UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to____________________
Commission File Number: 1-11917
FBL FINANCIAL GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Iowa 42-1411715
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5400 University Avenue, West Des Moines, Iowa 50266-5997
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(515) 225-5400
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. |X| Yes |_| No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. |_| Yes |_| No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 32,306,720 shares of Class A
common stock and 1,192,990 shares of Class B common stock as of April 30, 1998.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost (market: 1998 - $641,844; 1997 -
$663,315) ........................................................... $ 619,626 $ 639,598
Available for sale, at market (amortized cost: 1998 - $1,701,484; 1997 -
$1,629,950) ......................................................... 1,785,165 1,711,578
Equity securities, at market (cost: 1998 - $53,572; 1997 - $60,500) ...... 53,727 57,736
Mortgage loans on real estate ............................................ 317,768 323,605
Investment real estate, less allowances for depreciation of $3,185 in 1998
and $2,682 in 1997 ..................................................... 40,915 39,942
Policy loans ............................................................. 122,308 121,941
Other long-term investments .............................................. 14,262 14,438
Short-term investments ................................................... 36,937 32,073
----------- -----------
Total investments ........................................................... 2,990,708 2,940,911
Cash and cash equivalents ................................................... 5,363 2,397
Securities and indebtedness of related parties .............................. 63,613 64,442
Accrued investment income ................................................... 33,782 33,894
Accounts and notes receivable ............................................... 2,607 1,401
Amounts receivable from affiliates .......................................... 10,364 3,656
Reinsurance recoverable ..................................................... 7,003 9,789
Deferred policy acquisition costs ........................................... 187,708 181,916
Value of insurance in force acquired ........................................ 15,857 16,044
Property and equipment, less allowances for depreciation of $35,848 in 1998
and $48,847 in 1997 ...................................................... 39,939 63,481
Current income taxes recoverable ............................................ 4,769 11,925
Goodwill, less accumulated amortization of $2,961 in 1998 and $2,792 in
1997 ..................................................................... 10,471 10,640
Other assets ................................................................ 16,867 15,949
Assets of discontinued operations ........................................... -- 106,672
Assets held in separate accounts ............................................ 163,075 138,409
----------- -----------
Total assets ........................................................ $ 3,552,126 $ 3,601,526
=========== ===========
</TABLE>
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive products ....................................... $ 1,582,560 $ 1,578,794
Traditional life insurance and accident and health products ....... 717,169 711,722
Unearned revenue reserve .......................................... 24,007 23,530
Other policy claims and benefits ..................................... 9,530 13,488
----------- -----------
2,333,266 2,327,534
Other policyholders' funds:
Supplementary contracts without life contingencies ................... 141,307 137,398
Advance premiums and other deposits .................................. 85,152 85,280
Accrued dividends .................................................... 14,146 13,801
----------- -----------
240,605 236,479
Long-term debt ......................................................... 24,575 24,577
Amounts payable to affiliates .......................................... 77 60
Deferred income taxes .................................................. 43,133 43,592
Other liabilities ...................................................... 71,764 44,939
Liabilities of discontinued operations ................................. -- 79,118
Liabilities related to separate accounts ............................... 163,075 138,409
----------- -----------
Total liabilities ................................................. 2,876,495 2,894,708
Commitments and contingencies
Minority interest in subsidiaries:
Company-obligated mandatorily redeemable preferred stock of subsidiary
trust ................................................................ 97,000 97,000
Other .................................................................. 4,503 4,503
Stockholders' equity:
Preferred stock, without par value, at liquidation value - authorized
10,000,000 shares, issued and outstanding 5,000,000 Series B shares .. 3,000 3,000
Class A common stock, without par value - authorized 88,500,000 shares,
issued and outstanding 32,301,720 shares in 1998 and 34,732,448 shares
in 1997 .............................................................. 40,970 42,907
Class B common stock, without par value - authorized 1,500,000 shares,
issued and outstanding 1,192,990 shares .............................. 7,567 7,567
Accumulated comprehensive income - net unrealized investment gains ..... 50,814 48,559
Retained earnings ...................................................... 471,777 503,282
----------- -----------
Total stockholders' equity ........................................... 574,128 605,315
----------- -----------
Total liabilities and stockholders' equity ........................ $ 3,552,126 $ 3,601,526
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Interest sensitive product charges ......................................... $ 12,478 $ 11,296
Traditional life insurance and accident and health premiums ................ 23,018 22,548
Net investment income ...................................................... 56,070 53,882
Realized gains on investments .............................................. 1,312 21,836
Other income ............................................................... 7,677 6,285
---------- ----------
Total revenues .......................................................... 100,555 115,847
Benefits and expenses:
Interest sensitive product benefits ........................................ 31,873 30,419
Traditional life insurance and accident and health benefits ................ 13,148 14,179
Increase in traditional life and accident and health future policy benefits 5,345 5,521
Distributions to participating policyholders ............................... 6,585 6,671
Underwriting, acquisition and insurance expenses ........................... 15,570 14,984
Interest expense ........................................................... 370 376
Other expenses ............................................................. 5,964 4,484
---------- ----------
Total benefits and expenses ............................................. 78,855 76,634
---------- ----------
21,700 39,213
Income taxes ................................................................... (7,025) (13,218)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily redeemable preferred stock of
subsidiary trust ........................................................ (1,213) --
Other ...................................................................... (84) (89)
Equity income (loss), net of related income taxes .............................. (302) 623
---------- ----------
Income from continuing operations .............................................. 13,076 26,529
Discontinued operations:
Income from property-casualty operations, net of related income tax expense
(benefit) of $36 for 1998 and $(80) for 1997 ............................ 287 24
Gain on disposal of property-casualty operations, net of related income tax
benefit of $973 for 1998 ................................................ 179 --
---------- ----------
Net income ..................................................................... 13,542 26,553
Dividends on Series A and B preferred stock .................................... (37) (1,250)
---------- ----------
Net income applicable to common stock .......................................... $ 13,505 $ 25,303
========== ==========
Earnings per common share:
Income from continuing operations .......................................... $ 0.36 $ 0.67
Discontinued operations .................................................... 0.02 --
---------- ----------
Earnings per common share .................................................. $ 0.38 $ 0.67
========== ==========
Earnings per common share - assuming dilution:
Income from continuing operations .......................................... $ 0.35 $ 0.66
Discontinued operations .................................................... .02 --
---------- ----------
Earnings per common share - assuming dilution .............................. $ 0.37 $ 0.66
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
CLASS A CLASS B UNREALIZED TOTAL
PREFERRED COMMON COMMON INVESTMENT RETAINED STOCKHOLDERS'
STOCK STOCK STOCK GAINS EARNINGS EQUITY
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 ....... $ 100,000 $ 43,773 $ 7,567 $ 27,858 $ 459,324 $ 638,522
Net income for three months
ended March 31, 1997 ......... -- -- -- -- 26,553 26,553
Change in net unrealized
investment gains/losses ..... -- -- -- (25,447) -- (25,447)
---------
Accumulated comprehensive
income ....................... 1,106
Dividends on preferred stock ... -- -- -- -- (1,250) (1,250)
Dividends on common stock ...... -- -- -- -- (1,886) (1,886)
--------- --------- --------- --------- --------- ---------
Balance at March 31, 1997 ........ $ 100,000 $ 43,773 $ 7,567 $ 2,411 $ 482,741 $ 636,492
========= ========= ========= ========= ========= =========
Balance at January 1, 1998 ....... $ 3,000 $ 42,907 $ 7,567 $ 48,559 $ 503,282 $ 605,315
Net income for three months
ended March 31, 1998 ......... -- -- -- -- 13,542 13,542
Change in net unrealized
investment gains/losses ...... -- -- -- 2,255 -- 2,255
---------
Accumulated comprehensive
income ....................... 15,797
Exchange of properties for
2,536,112 shares of common
stock ........................ -- (3,340) -- -- (42,310) (45,650)
Issuance of 105,384 shares of
common stock under stock
option plan, including related
income tax benefit ........... -- 1,403 -- -- -- 1,403
Dividends on preferred stock ... -- -- -- -- (37) (37)
Dividends on common stock ...... -- -- -- -- (2,700) (2,700)
--------- --------- --------- --------- --------- ---------
Balance at March 31, 1998 ........ $ 3,000 $ 40,970 $ 7,567 $ 50,814 $ 471,777 $ 574,128
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Continuing operations:
Net income .............................................................
