Arizona is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization and has the full corporate power and
authority to conduct its business as currently being conducted and to execute
and deliver the Transaction Agreements to which it is a party, and to perform
its obligations under, and to consummate the transactions contemplated by, the
Transaction Agreements to which it is a party.

          2. The execution and delivery of the Transaction Agreements to which
it is a party by the Company, and the performance of the Company under such
Transaction Agreements, is not in violation of any applicable law, any provision
of the Company or HM's Insurance Subsidiaries' organizational documents or any
order or judgment of any court or other government agency applicable to the
Company or any of its assets or subsidiary or affiliated companies, to the
extent that any such order or judgment would have a material adverse effect on
the rights and privileges of Option Writer under the Agreement, or any
contractual restriction binding upon or affecting the Company of any of its
assets or subsidiary or affiliated companies.

                                       5

<PAGE>

The Company and the HM Insurance Subsidiaries, as applicable, have complied, in
all material respects, with all representations, warranties, covenants and
agreements contained in any Transaction Agreements.

          3. All governmental and other consents that are required to have been
obtained by the Company with respect to the execution and delivery of the
Agreement have been obtained and are in full force and effect and all conditions
of any such consents have been complied with.

          4. There is not pending or threatened against the Company or any of
its subsidiaries or affiliates any action, suit or proceeding before any court,
tribunal, governmental body, agency or official or any arbitrator or mediator
that would reasonably be expected to materially and adversely affect the
legality, validity and enforceability of the Transaction Agreements against the
Company or materially adversely affect the financial condition of the Company or
any of the HM Insurance Subsidiaries.

          5. Except for the Agreement, there is no outstanding right,
subscription, warrant, call, unsatisfied preemptive right, option or other
agreement of any kind to purchase or otherwise to receive from the Company any
authorized but unissued, unauthorized or treasury shares of the Preferred
Shares.

          6. The Company and the HM Insurance Subsidiaries have all requisite
licenses, permits and authority (collectively, "Licenses") that are necessary
for the conduct of their respective insurance and other businesses, if any, such
Licenses are in full force and effect and no proceeding is pending or threatened
to suspend, revoke or limit any License which is material to the operations of
any such insurance company.

          7. Neither the Company nor any HM Insurance Subsidiary (a) is the
subject of any voluntary or involuntary petition under any bankruptcy,
insolvency or similar law affecting creditors generally, (b) is the subject of
any liquidation, transformation or rehabilitation proceeding or (c) has had a
receiver or similar person or entity appointed for any of its property.

          8. All regulatory filings made by the Company and the HM Insurance
Subsidiaries with the SEC and with applicable insurance regulatory authorities
for the past five years, at the time of filing, (a) in the case of filings with
the SEC, were all filings required by law and did not contain any material
misstatements or omissions and (b) in the case of filings with applicable
insurance regulatory authorities, were appropriately responsive to, and in
compliance with, the applicable insurance regulatory requirements in all
material respects.

          This opinion is limited to the effect of the present laws of the
States of Illinois and Arizona, and as to Arizona law, I have relied entirely on
a back-up opinion to me from Arizona counsel to the Company. In rendering this
opinion, I assume no obligation to revise or supplement this opinion in the
event of future changes in the present laws, or the interpretation thereof, or
the present facts relevant to the transaction contemplated by the Agreement.

          This opinion is rendered to Option Writer in connection with the
Agreement and may not be relied upon by any person other than Option Writer or
by Option Writer in any other

                                       6

<PAGE>

context. This opinion may not be quoted without my prior written consent or
furnished to any other person or entity without my prior written consent,
provided that Option Writer may provide copies of this opinion to regulatory
--------
authorities should they so request or in connection with their normal
examinations or to the independent auditors and attorneys of Option Writer.

                                                               Very truly yours,

                                       7

<PAGE>

                                  SCHEDULE 6.2

                          REGISTRATION RIGHTS AGREEMENT
                          -----------------------------

     This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of May 7,
2002, between Horace Mann Educators Corporation, a Delaware corporation (the
"Company") and Swiss Re Financial Products Corporation, a Delaware corporation
("Option Writer").

     1. Background. Pursuant to a Catastrophe Equity Securities Issuance Option
        ----------
and Reinsurance Option Agreement, dated as of the date hereof, between the
Company and Option Writer (the "Option Agreement"), Option Writer may acquire
shares of the Company's Series A Cumulative Convertible Preferred Stock, par
value US$0.001 per share (the "Preferred Stock"). The number of shares of
Preferred Stock to be acquired by Option Writer, if any, will be determined in
accordance with applicable provisions of the Option Agreement. The shares of
Preferred Stock outstanding from time to time are referred to in this Agreement
as the "Preferred Shares." The Preferred Stock will, when issued, be
convertible, subject to certain conditions, into shares of the Company's common
stock, par value $0.001 per share ("Common Stock"), all as set forth in the
Certificate of Designations for the Preferred Stock (the "Certificate of
Designations"). Pursuant to the Option Agreement, the Company has agreed to
enter into this Agreement granting to the holders of the Preferred Shares the
right to register the Registrable Securities (hereinafter defined) upon the
terms and subject to the conditions set forth in this Agreement.

     2. Definitions. As used in this Agreement, the following terms have the
        -----------
following respective meanings:

     "Additional Securities" has the meaning ascribed thereto in Section 3.1(b).

     "Affiliate" of a Person means any other Person that is controlled by,
controls, or is under common control with such Person.

     "Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in New York, New York or Zurich, Switzerland are not
required to be open.

     "Certificate of Designations" is defined in Section 1.

     "Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act or the Exchange Act.

     "Common Stock" is defined in Section 1.

     "Company" means Horace Mann Educators Corporation, a Delaware corporation.

     "Conversion Shares" means the shares of Common Stock issued or issuable
upon conversion of the Preferred Stock.

<PAGE>

     "Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder, all as the same shall be
in effect from time to time.

     "Initiating Holder" is defined in Section 3.1(a).