Adjustments to reconcile net income to net cash provided by continuing $ 13,076 $ 26,529
operations:
Adjustments related to interest sensitive products:
Interest credited to account balances .......................... 26,827 26,555
Charges for mortality and administration ....................... (12,580) (11,687)
Deferral of unearned revenues .................................. 640 539
Amortization of unearned revenue reserve ....................... (147) (148)
Provision for depreciation and amortization ......................... 2,171 4,165
Net gains and losses related to investments held by broker-dealer and
investment company subsidiaries ................................. (77) (1,617)
Realized gains on investments ....................................... (1,312) (21,836)
Increase in traditional life and accident and health benefit accruals 5,343 5,228
Policy acquisition costs deferred ................................... (6,860) (6,727)
Amortization of deferred policy acquisition costs ................... 1,695 2,154
Provision for deferred income taxes ................................. (1,039) (9,400)
Other ............................................................... 6,201 10,052
---------- ----------
Net cash provided by continuing operations ................................. 33,938 23,807
Discontinued operations:
Net income ............................................................. 287 24
Adjustments to reconcile net income to net cash provided by discontinued
operations .......................................................... 2,185 3,686
---------- ----------
Net cash provided by discontinued operations ............................... 2,472 3,710
---------- ----------
Net cash provided by operating activities .................................. 36,410 27,517
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities - held for investment ................................. 20,613 10,440
Fixed maturities - available for sale .................................. 81,310 86,486
Equity securities ...................................................... 8,030 55,121
Mortgage loans on real estate .......................................... 10,626 9,208
Investment real estate ................................................. 89 280
Policy loans ........................................................... 6,840 6,817
Other long-term investments ............................................ 253 7,321
---------- ----------
127,761 175,673
</TABLE>
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
INVESTING ACTIVITIES (CONTINUED):
Acquisition of investments:
Fixed maturities - held for investment .................................. $ -- $ (24)
Fixed maturities - available for sale ................................... (151,636) (138,448)
Equity securities ....................................................... (688) (27,295)
Mortgage loans on real estate ........................................... (4,815) (16,373)
Investment real estate .................................................. (1,390) (153)
Policy loans ............................................................ (7,207) (7,760)
Other long-term investments ............................................. -- (99)
Short-term investments - net ............................................ (4,864) (9,951)
---------- ----------
(170,600) (200,103)
Proceeds from disposal, repayments of advances and other distributions from
equity investees ........................................................ 1,381 1,649
Investments in and advances to equity investees ............................. (936) (673)
Net purchases of property and equipment and other ........................... (3,556) (5,219)
Investing activities of discontinued operations ............................. (2,474) (3,709)
Net proceeds from the sale of discontinued operations ....................... 24,844 --
---------- ----------
Net cash used in investing activities ....................................... (23,580) (32,382)
FINANCING ACTIVITIES
Receipts from interest sensitive products credited to policyholder account
balances ................................................................ 70,648 71,250
Return of policyholder account balances on interest sensitive products ...... (77,220) (62,029)
Repayments of long-term debt ................................................ (2) --
Distributions on company-obligated mandatorily redeemable preferred stock of
subsidiary trust ........................................................ (1,213) --
Other distributions to minority interests ................................... (268) (268)
Issuance of common stock .................................................... 928 --
Dividends paid .............................................................. (2,737) (3,136)
---------- ----------
Net cash used in financing activities ....................................... (9,864) 5,817
---------- ----------
Increase in cash and cash equivalents ....................................... 2,966 952
Cash and cash equivalents at beginning of year .............................. 2,397 3,583
---------- ----------
Cash and cash equivalents at end of year .................................... $ 5,363 $ 4,535
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the year for:
Interest ................................................................ $ 363 $ 369
Income taxes ............................................................ (210) 9,810
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and notes thereto for the year ended December 31, 1997
included in the Company's annual report on Form 10-K.
2. STOCKHOLDERS' EQUITY
STOCK SPLIT
On March 17, 1998, the Company's Board of Directors approved a two-for-one
common stock split payable in the form of a 100% stock dividend to stockholders
of record as of April 6, 1998. The additional shares were distributed April 17,
1998. All references to the number of common shares and per share amounts in
this report have been restated as appropriate to reflect the effect of the share
dividend for all periods presented.
As required by the Company's Articles of Incorporation, holders of the Class B
common stock received Class A common shares in payment of the share dividend. In
addition, the 5.0 million shares of Series B preferred stock have non-dilutive
voting rights. As a result, voting rights on these shares increased
proportionately while the number of shares outstanding did not change.
EXCHANGE OF HOME OFFICE PROPERTIES
On March 30, 1998, the Company exchanged a subsidiary owning its home office
properties for 2,536,112 unregistered shares of Class A common stock owned by
the Iowa Farm Bureau Federation, its majority shareholder. The value of the
transaction, which was structured as a tax-free exchange of a real estate
subsidiary, was $45.7 million, or $18.00 per common share. The book value of the
properties was $24.7 million on the date of the exchange. The transaction was
accounted for as a noncash financing activity for purposes of the statements of
cash flows.
The Company is leasing a portion of the properties back from a wholly-owned
subsidiary of the Iowa Farm Bureau Federation under a 15-year operating lease. A
gain on the transaction of approximately $21.0 million was deferred by the
Company and will be amortized over the term of the operating lease.
3. DISCONTINUED OPERATIONS
On March 31, 1998, the Company sold its wholly-owned subsidiary, Utah Farm
Bureau Insurance Company (Utah Insurance), to Farm Bureau Mutual Insurance
Company (Farm Bureau Mutual), an affiliate. As a result of the sale, which was
approved by the Company's Board of Directors on March 17, 1998, the Company no
longer has property-casualty operations. Prior year financial statements have
been restated to reflect the operations of Utah Insurance as discontinued.
The Company received $25.0 million in cash on the date of the sale, resulting in
a $0.2 million gain net of related income taxes. The tax benefit recorded in
connection with the sale ($1.0 million) is greater than the prevailing federal
income tax rate due to the reversal of cumulative temporary differences between
the book and income tax bases of Utah Insurance's assets and liabilities. The
Company may receive additional consideration during each of the five years in
the period ending December 31, 2002, in accordance with an earn-out provision
included in the underlying sales agreement. Under the earn-out arrangement, the
Company and Farm Bureau Mutual will share equally in the dollar amount by which
the incurred losses on Utah Insurance's direct business, net of reinsurance
<PAGE>
ceded, is less than the incurred losses assumed in the valuation model used to
derive the initial $25.0 million acquisition price. The earn-out calculation
will be performed and any settlement (subject to a maximum of $2.0 million per
year) will be made on a calendar year basis. The Company has not accrued any
contingent consideration as such amounts, if any, cannot be reasonably estimated
as of March 31, 1998. Any receipts as a result of the earn-out provision will be
recorded as an adjustment to the gain on the disposal of the discontinued
segment.
Revenues from discontinued operations for the three months ended March 31, 1998
and 1997 totaled $12.9 million and $12.2 million, respectively.
4. INVESTMENT OPERATIONS
Fixed maturity securities, comprised of bonds and redeemable preferred stocks,
that the Company has the positive intent and ability to hold to maturity are
designated as "held for investment". Held for investment securities are reported
at cost adjusted for amortization of premiums and discounts. Changes in the
market value of these securities, except for declines that are other than
temporary, are not reflected in the Company's financial statements. Fixed
maturity securities which may be sold are designated as "available for sale".
Available-for-sale securities are reported at market value and unrealized gains
and losses on these securities are included directly in stockholders' equity,
net of related adjustments to deferred policy acquisition costs, value of
insurance in force acquired, unearned revenue reserve and deferred income taxes.
Equity securities, comprised of common and non-redeemable preferred stocks, are
reported at market value. The change in unrealized appreciation and depreciation
of equity securities is included directly in stockholders' equity, net of any
related deferred income taxes.
Net unrealized investment gains as reported were comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unrealized appreciation on fixed maturity and equity securities available
for sale ............................................................. $ 83,836 $ 81,076
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs .................................... (5,392) (6,019)
Value of insurance in force acquired ................................. (1,024) (1,061)
Unearned revenue reserve ............................................. 725 709
Provision for deferred income taxes ...................................... (27,351) (26,146)
---------- ----------
50,794 48,559
Proportionate share of net unrealized investment gains of equity investees 20 --
---------- ----------
Net unrealized investment gains .......................................... $ 50,814 $ 48,559
========== ==========
</TABLE>
5. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement No. 130, "Reporting
Comprehensive Income". Statement No. 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income or stockholders'
equity. Statement No. 130 requires unrealized gains and losses on the Company's
available-for-sale securities to be included in other comprehensive income.
During the three months ended March 31, 1998 and 1997, comprehensive income
totaled $15.8 million and $1.1 million, respectively.
<PAGE>
6. EARNINGS PER SHARE
The following table sets forth the computation of earnings per common share and
earnings per common share assuming dilution:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Numerator:
Income from continuing operations .................................... $ 13,076 $ 26,529
Income from discontinued operations .................................. 466 24
------------- -------------
Net income ........................................................... 13,542 26,553
Dividends on Series A and B preferred stock .......................... (37) (1,250)
------------- -------------
Numerator for earnings per common share-income available to common
stockholders .................................................. $ 13,505 $ 25,303
============= =============
Denominator:
Denominator for earnings per common share - weighted-average shares . 35,945,204 37,719,600
Effect of dilutive securities - employee stock options ............... 796,030 395,296
------------- -------------
Denominator for diluted earnings per common share - adjusted
weighted-average shares ....................................... 36,741,234 38,114,896
============= =============
Earnings per common share:
Income from continuing operations .................................... $ 0.36 $ 0.67
Discontinued operations .............................................. 0.02 --
------------- -------------
Earnings per common share ............................................ $ 0.38 $ 0.67
============= =============
Earnings per common share - assuming dilution:
Income from continuing operations .................................... $ 0.35 $ 0.66
Discontinued operations .............................................. .02 --
------------- -------------
Earnings per common share - assuming dilution ........................ $ 0.37 $ 0.66
============= =============
</TABLE>
For purposes of the calculation of earnings per common share, dividends on
Series A and B preferred stock are applicable to continuing operations.
7. CREDIT ARRANGEMENTS
As an investor in the Federal Home Loan Bank (FHLB), the Company has the right
to borrow up to $54.0 million from the FHLB as of March 31, 1998. The Company
had no outstanding debt under this credit arrangement as of March 31, 1998 or
December 31, 1997.
8. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company may be involved in litigation
where amounts are alleged that are substantially in excess of contractual policy
benefits or certain other agreements. At March 31, 1998, management is not aware
of any claims for which a material loss is reasonably possible.
The Company seeks to limit its exposure to loss on any single insured or event
and to recover a portion of benefits paid by ceding reinsurance to other
insurance enterprises. Reinsurance contracts do not relieve the Company of its
obligations to policyholders. To the extent that reinsuring companies are later
unable to meet obligations under reinsurance agreements, the Company's insurance
subsidiaries would be liable for these obligations, and payment of these
obligations could result in losses to the Company. To limit the possibility of
such losses, the Company
<PAGE>
evaluates the financial condition of its reinsurers and monitors concentrations
of credit risk. No allowance for uncollectible amounts has been established
against the reinsurance recoverable since all amounts are deemed to be
collectible.
During the first quarter of 1998, the Company entered into a 15-year operating
lease with the Iowa Farm Bureau Federation for the lease of its home office
properties. Future minimum lease payments under this lease are as follows: 1998
- - $1.2 million; 1999 - $1.7 million; 2000 - $2.1 million; 2001 - $2.1 million;
2002 - $2.1 million; and thereafter, through 2013 - $25.9 million.
In connection with an investment in a real estate limited partnership, the
Company has agreed to pay any cash flow deficiencies of a medium-sized shopping
center owned by the partnership through January 1, 2001. At March 31, 1998, the
Company assessed the probability and amount of future cash flows from the
property and determined that no accrual was necessary. The limited partnership
has a $5.4 million mortgage loan, secured by the shopping center, with Farm
Bureau Mutual.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING ANALYSIS OF THE CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE HEREIN. UNLESS NOTED
OTHERWISE, ALL REFERENCES INCLUDED HEREIN TO THE COMPANY INCLUDE ALL OF ITS
DIRECT AND INDIRECT SUBSIDIARIES, INCLUDING ITS PRIMARY LIFE INSURANCE
SUBSIDIARIES, FARM BUREAU LIFE INSURANCE COMPANY (FARM BUREAU LIFE) AND WESTERN
FARM BUREAU LIFE INSURANCE COMPANY (WESTERN LIFE) (COLLECTIVELY, THE LIFE
COMPANIES).
On March 17, 1998, the Company's Board of Directors approved a two-for-one
common stock split payable in the form of a 100% stock dividend to stockholders
of record as of April 6, 1998. The additional shares were distributed April 17,
1998. All references to the number of common shares and per share amounts in
this report have been restated as appropriate to reflect the effect of the share
dividend for all periods presented.