     "Minimum Period" is defined in Section 3.3(b).

     "Option Agreement" is defined in Section 1.

     "Option Writer" means Swiss Re Financial Products Corporation, a Delaware
corporation.

     "Other Securities" is defined in Section 3.2(b)

     "Person" means a corporation, association, partnership, limited liability
company, organization, business, individual, governmental or political agency or
other entity.

     "Preferred Shares" is defined in Section 1.

     "Preferred Stock" is defined in Section 1.

     "Registrable Securities" means (i) any Conversion Shares, (ii) any
Preferred Shares which a holder is unable to convert into Conversion Shares due
to a lack of approval, from the appropriate state insurance commissioner, of any
applicable insurance regulatory filing necessary for such conversion, and (iii)
any other securities which may be included as Registrable Securities as set
forth in Section 6.13 of the Option Agreement. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (a) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities have
been disposed of in accordance with such registration statement (b) they shall
have been sold as permitted by Rule 144 under the Securities Act, (c) they shall
have been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been properly delivered by the Company
and subsequent public distribution of them shall not, in the reasonable opinion
of counsel to the Company, require registration of them under the Securities
Act, or (d) they shall have ceased to be outstanding.

     "Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 3, including, without limitation, all
registration, filing and NASD fees, all fees and expenses of complying with
securities or blue sky laws (including related counsel fees), all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and expenses incurred in connection with the listing of the securities
to be registered on each securities exchange or national marked system on which
such securities are to be listed, the fees and disbursements of counsel for the
Company and of its independent public

                                       2

<PAGE>

accountants, including the expenses of "cold comfort" letter required by or
incident to such performance and compliance, fees of transfer agents any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities (excluding any underwriting discounts or commissions with respect to
the Registrable Securities), but excluding any fees or expenses of counsel to
any holders. Notwithstanding the foregoing, in the event the Company shall
determine, in accordance with Section 3.2, not to register any securities with
respect to which it had given written notice of its intention to so register to
holders of Registrable Securities, all of the costs of the type (and subject to
any limitation to the extent) set forth in this definition and incurred by
Requesting Holders in connection with such registration on or prior to the date
the Company notifies the Requesting Holders of such determination shall be
deemed Registration Expenses.

     "Registration Rights Holder" is defined in Section 3.1(b).

     "Requesting Holder" is defined in Section 3.2(a).

     "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.

     "Selling Expenses" means all underwriting discounts and selling commissions
applicable to the sale of Registrable Securities and all fees and expenses of
counsel to Selling Holders.

     "Selling Holder" is defined in Section 3.1(a)(ii).

     "Significant Subsidiary" is defined under Rule 1-02(w) of Regulation S-X
promulgated under the Securities Act and the Exchange Act.

     "Trading Day" means a date on which the New York Stock Exchange (or, if
different, the principal national securities exchange on which the Common Stock
is listed or admitted to trading) is open for the transaction of business.

     "Value" is defined in Section 3.1(a).

     3. Registration Under the Securities Act.
        -------------------------------------

          3.1 Registration on Request.
              -----------------------

               (a) Request. Subject to Section 3.9, upon the written request of
                   -------
one or more holders (the "Initiating Holders") of Registrable Securities,
representing not less than US$25,000,000 of the Registrable Securities (or such
lesser amount of Registrable Securities as set forth in Section 3.1(g)(ii)
below) based on the market value of such Registrable Securities at the time of
the request (with Preferred Shares valued on an as converted basis) (the
"Value"), that the Company effect the registration under the Securities Act of
all or part of such Initiating Holders' Registrable Securities, the Company
shall promptly give written notice of such

                                       3

<PAGE>

requested registration to all registered holders of Registrable Securities, and
the Company will use its commercially reasonable efforts to effect, as early as
practicable, the registration under the Securities Act of

                    (i) the Registrable Securities which the Company has been so
requested to register by such Initiating Holders, and

                    (ii) all other Registrable Securities which the Company has
been requested to register by holders of Registrable Securities (such holders
together with the Initiating Holders are referred to in this Agreement as the
"Selling Holders") by written notice to the Company, within thirty (30) days
after the receipt of such written notice by the Company, all to the extent
requisite to permit the disposition of the Registrable Securities to be
registered in such manner, subject to Section 3.1(d) below.

               (b) Registration of Other Securities. Whenever the Company shall
                   --------------------------------
effect a registration pursuant to this Section 3.1 in connection with an
offering and sale of Registrable Securities by one or more Selling Holders of
Registrable Securities, subject to the following sentence and Section 3.1(f)
below, (i) any Person other than a Selling Holder who holds registration rights
with respect to securities of the Company (each, a "Registration Rights
Holder"), shall have the right to include, to the extent provided in the
relevant agreement between the Company and the Registration Rights Holder, in
the registration made pursuant to this Section 3.1 the securities held by the
Registration Rights Holders to which such registration rights relate, and (ii)
the Company shall have the right to include in the registration made pursuant to
this Section 3.1 securities to be issued by the Company (the securities for
which Registration Rights Holders and the Company can so require registration
are referred to in this Agreement as "Additional Securities"). No Additional
Securities, however, shall be included among the securities covered by the
registration made pursuant to this Section 3.1 if, in case of an underwritten
offering, the managing underwriter of such offering shall have advised the
Company and any Registration Rights Holder seeking to have Additional Securities
covered by such registration in writing that the inclusion of such Additional
Securities would adversely affect such offering, in which case the number of
Additional Securities included in such registration shall be limited to the
number that will not, in the judgment of the managing underwriter, adversely
affect the offering (such limited number to be allocated promptly (so as not to
interfere with the timing of the offering) between the Company and the affected
Registration Rights Holders as the Company shall determine).

               (c) Registration Statement Form. Registrations under this Section
                   ---------------------------
3.1 shall be on an appropriate registration form of the Commission, as
reasonably determined by the Company.