On March 31, 1998, the Company sold its wholly-owned subsidiary, Utah Farm
Bureau Insurance Company (Utah Insurance), to Farm Bureau Mutual Insurance
Company (Farm Bureau Mutual), an affiliate. As a result of the sale, which was
approved by the Company's Board of Directors on March 17, 1998, the Company no
longer has property-casualty operations. Results of the property-casualty
operations have been reported separately as "discontinued" and applicable
amounts for the 1997 period presented herein have been restated.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
A summary of the Company's premiums and product charges is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Premiums and product charges:
Interest sensitive product charges ........................ $ 12,478 $ 11,296
Traditional life insurance and accident and health premiums 23,018 22,548
---------- ----------
Total .................................................. $ 35,496 $ 33,844
========== ==========
</TABLE>
Premiums and product charges increased $1.7 million, or 4.9%, to $35.5 million
for the 1998 period compared to $33.8 million for the 1997 period. Interest
sensitive product charges increased $1.2 million, or 10.5%, due primarily to an
increase in the volume and age of business in force. Traditional life and
accident and health insurance premiums increased $0.5 million, or 2.1%, to $23.0
million for the 1998 period. Management believes the modest increase in the sale
of traditional life insurance products is the result of a marketing emphasis
placed on the sale of variable universal life insurance products. Premiums
collected on variable universal life insurance products increased 18.6% to $8.5
million in the 1998 period from $7.2 million in the 1997 period.
Net investment income increased $2.2 million, or 4.1%, to $56.1 million for the
1998 period compared to $53.9 million for the 1997 period. The increase resulted
principally from a 16 basis point increase in the annualized yield earned on
average invested assets to 7.99% in the 1998 period from 7.83% in the 1997
period. In addition, average invested assets increased 2.0% to $2,888.7 million
in the 1998 period. Yield on invested assets increased despite a general decline
in market interest rates during the 12-month period ended March 31, 1998 due
principally to an increase in fee income associated with mortgage loan
prepayments and bond calls. The increase in average invested assets is
principally attributable to net positive cash flows from operating activities.
Realized gains on investments decreased $20.5 million, or 94.0%, to $1.3 million
for the 1998 period compared to $21.8 million for the 1997 period. The 1998 and
1997 gains resulted primarily from sales of equity securities. Realized gains
during the 1998 and 1997 periods were partially offset by $1.6 million and $17.7
million,
<PAGE>
respectively, in realized losses resulting from writedowns of investments that
became other-than-temporarily impaired. These writedowns are attributable
primarily to equity securities and are the result of sustained operating losses,
rejection of product design by regulatory authorities and various other economic
factors that became evident in the respective periods. The level of realized
gains is subject to fluctuation from period to period depending on the
prevailing interest rate and economic environment and the timing of the sale of
investments.
Other income increased $1.4 million, or 22.1%, to $7.7 million for the 1998
period compared to $6.3 million for the 1997 period due primarily to an increase
in the level of leasing, investment advisory and financial services provided to
affiliates and third parties.
A summary of the Company's policy benefits is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Policy benefits:
Interest sensitive product benefits .................................. $ 31,873 $ 30,419
Traditional life insurance and accident and health benefits .......... 13,148 14,179
Increase in traditional and accident and health future policy benefits 5,345 5,521
Distributions to participating policyholders ......................... 6,585 6,671
---------- ----------
Total ............................................................. $ 56,951 $ 56,790
========== ==========
</TABLE>
Policy benefits increased $0.2 million, or 0.3%, to $57.0 million for the 1998
period compared to $56.8 million for the 1997 period. Included in this increase
is a $1.5 million increase in universal life and annuity benefits consisting of
a $1.2 million increase in universal life death benefits in excess of related
account balances and a $0.3 million increase in interest credited to these
contracts. The increase in interest credited is attributable to a larger volume
of business in force partially offset by a decrease in interest crediting rates
on these contracts. The weighted average annualized crediting rate for the
Company's universal life liabilities decreased to 6.08% for the 1998 period from
6.37% for the 1997 period, and the weighted average annualized crediting rate
for the Company's annuity liabilities decreased to 6.02% for the 1998 period
from 6.21% for the 1997 period. The Company decreased interest crediting rates
on many of its products during the 12-month period ended March 31, 1998 in
response to the general decline in market interest rates during the same period.
Traditional life and accident and health benefits decreased $1.2 million, or
6.1%, consisting of a $1.9 million decrease in death benefits, a $0.2 million
decrease in the change in the reserves on these products, a $0.5 million
increase in surrender benefits and a $0.4 million net increase in other
benefits. Distributions to policyholders were $6.6 million during the 1998
period and $6.7 million during the 1997 period. The impact of a decrease in the
average dividend rate credited to these policies to 5.89% at March 31, 1998 from
6.12% at March 31, 1997 was partially offset by growth in the amount and age of
the participating business in force.
A summary of the Company's underwriting, acquisition and insurance expenses is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals ................................... $ 2,211 $ 2,172
Amortization of deferred policy acquisition costs ...................... 1,695 2,153
Other underwriting, acquisition and insurance expenses, net of deferrals 11,664 10,659
---------- ----------
Total ............................................................... $ 15,570 $ 14,984
========== ==========
</TABLE>
Commission expense increased 1.8% to $2.2 million for the 1998 period.
Commission expense was relatively consistent during the periods as direct life
insurance premiums collected increased 1.6% in the 1998 period compared to the
1997 period.
<PAGE>
Amortization of deferred policy acquisition costs decreased $0.5 million, or
21.3%, to $1.7 million for the 1998 period compared to $2.2 million for the 1997
period. The decrease is primarily attributable to the impact of realized gains
and losses on investments backing the related policyholder liabilities. During
the 1998 period, amortization attributable to realized gains and losses totaled
$66,000 whereas during the 1997 period such amortization totaled $0.4 million.
Other underwriting, acquisition and insurance expenses increased $1.0 million,
or 9.4%, to $11.7 million for the 1998 period compared to $10.7 million for the
1997 period . During the 1998 period, approximately $0.6 million of expenses
were incurred relating to modifying the Company's computer systems to prepare
for the Year 2000 date conversion. No such expenses were incurred during the
1997 period. The Company expects to incur an additional $0.5 million during the
remainder of 1998 related to this project.
Interest expense was $0.4 million for each of the 1998 and 1997 periods as the
average debt outstanding totaled $24.6 million during both periods.
Other expenses increased $1.5 million, or 33.0%, to $6.0 million for the 1998
period compared to $4.5 million for the 1997 period due principally to an
increase in the level of leasing, investment advisory and financial services
provided to affiliates and third parties.
Pretax income before minority interest, equity income and discontinued
operations decreased $17.5 million, or 44.7%, to $21.7 million for the 1998
period compared to $39.2 million for the 1997 period. The decrease in pretax
income is primarily the result of the decrease in realized gains on investments
partially offset by an increase in income earned on invested assets.
Income taxes decreased $6.2 million, or 46.9%, to $7.0 million for the 1998
period compared to $13.2 million for the 1997 period. The effective tax rate for
the 1998 period was 32.4% compared to 33.7% for the 1997 period. The effective
tax rates were lower than the federal statutory rate of 35% due primarily to tax
exempt interest and dividend income partially offset by state income taxes. In
addition, during the 1998 period the Company realized a tax benefit associated
with the payment of dividends on mandatorily redeemable preferred stock of
subsidiary trust.
Equity income (loss), net of related income taxes, decreased $0.9 million, or
148.5%, to a loss of $0.3 million during the 1998 period compared to income of
$0.6 million for the 1997 period. Equity income includes the Company's
proportionate share of gains and losses on investments owned by the underlying
companies, partnerships and joint ventures. The level of these gains and losses
is subject to fluctuation from period to period depending on the prevailing
economic environment and the timing of the sale of investments held by the
entities.
Net income applicable to common stock decreased $11.8 million, or 46.6%, to
$13.5 million for the 1998 period compared to $25.3 million for the 1997 period.