               (d) Effective Registration Statement. A registration requested
                   --------------------------------
pursuant to this Section 3.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective and
remained effective in compliance with the provisions of the Securities Act until
the Minimum Period has been completed, (ii) if, after it has become

                                       4

<PAGE>

effective, such registration is interfered with by any stop order, injunction or
other order or requirement of the Commission or other governmental agency or
court for any reason not attributable to the Selling Holders and has not
subsequently become effective or (iii) if the conditions to closing specified in
the underwriting agreement, if any, entered into in connection with such
registration are not satisfied or waived, other than by reason of a failure on
the part of Selling Holders.

               (e) Selection of Underwriters. All registrations pursuant to this
                   -------------------------
Section 3.1 shall involve underwritten securities offerings. The underwriter or
underwriters of each underwritten offering of the Registrable Securities so to
be registered shall be selected by the Company.

               (f) Priority in Requested Registration. If the managing
                   ----------------------------------
underwriter of any underwritten offering shall advise the Company in writing
(with a copy to each Selling Holder of Registrable Securities requesting
registration) that, in its opinion, the number or type of securities requested
to be included in such registration (including any Additional Securities
requested to be included pursuant to Section 3.1(b)) is a number or type which
would adversely affect such offering (including, but not limited to, the price
offered), then the Company shall include in such registration, to the extent of
the number which the Company is so advised can be sold in such offering,
Registrable Securities requested to be included in such registration, pro rata
among the Selling Holders requesting such registration on the basis of the
percentage of the Registrable Securities of such Selling Holders requested so to
be registered. In connection with any such registration to which this Section
3.1(f) is applicable, no securities other than Registrable Securities shall be
covered by such registration unless all Registrable Securities requested to be
included in such registration are so included. If all of the Registrable
Securities requested by the Initiating Holder to be included in such
registration cannot be included as provided in the first sentence of this
Section 3.1 (f), the Company shall so notify the Initiating Holder and the
Initiating Holder shall have the right to withdraw the request for registration
by giving written notice to the Company within 20 days after receipt of notice
thereof by the Company and, in the event of such withdrawal, such request shall
not be counted for purposes of the requests for registration to which holders
are entitled pursuant to Section 3.1 hereof (thereby allowing such holders to
make a demand for registration pursuant to Section 3.1 at another time).

               (g) Limitations on Registration on Request. Notwithstanding
                   --------------------------------------
anything in this Section 3.1 to the contrary, in no event will the Company be
required to (i) effect more than five registrations pursuant to this Section
3.1, (subject to the last sentence of Section 3.1(f) and 3.6(b)), it being
understood that Initiating Holders are entitled to one registration for each
issuance of Registrable Securities and up to two additional conditional
registrations as set forth below in this Section 3.1(g), (ii) effect a
registration in which the aggregate amount of Registrable Securities has a Value
less than US$25,000,000, unless the Value of Registrable Securities outstanding
is less than US$25,000,000 in which case the Company shall be obligated to
effect one and only one registration of no less than US$5,000,000 in Value of
Registrable Securities pursuant to this Section 3.1, subject to the other
provisions hereof, unless less than US$5,000,000 in Value of Registrable
Securities remain outstanding due to a prior partial

                                       5

<PAGE>

redemption of Registrable Securities by the Company, in which case such
$5,000,000 minimum shall not apply, or (iii) file a registration statement
pursuant to this Section 3.1 within the twelve-month period occurring
immediately subsequent to the effectiveness (within the meaning of Section
3.1(d)) of a registration statement filed pursuant to this Section 3.1 or
pursuant to Section 3.2. The conditions to any second and third registrations
under this Section 3.1 are as follows:

                         (A) Selling Holders shall be entitled to a second
registration if, at the time immediately preceding a sale in the first
registration, such Selling Holders either (i) hold Preferred Shares which on an
as converted basis would cause them, without giving effect to any other holdings
of Common Stock acquired other than upon conversion of Preferred Shares, to hold
an ownership interest in the Company of greater than 33 1/3% based on market
capitalization or (ii) stand to receive, in a sale of Registrable Securities
pursuant to such registration, gross proceeds of less than 95% of the Option
Writer's cost basis in such Registrable Securities (which cost basis shall
include the amount paid by Option Writer for the relevant Preferred Shares, plus
accrued but unpaid dividends thereon). Notwithstanding the foregoing, in the
first registration (unless clause (A)(ii) above applies, in which case the
holders can withdraw from such first registration), the Selling Holders shall be
obligated to sell Registrable Securities with an aggregate value of at least 1/3
of the aggregate value of the outstanding Preferred Shares (valued on an as
converted basis) and Common Stock issued upon conversion of Preferred Shares.

                         (B) Selling Holders shall be entitled to a third
registration if, at the time immediately preceding a sale in the second
registration, such Selling Holders either (i) hold Preferred Shares which on an
as converted basis would cause them, without giving effect to any other holdings
of Common Stock acquired other than upon conversion of Preferred Shares, to hold
an ownership interest in the Company of greater than 33 1/3% based on market
capitalization or (ii) stand to receive, in a sale of Registrable Securities
pursuant to such registration, gross proceeds of less than 90% of the Option
Writer's cost basis in such Registrable Securities (which cost basis shall
include the amount paid by Option Writer for the relevant Preferred Shares, plus
accrued but unpaid dividends thereon). Notwithstanding the foregoing, in the
second registration (unless clause (B)(ii) above applies, in which case the
Selling Holders can withdraw from such second registration), the Selling Holders
shall be obligated to sell Registrable Securities with an aggregate value of at
least 1/3 of the aggregate value of the outstanding Preferred Shares (valued on
an as converted basis) and Common Stock issued upon conversion of Preferred
Shares.

                         (C) In any third registration, the Selling Holders
shall be obligated to (i) sell all of the Common Stock that they then hold, (ii)
convert all of the Preferred Shares that they then hold into Common Stock and
sell such Common Stock (unless such Preferred Shares cannot be converted as set
forth in the definition of Registrable Securities above, in which case clause
(C)(iii) below applies), (iii) sell all of the Preferred Shares that they then
hold which cannot be converted and must therefore be registered in accordance
with the definition of Registrable Securities above and (iv) sell all other
securities that they then hold pursuant to Section 6.13 of the Option Agreement.

                                       6

<PAGE>

          3.2 Incidental Registration.
              -----------------------

               (a) Right to Include Registrable Securities. Subject to Section
                   ---------------------------------------
3.9, if the Company at any time proposes to register any of its securities under
the Securities Act by registration on any form other than Forms S-4 or S-8 (or
any successor forms), whether or not for sale for its own account, it shall,
each such time give prompt written notice to all registered holders of
Registrable Securities of its intention to do so and of such holders' rights
under this Section 3.2. Upon the written request of any such holder (a
"Requesting Holder") made as promptly as practicable and in any event within
seven (7) Business Days after the receipt of any such notice (five (5) Business
Days if the Company states in such written notice or gives telephonic notice to
all registered holders of Registrable Securities, with written confirmation to
follow promptly thereafter, stating that (i) such registration will be on Form
S-3 and (ii) such shorter period of time is required because of a planned filing
date), which request shall specify the Registrable Securities intended to be
disposed of by such Requesting Holder, the Company shall, subject to Section
3.9, use its commercially reasonable efforts to effect the registration under
the Securities Act of all Registrable Securities which the Company has been so
requested to register by the Requesting Holders thereof, provided, however, that
                                                         --------- -------
if, at any time after giving written notice of its intention to register any
securities and prior to the effective date of registration statement filed in
connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities the Company may, at
its election, give written notice of such determination to each Requesting
Holder of Registrable Securities and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from any obligation of
the Company to pay the Registration Expenses in connection therewith), without
prejudice, however, to the rights of any holder or holders of Registrable
Securities entitled to do so to request that such registration be effected as a
registration under Section 3.1, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities,
for the same period as the delay in registering such securities. Other than as
provided in Section 3.1, no registration effected under this Section 3.2 shall
relieve the Company of its obligation to effect any registration upon request
under Section 3.1. Any Requesting Holder of Registrable Securities may elect, in
writing not less than five (5) Business Days prior to the effective date of such
registration statement, not to register such Registrable Securities in
connection with such registration.

               (b) Priority in Incidental Registrations. If the managing
                   ------------------------------------
underwriter of any underwritten offering shall advise the Company in writing
(with a copy to each Requesting Holder) that, in its opinion, the number or type
of Registrable Securities requested to be included in such registration would
adversely affect such offering, then the Company shall, subject to any relevant
agreements between the Company and Registration Rights Holders, include in such
registration, to the extent of the number and type which the Company is so
advised can be sold in (or during the time of) such offering, first, all
securities proposed by the Company to be sold for its own account, second, such
Registrable Securities and other securities of the Company with

                                       7

<PAGE>

respect to which the holders thereof have the right to require the Company to
register such securities in connection with any registration of securities to be
offered by the Company ("Other Securities") requested to be included in such
registration, such Registrable Securities and Other Securities to be included in
such registration pro rata on the basis of the estimated gross proceeds from the
sale thereof, and third, any other securities of the Company requested to be
included in such registration. Requesting Holders who become subject to a
reduction pursuant to this Section 3.2(b) in the amount of Registrable
Securities to be included in a registration statement may elect not to sell such
Registrable Securities in connection with such registration statement. There
shall be no limit on the number or registrations that may be requested pursuant
to this Section 3.2.

               (c) Limitations on Incidental Registrations. Notwithstanding
                   ---------------------------------------
anything in this Section 3.2 to the contrary, in no event will the Company be
required to (i) grant a request to include Registrable Securities in any "shelf'
registration filed pursuant to Rule 415 under the Securities Act, or any
successor rule, relating to the offering of debt securities by the Company, or
(ii) grant a request to include Registrable Securities in any registration
unless the amount of all Registrable Securities which the Company has been so
requested to register by the Requesting Holders thereof (without giving effect
to the application of the foregoing subsection (b)) is at least US$25,000,000
(or such lesser amount as described in Section 3.l(g)(ii)).

          3.3 Registration Procedures. If and whenever the Company is required
              -----------------------
to use its commercially reasonable efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Sections 3.1 and
3.2, the Company shall as expeditiously as possible:

               (a) prepare and file with the Commission the requisite
registration statement (within ninety (90) days after receipt of a request for
registration from the requisite Initiating Holders under Section 3.1(a) above)
to effect such registration and then use its commercially reasonable efforts to
cause such registration statement to become and remain effective for the Minimum
Period, provided, however, that before filing with the Commission a registration
        --------- -------
statement or prospectus or any amendments or supplements thereto, the Company
shall furnish to one counsel selected by the holders of a majority of the
Registrable Securities requesting to be registered copies of all such documents
proposed to be filed and provided further, however, that the Company may
                         -----------------
discontinue any registration of its securities which are not Registrable
Securities (and, under the circumstances specified in Section 3.2(a), its
securities which are Registrable Securities) at any time prior to the effective
date of the applicable registration statement relating thereto;

               (b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement for such period as shall be required for the disposition
of all such Registrable Securities, provided that such period shall not exceed
ninety (90) days (such

                                       8

<PAGE>

period being referred to in this Agreement as the "Minimum Period");

               (c) furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such registration
statement and the prospectus included in such registration statement (including
each preliminary prospectus and any summary prospectus) and of each such
amendment and supplement thereto (in each case including all exhibits and
documents incorporated by reference therein), such number of copies of the
prospectus contained in such registration statement and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such seller may
reasonably request;

               (d) use its commercially reasonable efforts (i) to register or
qualify all Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of such
States when an exemption is not available and as the sellers of Registrable
Securities covered by such registration statement shall reasonably request in
writing, (ii) to keep such registration or qualification in effect for the
Minimum Period and (iii) to take any other action which may be reasonably
necessary or advisable to enable such sellers to consummate the disposition in
such jurisdictions of the securities to be sold by such sellers, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction in which it would not, but
for the requirements of this Section 3.3(d), be obligated to be so qualified or
to consent to general service of process in any such jurisdiction;