The decrease is primarily the result of the changes in income from continuing
operations discussed above. As discussed in more detail in the section that
follows, the decrease was partially offset by a $0.5 million increase in
income/gain from discontinued operations. Dividends on Series A and B preferred
stock decreased $1.2 million. This decrease was offset by a $1.2 million
increase in dividends on company-obligated mandatorily redeemable preferred
stock of subsidiary trust.
DISCONTINUED OPERATIONS
The Company recorded a gain of $0.2 million, net of related income taxes, on the
sale of Utah Insurance. In addition, the increase in net unrealized appreciation
on securities classified as available for sale was reduced $1.4 million, net of
related income taxes, as a result of the sale. The gain on the sale may be
increased in future periods in accordance with an earnout provision included in
the related sales agreement. See "Liquidity and Capital Resources - FBL
Financial Group, Inc.".
Income from discontinued operations totaled $0.3 million in the 1998 period
compared to $24,000 for the 1997 period. Utah Insurance's revenues, consisting
primarily of premiums and net investment income, increased $0.7
<PAGE>
million, or 5.5%, to $12.9 million in the 1998 period from $12.2 million. The
Company's loss ratio improved to 75.4% in the 1998 period compared to 79.4% for
the 1997 period due generally to more favorable weather conditions. Underwriting
acquisition and insurance expenses increased to $3.8 million for the 1998 period
compared to $3.3 million for the 1997 period.
EXCHANGE OF HOME OFFICE PROPERTIES
On March 30, 1998, the Company exchanged a subsidiary owning its home office
properties for 2,536,112 unregistered shares of Class A common stock owned by
the Iowa Farm Bureau Federation. The Company is leasing a portion of the
properties back from a wholly-owned subsidiary of the Iowa Farm Bureau
Federation under a 15-year operating lease. The value of the transaction, which
was structured as a tax-free exchange of a real estate subsidiary, was $45.7
million, or $18.00 per common share. The book value of the properties was $24.7
million on the date of the exchange. A gain on the transaction of approximately
$21.0 million was deferred by the Company and will be amortized over the term of
the operating lease. The exchange is not expected to have a significant impact
on income from continuing operations as the increase in net expense associated
with leasing the properties versus owning them directly will be substantially
offset by the amortization of the deferred gain on the transaction.
ADJUSTED OPERATING INCOME
The following table reflects net income adjusted to eliminate certain items
which management believes are not indicative of overall operating trends,
including net realized gains on investments (less that portion of amortization
of deferred policy acquisition costs, unearned revenue reserve, value of
insurance in force acquired and income taxes attributable to such gains), loss
on disposal of the property-casualty segment and net income from a venture
capital investment company subsidiary.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net income applicable to common stock .......................... $ 13,505 $ 25,303
Adjustments:
Net realized gains on investments .......................... (814) (13,971)
Gain on disposal of property-casualty operations ........... (179) --
Net income from FBL Ventures ............................... -- (326)
---------- ----------
Adjusted operating income applicable to common stock ........... $ 12,512 $ 11,006
========== ==========
Adjusted operating earnings per common share ................... $ 0.35 $ 0.29
========== ==========
Adjusted operating earnings per common share - assuming dilution $ 0.34 $ 0.29
========== ==========
</TABLE>
FBL Ventures was a wholly owned investment company subsidiary of Farm Bureau
Life which invested in start-up and mezzanine level venture capital investments
in various sectors. Operating results of FBL Ventures were recognized in
accordance with accounting principles for investment companies and, as such,
unrealized and realized gains and losses on investments were included in net
investment income. Because of the venture capital nature of the underlying
investments, the results of FBL Ventures tended to fluctuate significantly from
year to year and needed to be evaluated over a much longer period of time.
Therefore, the net income attributable to FBL Ventures was not included in
adjusted operating income. On June 30, 1997, FBL Ventures was dissolved.
PENDING ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information". Statement
No. 131 establishes standards for reporting information about operating
segments, products and markets. Generally, Statement No. 131 requires financial
information to be reported on the basis on which it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. Under Statement No. 131, it is anticipated that the Company will
report two primary operating segments: life and property-casualty (as
discontinued). However, the non-insurance support operations,
<PAGE>
including investment advisory, marketing and distribution and leasing services,
will no longer be part of the life insurance segment. While each of these
non-insurance operations constitute a separate segment under the new rules,
their operations do not currently meet the statement's quantitative thresholds
for separate segment reporting. Accordingly, it is anticipated that such
non-insurance operations will be aggregated and disclosed in total. While
earlier application is allowed, Statement No. 131 is effective for and will be
adopted in the fourth quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
FBL FINANCIAL GROUP, INC.
Parent company cash inflows from operations consist primarily of dividends from
subsidiaries, if declared and paid, and fees which it charges the various
subsidiaries and affiliates for management of their operations. Cash outflows
are principally for salaries and other expenses related to providing such
management services, dividends on outstanding stock and interest on holding
company debt issued to a subsidiary. In addition, the parent company will on
occasion enter into capital transactions such as the sale of a subsidiary and
the acquisition of its common stock.
The Company received $25.0 million in cash on March 31, 1998 in connection with
the sale of Utah Insurance. The Company may receive additional consideration
during each of the five years in the period ending December 31, 2002, in
accordance with an earn-out provision included in the underlying sales
agreement. Under the earn-out arrangement, the Company and Farm Bureau Mutual
will share equally in the dollar amount by which the incurred losses on Utah
Insurance's direct business, net of reinsurance ceded, is less than the incurred
losses assumed in the valuation model used to derive the initial $25.0 million
acquisition price. The earn-out calculation will be performed and any settlement
(subject to a maximum of $2.0 million per year) will be made on a calendar year
basis.
The exchange of home office properties for Class A common stock on March 30,
1998 was structured as a tax-free exchange of a real estate subsidiary. Farm
Bureau Life transferred a subsidiary which owned the buildings to FBL Financial
Group in the form of a dividend. FBL Financial Group then exchanged the real
estate subsidiary's common stock for the Class A common stock. The transaction
was accounted for as a noncash financing activity for purposes of the statements
of cash flows.
On April 28, 1998, the Company's Board of Directors approved a plan to
repurchase up to $25.0 million worth of unregistered common shares. The shares
will be acquired at a price equal to 90% of the average closing price over the
ten business-day period from April 30, 1998 to May 13, 1998 as reported by the
New York Stock Exchange. The shares are currently owned by certain Farm Bureau
federations and Farm Bureau property-casualty insurance companies which have a
concentration of their investments in the Company. The concentrations arose
principally due to the appreciation of the Company's stock price which caused
the investments to exceed guidelines. It is anticipated that the proceeds from
the sale of Utah Insurance will be used to fund the stock repurchases, if any.
During the three months ended March 31, 1998, the parent company paid common and
preferred stock dividends totaling $2.7 million. Common and preferred dividends
totaling $3.1 million were paid during the corresponding 1997 period. It is
anticipated dividend requirements for the remainder of 1998 will be $0.075 per
quarter per common share and $0.0075 per quarter per preferred share, or
approximately $7.5 million. In addition, interest payments on the holding
company debt are estimated to be $3.8 million for the remainder of 1998.