               (e) use its commercially reasonable efforts to cause all
Registrable Securities covered by such registration statement to be registered
with or approved by such other Federal or state governmental agencies or
authorities as may be necessary to enable the seller or sellers of such
Registrable Securities to consummate the disposition of such Registrable
Securities;

               (f) in the case of an underwritten or "best efforts" offering,
furnish at the effective date of such registration statement to each Selling
Holder a photocopy, and such Person's underwriters, if any, a signed
counterpart, of:

               (i) an opinion of counsel for the Company, dated the effective
               date of such registration statement and, if applicable, the date
               of the closing under the underwriting agreement, and

               (ii) a "comfort" letter signed by the independent public
               accountants who have certified the Company's financial statements
               included or incorporated by reference in such registration
               statement,

covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' comfort letter, with respect to events subsequent to the date of
such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' comfort letters delivered to the underwriters in

                                       9

<PAGE>

underwritten public offerings of securities;

               (g) cause representatives of the Company to participate in any
"road show" or "road shows" reasonably requested by any underwriter of an
underwritten or "best efforts" offering of any Registrable Securities;

               (h) notify each seller of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or upon
the happening of any event as a result of which, the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, in the light of the
circumstances under which they were made, and at the request of any such seller
promptly prepare and furnish (subject to the proviso below) to it a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; provided, however, that the prompt delivery of such a supplement
                --------  -------
to or amendment of such prospectus may be delayed by the Company pursuant to
Section 3.6 below.

               (i) use its commercially reasonable efforts to list the
Registrable Securities covered by such registration statement with any national
securities exchange on which securities of the same class as those requested to
be included in such registration statement are then listed (or, if such
securities are not listed on a national securities exchange but are quoted on
The Nasdaq Stock Market, to include such shares for quotation therein);

               (j) provide a transfer agent and registrar for all Registrable
Securities to be registered under this Agreement, and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration;

               (k) enter into such agreements (including an underwriting
agreement as provided below, if applicable) and take all such other actions
reasonably requested in order to expedite and facilitate the disposition of the
Registrable Securities to be registered;

               (1) otherwise use its commercially reasonable efforts to comply
with all applicable rules and regulations of the Commission, including without
limitation Section 11(a) of the Securities Act, and promptly furnish to each
Selling Holder of Registrable Securities a copy of any amendment or supplement
to the applicable registration statement or prospectus;

               (m) notify each seller of Registrable Securities and the managing
underwriter or agent, and confirm the notice in writing (a) when the
registration statement, or any post-effective amendment to the registration
statement, shall have become effective, or any supplement to the prospectus or
any amendment to the prospectus shall have been filed, (b) of

                                       10

<PAGE>

the receipt of any comments from the Commission, (c) of any request of the
Commission to amend the registration statement or amend or supplement the
prospectus or for additional information and (d) of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or of any order preventing or suspending the use of any preliminary
prospectus or of the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or of the institution or threatening of
any proceedings for any such purposes;

               (n) use its commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement at the earliest possible time;

               (o) cooperate with the sellers of Registrable Securities and the
managing underwriter or agent, if any, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing
Registrable Securities to be sold, and enable such Registrable Securities to be
in such denominations and registered in such names as such sellers or the
managing underwriter or agent, if any, may reasonably request;

               (p) cause its subsidiaries and Affiliates to take all action
necessary or advisable to effect the registration of the Registrable Securities
contemplated hereby, including preparing the filing any required financial
information; and

               (q) use its commercially reasonable efforts to take all other
steps necessary or advisable to effect the registration of the Registrable
Securities contemplated hereby.

               The Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish the Company such
information regarding such seller and the distribution of such securities as the
Company may from time to time reasonably request in writing in order to comply
with Federal and applicable state securities laws.

               Each seller of Registrable Securities agrees, by requesting
registration thereof, that upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3.3(h), such holder
shall immediately discontinue such holder's disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3.3(h) and, if so directed by the
Company, shall deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice.

          3.4 Underwritten Offerings.
              ----------------------

               (a) Requested Underwritten Offerings. If requested by the
                   --------------------------------
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to registrations requested under Section 3.1, the Company shall use
commercially reasonable efforts to enter into an

                                       11

<PAGE>

underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Company, each such
holder and the underwriters and to contain such representations and warranties
by the Company and such other terms as are generally prevailing in agreements of
that type, including, without limitation, indemnities and the furnishing of an
opinion of counsel and "cold comfort" letters from the Company's independent
certified public accountants. The holders of the Registrable Securities proposed
to be distributed by such underwriters shall cooperate with the Company in the
negotiation of, and shall be parties to, the underwriting agreement between the
Company and such underwriters.

               (b) Incidental Underwritten Offerings. If the Company proposes to
                   ---------------------------------
register any of its securities under the Securities Act as contemplated by
Section 3.2 and such securities are to be distributed by or through one or more
underwriters, the Company shall, subject to Section 3.9, if requested by any
Requesting Holder of Registrable Securities, use its commercially reasonable
efforts to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such Requesting Holder among the securities
of the Company to be distributed by such underwriters. The holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between the Company and such underwriters.

Notwithstanding the foregoing provisions of this Section 3.4(b), the Company
need not include any Registrable Securities of any such Requesting Holder in an
underwritten offering of the Company's securities under the circumstances
contemplated by Section 3.2(b) above.

          3.5 Preparation: Reasonable Investigation. In connection with the
              -------------------------------------
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company shall give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel the opportunity to participate in the
preparation of such registration statement, and, to the extent practicable, each
amendment or supplement to such registration statement, and give each of them
such access to its books and records, pertinent corporate documents and
properties (to the extent customarily given to the underwriters of the Company's
securities), such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary to conduct a reasonable investigation within
the meaning of the Securities Act.

          3.6 Limitations, Conditions and Qualifications to Obligations under
              ---------------------------------------------------------------
Registration Covenants. The obligations of the Company to use its commercially
----------------------
reasonable efforts to cause the Registrable Securities to be registered under
the Securities Act are subject to each of the following limitations, conditions
and qualifications:

               (a) The Company shall not be obligated to file any registration
statement pursuant to Section 3.1 at any time if the Company would be required
to include financial statements audited as of any date other than the end of its
fiscal year.

                                       12

<PAGE>

               (b) The Company shall be entitled to postpone for a reasonable
period of time (but not exceeding 120 days) the filing, supplementing or
amending or any registration statement otherwise required to be prepared and
filed by it pursuant to Section 3.1 if the Company determines, in its reasonable
judgment, that such registration and offering would interfere with, or require
public disclosure of, any financing, acquisition, disposition, corporate
reorganization or other transaction involving the Company or any of its
Significant Subsidiaries, and promptly gives the holders of Registrable
Securities requesting registration pursuant to Section 3.1 written notice of
such determination and an approximation of the anticipated delay; provided,
                                                                  --------
however, that after any exercise of its right to postpone the filing of a
-------
registration statement under this Section 3.6(b), the Company shall not, within
120 days of the expiration of any such postponement, exercise again its right of
postponement under this Section 3.6(b). The Company shall notify the Selling
Holders of the expiration of the period of delay. If the Company shall so
postpone the filing of a registration statement, such holders of Registrable
Securities requesting registration pursuant to Section 3.1 shall have the right
to withdraw the request for registration by giving written notice to the Company
within 15 days after receipt of the notice from the Company of the end of such
delay and, in the event of such withdrawal, such request for registration to
which holders of Registrable Securities are entitled pursuant to Section 3.1
shall not be considered a request for registration pursuant to Section 3.1
(thereby allowing such holders to make a demand for registration pursuant to
Section 3.1 at another time).

          3.7 Indemnification and Contribution.
              ---------------------------------

               (a) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to Section 3, the Company shall, and hereby
does, indemnify and hold harmless, to the full extent permitted by law, each
seller of Registrable Securities covered by such registration statement and each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such seller or any such
underwriter within the meaning of the Securities Act, and their respective
directors, officers, partners, members and agents, against any losses, claims,
damages, liabilities and expenses whatsoever, as incurred, joint or several, to
which such seller or underwriter or any such director, officer, partner, member,
agent or controlling person may become subject under the Securities Act or
otherwise including, without limitation, the reasonable fees and expenses paid
in reasonable settlement of any litigation, or any investigation or proceeding
by any government agency or body, commenced or threatened, or of any claim
whatsoever, incurred in investigating, preparing or defending against any
litigation or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or of legal counsel (including those incurred in
connection with any claim for indemnity hereunder), insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such Registrable Securities were registered
under the Securities Act pursuant to Section 3, any preliminary prospectus,
summary prospectus or final prospectus contained therein, or any amendment or
supplement thereof, arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in

                                       13

<PAGE>

light of the circumstances in which they were made not misleading or arise out
of any violation or alleged violation by the Company of any Federal, state or
common law rule or regulation applicable to the Company and relating to action
required of or inaction by the Company in connection with such registration
statement, and shall pay or reimburse each such seller or underwriter and each
such director, officer, partner, member and controlling Person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
                                                             --------- -------
that the Company shall not be liable in any such case if and to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with information furnished by any such seller or underwriter and each such
director, officer, partner, member and controlling Person as the case may be, in
writing specifically for use in such registration statement, prospectus,
amendment or supplement, and provided further that the Company shall not be
                             ----------------
liable to any Person who participates as an underwriter in the offering or sale
of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
to the Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such director, officer, partner, member, agent or controlling person and
shall survive the transfer of such securities by such seller.

               (b) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to Section 3, each seller of Registrable
Securities under such registration, severally and not jointly, shall, and hereby
does, indemnify and hold harmless the Company, each person, if any, who controls
the Company within the meaning of the Securities Act, each officer of the
Company who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise, but
only insofar as such losses, claims, damages or liabilities (or actions in
respect thereof), arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, made in reliance upon and in conformity with information
pertaining to such seller of Registrable Securities furnished in writing to the
Company by such seller of Registrable Securities specifically for use in such
registration statement under which such Registrable Securities were registered
under the Securities Act pursuant to Section 3, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, and
shall pay or reimburse the Company and

                                       14

<PAGE>

each such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or actions; provided, however,
                                                              --------  -------
that (i) the liability of each seller of Registrable Securities under this
Section 3.7 shall be limited to the proportion of any such loss, claim, damage,
liability or expense which is equal to the proportion that the public offering
price of the Registrable Securities sold by such seller of Registrable
Securities under such registration statement bears to the total public offering
price of all securities sold under such registration statement, but not in any
event to exceed the net proceeds received by such seller of Registrable
Securities for the sale of Registrable Securities covered by such registration
statement, and (ii) no seller of Registrable Securities shall be liable for
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of such seller of Registrable
Securities, such consent not to be unreasonably withheld or delayed. Such
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
person and shall survive the transfer of such securities by such seller.