FBL Financial Group, Inc. relies primarily on dividends from the Life Companies
to make any dividend payments to its stockholders and interest payments on its
debt. The ability of the Life Companies to pay dividends to FBL Financial Group,
Inc. is limited by law to earned profits (statutory unassigned surplus) as of
the date the dividend is paid, as determined in accordance with accounting
practices prescribed by insurance regulatory authorities of the State of Iowa
for Farm Bureau Life and the State of Colorado for Western Life. In addition,
under the Iowa and Colorado Insurance Holding Company Acts, the Life Companies
may not pay an "extraordinary" dividend without prior notice to and approval by
the respective insurance commissioner. An "extraordinary" dividend is defined
under the Iowa and Colorado Insurance Holding Company Acts as any dividend or
distribution of cash or other property whose fair market value, together with
that of other dividends or distributions made within the preceding
<PAGE>
12 months, exceeds the greater of (i) 10% of policyholders' surplus (total
statutory capital stock and statutory surplus) as of December 31 of the
preceding year, or (ii) the statutory net gain from operations of the insurer
for the 12-month period ending December 31 of the preceding year.
Dividend and interest requirements of the parent company for the remainder of
1998, which total $11.3 million, are in excess of the dividends available from
the Life Companies without prior approval from an insurance commissioner. For
the remainder of 1998, the maximum amount legally available for distribution to
FBL Financial Group, Inc. without further regulatory approval is approximately
$8.7 million from Western Life. No such amount is available from Farm Bureau
Life during the remainder of 1998 due to the dividend of the home office
properties. Based on the capital position of Farm Bureau Life, the Company
anticipates that it will receive regulatory approval from the Iowa insurance
commissioner for an extraordinary dividend to cover this temporary shortfall of
funds. If such approval is not obtained, it is anticipated the parent company
would obtain the necessary funds through a short-term borrowing with a bank or
affiliate.
INSURANCE OPERATIONS
The Life Companies' cash inflows consist primarily of premium income, deposits
to policyholder account balances, income from investments, sales, maturities and
calls of investments and repayments of investment principal. The Life Companies'
cash outflows are primarily related to withdrawals of policyholder account
balances, investment purchases, payment of policy acquisition costs,
policyholder benefits, income taxes, dividends and current operating expenses.
Life insurance companies generally produce a positive cash flow which may be
measured by the degree to which cash inflows are adequate to meet benefit
obligations to policyholders and normal operating expenses as they are incurred.
The remaining cash flow is generally used to increase the asset base to provide
funds to meet the need for future policy benefit payments and for writing new
business. The Life Companies' liquidity positions continued to be favorable in
the three month period ended March 31, 1998, with cash inflows at levels
sufficient to provide the funds necessary to meet their obligations.
For the discontinued property-casualty operations, the major sources of cash
inflow were premiums and investment income. Major sources of cash outflow were
losses and loss adjustment expenses paid and other underwriting expenses. The
liquidity position of Utah Insurance was favorable in the three month period
ended March 31, 1998, with cash inflows at levels sufficient to provide the
funds necessary to meet its obligations. Due to the relatively small size of the
property-casualty segment, the disposal of the segment is not expected to have a
significant impact on the liquidity position of the Company.
For the life insurance operations, cash outflow requirements for operations are
typically met from the year's normal premium and deposit cash inflows. This has
been the case for all reported periods as the Life Companies' continuing
operations and financing activities relating to interest sensitive products
provided funds amounting to $37.7 million and $23.4 million in the three months
ended March 31, 1998 and 1997, respectively. These funds were primarily used to
increase the insurance companies' fixed maturity investment portfolios.
Matching the investment portfolio maturities to the cash flow demands of the
type of insurance being provided is an important consideration for each type of
life insurance. The Life Companies continually monitor benefit and claim
statistics to provide projections of future cash requirements. As part of this
monitoring process, the Life Companies perform cash flow testing of their assets
and liabilities under various scenarios to evaluate the adequacy of reserves. In
developing their investment strategy, the Life Companies establish a level of
cash and securities which, combined with expected net cash inflows from
operations, maturities of fixed maturity investments and principal payments on
mortgage and asset-backed securities and mortgage loans, are believed adequate
to meet anticipated short-term and long-term benefit and expense payment
obligations.
Through its membership in the Federal Home Loan Bank of Des Moines, Farm Bureau
Life is eligible to borrow on a line of credit available to provide it
additional liquidity. The line of credit available is based on the amount of
capital stock of the Federal Home Loan Bank of Des Moines owned by Farm Bureau
Life, which supported a borrowing capacity of $54.0 million as of March 31,
1998. Interest is payable at the current market rate on the date of issuance. As
of March 31, 1998, no borrowings were outstanding on this line of credit.
<PAGE>
Management anticipates that funds to meet its short-term and long-term capital
expenditures, cash dividends to stockholders and operating cash needs will come
from existing capital and internally generated funds. Management believes that
the current level of cash and available-for-sale and short-term securities,
combined with expected net cash inflows from operations, maturities of fixed
maturity investments, principal payments on mortgage and asset-backed
securities, mortgage loans and its insurance products, are adequate to meet the
Company's anticipated cash obligations for the foreseeable future. Not
withstanding the above, management currently anticipates refinancing the
Company's $24.5 million lease-backed note payable that is due August, 1999.
The Company may from time to time review potential acquisition opportunities.
The Company anticipates that funding for any such acquisition may be provided
from available cash resources, debt or equity financing. As of March 31, 1998,
the Company had no material commitments for capital expenditures. As noted
above, during the second quarter of 1998, the Company anticipates repurchasing
up to $25.0 million of unregistered common shares.
INVESTMENTS
The Company's total investment portfolio increased $49.8 million, or 1.7%, to
$2,990.7 million at March 31, 1998 compared to $2,940.9 million at December 31,
1997. This increase is primarily the result of positive cash flows from
operations and the sale of Utah Insurance.
The Company's investment portfolio is managed by its internal investment
professionals. The investment strategy is designed to achieve superior
risk-adjusted returns consistent with the Company's investment philosophy of
maintaining a largely investment grade portfolio and providing adequate
liquidity for expected liability durations and other requirements. Management
continually reviews the returns on invested assets and changes the mix of
invested assets as deemed prudent under the current market environment to help
maximize current income.
The Company's investment portfolio is summarized in the table below:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
------------------------------ ------------------------------
CARRYING VALUE PERCENT CARRYING VALUE PERCENT
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities:
Public .................... $ 1,846,716 61.8% $ 1,807,240 61.4%
144A private placement .... 296,832 9.9 276,578 9.4
Private placement ......... 261,243 8.7 267,358 9.1
------------- ------------- ------------- -------------
Total fixed maturities .... 2,404,791 80.4 2,351,176 79.9
Equity securities ........... 53,727 1.8 57,736 2.0
Mortgage loans on real estate 317,768 10.6 323,605 11.0
Investment real estate:
Acquired for debt ......... 1,070 -- 1,168 --
Investment ................ 39,845 1.3 38,774 1.3
Policy loans ................ 122,308 4.1 121,941 4.2
Other long-term investments . 14,262 0.5 14,438 0.5
Short-term investments ...... 36,937 1.3 32,073 1.1
------------- ------------- ------------- -------------
Total investments ...... $ 2,990,708 100.0% $ 2,940,911 100.0%
============= ============= ============= =============
</TABLE>
As of March 31, 1998, 95.0% (based on carrying value) of the fixed maturity
securities were investment grade debt securities, defined as being in the
highest two National Association of Insurance Commissioners (NAIC) designations.