               (c) Promptly after receipt by an indemnified party of notice of
the commencement of any action or proceeding involving a claim referred to in
Section 3.7(a) or (b), such indemnified party shall, if a claim is to be made
against the indemnifying party, notify the indemnifying party in writing of such
claim, but the failure to so notify the indemnifying party shall not relieve the
indemnifying party from any liability which it may have to such indemnified
party other than under this Section 3.7 and shall only relieve it from any
liability which it may have to such indemnified party under this Section 3.7 if
and to the extent the indemnifying party is actually prejudiced by such failure.
In case any such action shall be brought against any indemnified party and the
indemnified party shall notify the indemnifying party of the commencement of
that action, the indemnifying party shall be entitled to participate in and, to
the extent it shall wish, to assume and undertake the defense of that action
with counsel reasonably satisfactory to such indemnified party and, after notice
from the indemnifying party to such indemnified party of its election so to
assume and undertake the defense of that action, the indemnifying party shall
not be liable to such indemnified party under this Section 3.7 for legal and
other professional expenses subsequently incurred by such indemnified party in
connection with the defense of that action other than reasonable costs of
investigation and of liaison with counsel so selected; provided, however, that
                                                       --------- -------
if the defendants in any such action include both the indemnified party and the
indemnifying party, and the indemnified party shall have reasonably concluded
that there may be legal defenses or rights available to the indemnified party
(which have not been waived) which are in actual or potential conflict with
those available to the indemnifying party, the indemnified party shall have the
right to select one law firm to act as separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable fees and expenses of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.
Upon the election by the indemnifying party to assume the defense of, or
otherwise contest, such litigation, proceeding or other action, the indemnifying
party shall not be liable for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense of such litigation,
proceeding or action unless (x) the indemnified party shall have employed such

                                       15

<PAGE>

counsel in connection with the assumption of legal defense or assertion of
rights in accordance with the provision of the preceding sentence or (y) the
indemnifying party fails to take reasonable steps necessary to diligently defend
such claim within twenty (20) days after receiving notice from the indemnified
party stating that the indemnified party believes the indemnifying party has
failed to take such steps, in which case the indemnified party may assume its
own defense and the indemnifying party shall be liable for reimbursement of all
legal and other expenses of the indemnified party as incurred by the indemnified
party. The parties shall cooperate in any such defense and give each other full
access to all information relevant to such defense. The indemnifying party shall
not be obligated to indemnify any party for any settlement entered into without
the indemnifying party's prior written consent, which consent shall not be
unreasonably withheld or delayed. No indemnifying party, in the defense of any
such claim or litigation against an indemnified party, shall consent to entry of
any judgment or enter into any settlement which does not include an
unconditional release by the claimant or plaintiff of such indemnified party
from all liability in respect of such claim or litigation, unless such
indemnified party shall otherwise consent in writing.

               (d) If the indemnification provided for in this Section 3.7 shall
for any reason be held by a court to be unavailable to an indemnified party
under Section 3.7(a) or (b) hereof in respect of any loss, claim, damage or
liability, or any action in respect thereof, then, in lieu of the amount paid or
payable under Section 3.7(a) or (b), the indemnified party and the indemnifying
party under Section 3.7(a) or (b) shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating the same, including those incurred in
connection with any claim for indemnity hereunder), (i) in such proportion as is
appropriate to reflect the relative fault of the Company and the prospective
sellers of Registrable Securities covered by the registration statement which
resulted in such loss, claim, damage or liability, or action or proceeding in
respect thereof, with respect to the statements or omissions which resulted in
such loss, claim, damage or liability, or action or proceeding in respect
thereof, as well as any other relevant equitable considerations or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such portion as shall be appropriate to reflect the relative benefits received
by the Company and such prospective sellers from the offering of the securities
covered by such registration statement; provided, however, that for purposes of
                                        --------- -------
this clause (ii), the relative benefits received by the prospective sellers
shall be deemed not to exceed the amount of proceeds received by such
prospective sellers. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. Such prospective sellers' obligations to contribute as
provided in this Section 3.7(d) are several in proportion to the relative value
of their respective Registrable Securities covered by such registration
statement and not joint. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or claim
effected without such Person's consent, which consent shall not be unreasonably
withheld.

               (e) Indemnification and contribution similar to that specified in
the preceding subdivisions of this Section 3.7 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other

                                       16

<PAGE>

qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act.

               (f) The indemnification and contribution required by this Section
3.7 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.

          3.8 Removal of Legends on Certificates. Following the registration of
              ----------------------------------
any Registrable Securities under the Securities Act and sales pursuant to such
registration, the Company shall (a) furnish to each holder of Registrable
Securities so registered and sold unlegended certificates representing ownership
of the registered Registrable Securities, in such denominations as shall be
requested, and (b) instruct the transfer agent to release any stop transfer
orders with respect to such registered Registrable Securities.

          3.9 Conditions and Limitations on Registrations of Registrable
              ----------------------------------------------------------
Securities.
----------

               (a) The Company shall not be required to effect any registration
of Registrable Securities pursuant to Section 3.2 if (i) it shall deliver to the
holder or holders requesting such registration an opinion of reputable counsel
to the effect that the Registrable Securities requested to be registered may be
sold by such holder without restriction or limitation and without registration
under the Securities Act, and (ii) the Company provides or has provided to the
holders of such Registrable Securities certificates therefor which do not
contain restrictive legends, as contemplated in Section 3.8.

               (b) The Company shall not be required to effect any registration
of Registrable Securities pursuant to this Agreement, if (i) the holder can
resell such Registrable Securities without restriction or limitation and without
registration under the Securities Act, and (ii) the Company provides or has
provided to the holders of such Registrable Securities certificates therefor
which do not contain restrictive legends, as contemplated in Section 3.8.

          3.10 Expenses. All Registration Expenses, but not Selling Expenses,
               --------
shall be borne by the Company.

          3.11 Rule 144 and 144A Reporting. With a view to making available the
               ---------------------------
benefits of certain rules and regulations of the Commission which may at times
permit the sale of the Registrable Securities to the public or other Persons
without registration, the Company, so long as it is required to file information
with the Commission pursuant to the requirements of the Exchange Act (or any
successor provision), shall:

               (a) make and keep public information available, as contemplated
by Rule 144 under the Securities Act;

               (b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and

                                       17

<PAGE>

               (c) furnish to each holder of Registrable Securities promptly
upon request (i) a written statement by the Company as to its compliance with
the reporting requirements of such Rule 144 of the Securities Act and the
Exchange Act, (ii) copies of all SEC filings made by the Company within the
previous one (1) year period and any press releases issued by the Company since
the date of the last such filing and (iii) only in the event that Company
securities cease to be listed on a national securities exchange, copies of all
Rule 144A information with respect to the Company.