Non-investment grade debt securities generally provide higher yields and involve
greater risks than investment grade debt securities because their issuers
typically are more highly leveraged and more vulnerable to adverse economic
conditions than investment grade issuers. In addition, the trading market for
these securities is usually more limited than for investment grade debt
securities. The Company regularly reviews the percentage of its portfolio which
is invested in non-investment grade debt securities (NAIC designations 3 through
6). As of March
<PAGE>
31, 1998, the Company's investment in non-investment grade debt was 5.0% of
fixed maturity securities. At that time no single non-investment grade holding
exceeded 0.3% of total investments.
The following table sets forth the credit quality, by NAIC designation and
Standard & Poors (S & P) rating equivalents, of fixed maturity securities:
FIXED MATURITY SECURITIES BY NAIC DESIGNATION
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------
NAIC DESIGNATION EQUIVALENT S&P RATINGS (1) CARRYING VALUE PERCENT
- -------------------------- --------------------------------------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1 (AAA, AA, A).................................. $ 1,569,783 65.3%
2 (BBB)......................................... 714,816 29.7
------------- -----------
Total investment grade........................ 2,284,599 95.0
3 (BB).......................................... 69,351 2.9
4 (B)........................................... 46,919 2.0
5 (CCC, CC, C).................................. 525 -
6 In or near default............................ 3,397 0.1
------------- -----------
Total below investment grade.................. 120,192 5.0
------------- -----------
Total fixed maturities........................ $ 2,404,791 100.0%
============= ============
</TABLE>
- --------------
(1) Private placement securities are generally rated by the Securities
Valuation Office of the NAIC. Comparisons between NAIC designations and
S & P ratings are published by the NAIC. S & P has not rated some of
the fixed maturity securities in the Company's portfolio.
The following tables contain amortized cost and market value information on
fixed maturities and equity securities at March 31, 1998:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
--------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Bonds:
Corporate securities .................. $ 5,008 $ 905 $ (8) $ 5,905
Mortgage-backed securities ............ 614,618 23,234 (1,913) 635,939
------------ ------------ ------------ ------------
Total fixed maturities .................... $ 619,626 $ 24,139 $ (1,921) $ 641,844
============ ============ ============ ============
AVAILABLE FOR SALE
--------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Bonds:
United States Government and agencies . $ 89,360 $ 2,145 $ (103) $ 91,402
State, municipal and other governments 49,930 1,355 (112) 51,173
Public utilities ...................... 126,102 6,561 (401) 132,262
Corporate securities .................. 878,174 61,327 (4,324) 935,177
Mortgage and asset-backed securities .. 534,102 17,742 (1,582) 550,262
Redeemable preferred stock ................ 23,816 1,160 (87) 24,889
------------ ------------ ------------ ------------
Total fixed maturities .................... $ 1,701,484 $ 90,290 $ (6,609) $ 1,785,165
============ ============ ============ ============
Equity securities ......................... $ 53,572 $ 4,060 $ (3,905) $ 53,727
============ ============ ============ ============
</TABLE>
<PAGE>
The carrying value and estimated market value of the Company's portfolio of
fixed maturity securities at March 31, 1998, by contractual maturity, are shown
below.
<TABLE>
<CAPTION>
HELD FOR INVESTMENT AVAILABLE FOR SALE
------------------------------- -------------------------------
ESTIMATED ESTIMATED
AMORTIZED COST MARKET VALUE AMORTIZED COST MARKET VALUE
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less .............. $ -- $ -- $ 23,685 $ 24,148
Due after one year through five years -- -- 171,978 177,305
Due after five years through ten years 5,008 5,905 309,119 327,563
Due after ten years .................. -- -- 638,784 680,998
------------ ------------ ------------ ------------
5,008 5,905 1,143,566 1,210,014
Mortgage and asset-backed securities . 614,618 635,939 534,102 550,262
Redeemable preferred stocks .......... -- -- 23,816 24,889
------------ ------------ ------------ ------------
$ 619,626 $ 641,844 $ 1,701,484 $ 1,785,165
============ ============ ============ ============
</TABLE>
Mortgage and other asset-backed securities constitute a significant portion of
the Company's portfolio of securities. These securities were purchased at a time
when, management believes, these types of investments provided superior
risk-adjusted returns compared to returns of more conventional investments such
as corporate bonds and mortgage loans. These securities are diversified as to
collateral types, cash flow characteristics and maturity. At March 31, 1998, the
Company held $611.0 million (20.4% of total investments) in residential
mortgage-backed securities, $280.2 million (9.4% of total investments) in
commercial mortgage-backed securities and $273.7 million (9.2% of total
investments) in other asset-backed securities.
At March 31, 1998, the Company held residential collateralized mortgage
obligation (CMO) investments with a market value of $576.7 million as part of
its mortgage-backed securities holdings. CMOs consist of pools of mortgages
divided into sections or "tranches" which provide sequential retirement of the
bonds. To provide call protection and more stable average lives, the Company
invests in planned amortization classes (PACs), which provide more predictable
cash flows within a range of prepayment speeds (e.g., the rate of individuals
refinancing their home mortgages at lower rates) by shifting the prepayment
risks to support tranches. The Company also invests in sequential tranches,
which provide stability in that repayments of principal do not occur until the
previous tranches are paid off. As of March 31, 1998, 78.8% of the Company's CMO
investments are in PAC and sequential pay securities. The Company does not
purchase certain types of collateralized mortgage obligations which it believes
subjects the investment portfolio to greater than average risk. These include,
but are not limited to, interest only, principal only, floater, inverse floater,
PAC II, Z and support tranches.
At March 31, 1998, the Company held $317.8 million or 10.6% of invested assets
in mortgage loans. These mortgage loans are diversified as to property type,
location and loan size, and are collateralized by the related properties. At
March 31, 1998, mortgages more than 60 days delinquent accounted for 0.1% of the
carrying value of the mortgage portfolio. The Company's mortgage lending
policies establish limits on the amount that can be loaned to one borrower and
require diversification by geographic location and collateral type. Regions with
the largest concentration of the Company's mortgage loan portfolio at March 31,
1998 include: West South Central (25%) which includes Oklahoma and Texas; and
Pacific (23%) which includes California and Washington. Mortgage loans on real
estate have also been analyzed by collateral types with office buildings (48%)
and retail facilities (33%) representing the largest holdings at March 31, 1998.
The Company's investment portfolio at March 31, 1998, also included $36.9
million of short-term investments and $227.7 million in carrying value of U.S.
Government and U.S. Government agency backed securities that could be readily
converted to cash at or near carrying value.
<PAGE>
The Company's asset-liability management program includes (i) designing and
developing products which encourage persistency and, as a result, create a
stable liability structure; and (ii) structuring the investment portfolio with
duration and cash flow characteristics consistent with the duration and cash
flow characteristics of the Company's insurance liabilities. At March 31, 1998,
the weighted average life of the fixed maturity portfolio, based on market
values excluding convertible bonds, was approximately 7.9 years. Based on the
fixed income analytical system utilized by the Company, including its mortgage
backed prepayment assumptions, the effective duration of the fixed income
portfolio was 4.8 as of March 31, 1998.
OTHER ASSETS
Deferred policy acquisition costs increased $5.8 million, or 3.2%, due
principally to the capitalization of costs incurred with new sales. Property and
equipment decreased $23.5 million, or 37.1%, due principally to the exchange of
home office properties for Class A common stock. Assets of discontinued
operations decreased $106.7 million as a result of the sale of Utah Insurance.