          3.12 Market Stand-Off Agreement. If requested by the Company, each
               --------------------------
holder of Registrable Securities included in a registration statement hereunder
shall not sell or otherwise transfer or dispose of any Conversion Shares or
Preferred Shares or other securities of the Company held by it (other than those
included in the registration) during the period specified by the managing
underwriter or underwriters of the underwritten offer being made pursuant to
such registration statement (which period shall not exceed seven days prior to
and 180 days following the effective date of such registration statement),
except as part of such registration, if and to the extent reasonably requested
by such managing underwriter or underwriters, provided that all officers and
directors of the Company, enter into similar agreements.

          The obligations described in this Section 3.12 shall not apply to a
registration relating solely to employee benefit plans on S-8 or similar forms
which may be promulgated in the future, or a registration relating solely to a
Commission Rule 145 transaction on Form S-14 or Form S-IS or similar forms which
may be promulgated in the future. The Company may impose stop-transfer
instructions with respect to securities subject to the restrictions in this
Section 3.12 until the end of such 180 day period.

     4. Voting Percentages. In determining whether a required percentage or
        ------------------
amount of Registrable Securities has been met under this Agreement, the amount
required shall be calculated on the basis of the aggregate value of outstanding
Registrable Securities. For purposes of this Agreement, the value of each
Conversion Share shall be the average closing market price per share of the
Common Stock on the thirty (30) most recent Trading Days prior to the valuation
date.

     5. Amendments and Waivers. This Agreement may be amended with the consent
        ----------------------
of the Company and holders of at least sixty-six and two-thirds percent (66
2/3%) of the Registrable Securities and the Company may take any action
prohibited by this Agreement, or omit to perform any act required to be
performed by it under this Agreement, only if the Company shall have obtained
the written consent to such amendment, action or omission to act, of the holder
or holders of at least sixty-six and two-thirds percent (66 2/3%) of the
Registrable Securities. Each holder of any Registrable Securities at the time or
subsequently outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been marked to
indicate such consent, but such consent shall be effective only in the specific
instance and for the specific purpose for which given.

                                       18

<PAGE>

     6. Nominees for Beneficial Owners. In the event that any Registrable
        ------------------------------
Securities are held by a nominee or trustee for a beneficial owner, the
beneficial owner may, at its election in writing delivered to the Company, be
treated as the holder of such Registrable Securities for purposes of any request
or other action by any holder or holders of Registrable Securities pursuant to
this Agreement or any determination of any number or percentage of Registrable
Securities held by any holder or holders of Registrable Securities contemplated
by this Agreement. If the beneficial owner of any Registrable Securities so
elects, the Company may require assurances reasonably satisfactory to it of such
owner's beneficial ownership of such Registrable Securities.

     7. Notices. All notices or other communications required or permitted
        -------
hereunder shall be given only in writing and only by personal delivery,
registered or certified mail, return receipt requested, or overnight courier
service, and shall be deemed given on the fifteenth day following the date when
deposited in the mail, on the day following the date of delivery to a courier
service (postage or charges prepaid) or when personally delivered, and addressed
to the particular party to whom the notice is to be sent as follows:

          7.1 if to Option Writer, addressed in the manner set forth in the
Option Agreement, or at such other address as Option Writer shall have furnished
to the Company in writing;

          7.2 if to any other holder of Registrable Securities, at the address
that such holder shall have furnished to the Company in writing, or, until any
such other holder so furnishes to the Company an address, then to and at the
address of the last holder of such Registrable Securities who has furnished an
address to the Company; or

          7.3 if to the Company, addressed to it in the manner set forth in the
Option Agreement or at such other address as the Company shall have furnished to
each holder of Registrable Securities at the time outstanding.

     8. Transfer of Registration Rights. Any holder of Registrable Securities
        -------------------------------
may exercise the rights described in this Agreement subject to the terms and
conditions of this Agreement.

     9. Successors and Assigns; Amendments; Entire Agreement. This Agreement
        ----------------------------------------------------
shall be binding upon and inure to the benefit of and be enforceable by
transferees of the Registrable Securities (and, with respect to the holders of
Registrable Securities, subject to the provisions respecting the minimum
percentage of Registrable Securities required in order to be entitled to certain
rights, or take certain actions, contained herein) and the parties to this
Agreement and their respective successors and assigns. The parties to this
Agreement may amend this Agreement as provided in Section 5 without the consent
of any other Person. This Agreement contains the entire agreement between the
parties, and supersedes all prior agreements, written or oral, with respect to
the matters addressed herein.

     10. Descriptive Headings. The descriptive headings of the several sections
         --------------------
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise

                                       19

<PAGE>

affect the meaning of the respective sections or paragraphs to which they apply.

     11. Governing Law. This Agreement shall be construed and enforced in
         -------------
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York (without regard to any choice of law or conflict of law
rules that would cause the application of any laws or rules of any jurisdiction
other than the State of New York).

     12. Counterparts. This Agreement may be executed in counterparts, each of
         ------------
which shall be deemed an original, but all of which together shall constitute
one and the same document.

     13. Certain Agreements and Grants.
         -----------------------------

          13.1 The Company is not now a party to or otherwise bound by, any
agreement or contract (whether written or oral) with respect to any of its
securities which is inconsistent in any adverse respect with the registration
rights granted by the Company pursuant to this Agreement.

          13.2 The Company shall not at any time during the effectiveness of
this Agreement grant to any other person(s) any rights with respect to the
registration of any securities of the Company which have priority or are
inconsistent in any adverse respect with the registration rights granted by the
Company pursuant to this Agreement.

     14. Severability. In the event that any one or more of the provisions
         ------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the holders
of Registrable Securities shall be enforceable to the fullest extent permitted
by law.

                                       20

<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered by their respective duly authorized officers as of the date first
written above.

Horace Mann Educators Corporation

By
  -------------------------------------
  Name:
  Title:

Swiss Re Financial Products Corporation

By
  -------------------------------------
  Name:
  Title:

                                       21

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