Assets held in separate accounts increased $24.7 million, or 17.8%, to $163.1
million at March 31, 1998 due primarily to net transfers to the separate
accounts resulting from sales of the Company's variable products and
appreciation in the value of separate account investments. At March 31, 1998,
the Company had total assets of $3,552.1 million, a 1.4% decrease from total
assets at December 31, 1997.
LIABILITIES AND MINORITY INTEREST
Policy liabilities and accruals increased $5.7 million, or 0.2%, due primarily
to an increase in the volume of business in force. Other liabilities increased
$26.8 million, or 59.7%, due primarily to the deferral of the gain ($21.0
million) on the exchange of home office properties for Class A common stock.
Liabilities of discontinued operations decreased $79.1 million as a result of
the sale of Utah Insurance. At March 31, 1998, the Company had total liabilities
of $2,876.5 million, a 0.6% increase from total liabilities at December 31,
1997.
STOCKHOLDERS' EQUITY
Stockholders' equity decreased $31.2 million, or 5.2%, to $574.1 million at
March 31, 1998 compared to $605.3 million at December 31, 1997. This decrease is
principally attributable to the exchange of home office properties for Class A
common stock which resulted in a $45.7 million decrease in equity. This decrease
was offset by net income during the three months ended March 31, 1998 and net
unrealized appreciation of securities classified as available for sale.
At March 31, 1998, common stockholders' equity was $571.1 million, or $17.05 per
share, compared to $602.3 million, or $16.77 per share at December 31, 1997.
Included in stockholders' equity per common share is $1.51 and $1.41 at March
31, 1998 and December 31, 1997, respectively, attributable to unrealized
investment gains resulting from marking the Company's fixed maturity securities
classified as available for sale to market value. The change in unrealized
appreciation of fixed maturity and equity securities classified as available for
sale increased stockholders' equity $2.3 million during the three-month period
ended March 31, 1998, after related adjustments to deferred policy acquisition
costs, value of insurance in force acquired, unearned revenue reserve and
deferred income taxes.
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects, new
products, and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experiences to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following:
* Changes to interest rate levels and stock market performance may
impact the Company's lapse rates, market value of investment portfolio
and the Company's ability to sell its life insurance products,
notwithstanding product features to mitigate the financial impact of
such changes.
* Changes in the amount of available resources may impact the timing in
which the Company becomes Year 2000 compliant
* Extraordinary acts of nature or man may result in higher than expected
claim activity.
* Changes in federal and state income tax laws and regulations may
affect the relative tax advantage of the Company's products.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.13 Exchange Agreement between FBL Financial Group, Inc. and Iowa Farm
Bureau Federation dated as of January 7, 1998.
10.14 Lease Agreement dated as of March 31, 1998 between IFBF Property
Management, Inc., FBL Financial Group, Inc. and Farm Bureau Mutual
Insurance Company.
10.15 Building Management Services Agreement dated as of March 31, 1998
between IFBF Property Management, Inc. and FBL Financial Group, Inc.
10.16 Stock Purchase Agreement dated as of March 11, 1998 betwween FBL
Financial Group, Inc. and Farm Bureau Mutual Insurance Company.
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31,1998:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 8, 1998
FBL FINANCIAL GROUP, INC.
By /s/ Thomas R. Gibson
-----------------------------------------
Thomas R. Gibson
Chief Executive Officer (Principal Executive
Officer)
By /s/ James W. Noyce
-----------------------------------------
James W. Noyce
Chief Financial Officer (Principal Financial
and Accounting Officer)
EXCHANGE AGREEMENT
Agreement made March 31, 1998, between FBL Financial Group, Inc. ("Transferor")
and Iowa Farm Bureau Federation ("Transferee").
Transferor owns all outstanding capital stock of IFBF Property Management, Inc.
("Management"). Management's sole corporate purpose is to own and manage the
property in West Des Moines, Iowa commonly known as the Farm Bureau campus, 5340
and 5400 University Avenue, consisting of approximately 68 acres and two
buildings with approximately 455,000 combined square feet. Transferee is the
majority shareholder of Transferor, and both Transferee and Transferor, among
other parties, are occupants of the property owned by Management.
Transferor is primarily engaged in the insurance business and desires to
concentrate the attention of its executives on such business, to the exclusion
of being required, through its subsidiary Management, to manage its extensive
home office properties. By reducing the total number of its Class A common
shares outstanding, Transferor believes it can increase the earnings per share,
and value per share, on behalf of all of its shareholders. Transferee believes
it can increase its investment return and especially its cash flow through the
transaction, with the result of increasing the amount of cash it can devote to
its purposes as a not for profit organization.
The parties intend that this transaction constitute a tax-free exchange of
Transferor's stock of Management solely in exchange for Class A common stock of
Transferor owned by Transferee, in accordance with the provisions of Section 355
of the Internal Revenue Code, and all terms contained herein shall be
interpreted to effectuate such intent.
It is therefore agreed:
1. EXCHANGE. Immediately after the execution of this Agreement, the Transferor
shall exchange all of its shares in Management, consisting of 1,000 common
shares without par value, duly endorsed, for 1,268,056 unregistered shares of
Transferor's Class A common stock owned by Transferee, duly endorsed and
medallion signature guaranteed. The common shares of Management delivered to
Transferee shall be validly issued, fully paid and nonassessable. All such
shares shall bear a legend containing a restriction on transfer indicating that
the shares may not be offered or sold and no transfer of them may be made unless
in compliance with the Securities Act of 1933. The Class A common shares of
Transferor delivered to Transferor by Transferee shall be validly issued, fully
paid and nonassessable. All such shares shall by operation of the Iowa Business
Corporations Act upon their delivery to Transferor be cancelled and no longer
outstanding. This transaction shall be completed in accordance with the
provisions of Section 355 of the Internal Revenue Code.
2. OBLIGATION OF TRANSFEROR. Without in any way limiting or diminishing the
rights or remedies available to Transferee for the breach of this Agreement,
Transferor will indemnify and hold the Transferee harmless from and against all
loss, liability, damages, obligations, penalties, actions, suits, disbursements
or expenses, including interest thereon and reasonable attorney fees, imposed
on, asserted against or incurred by Management or Transferee, in any way
arising out
<PAGE>
of the operations of Management prior to the date of this Agreement or related
to the exchange of the shares of Management , regardless of when such claims,
demands, penalties, fines, taxes or other losses are or were asserted.
3. RESIGNATIONS OF OFFICIALS. The written resignation of all Officers and
Directors of Management, effective upon delivery, shall be delivered to the
Transferee immediately after the execution of this Agreement.
4. REPRESENTATIONS OF TRANSFEROR. The Transferor hereby warrants and represents:
a. The Transferor is the sole owner of and has the sole right to
exchange all the shares of Management.
b. Management is a business corporation duly organized and existing
under the laws of the state of Iowa, with the authority to issue
100,000 common shares, without par value, of which 1,000 shares are
issued and outstanding.
c. The balance sheet of Management, dated as of the close of business
on March 31, 1998, annexed hereto as Schedule A, accurately reflects
its true financial condition on that date, and there have been no
changes therein except for those arising out of transactions entered
into in the ordinary course of business.
5. REPRESENTATIONS OF TRANSFEREE. The Transferee hereby represents and warrants:
a. It is a not for profit business corporation duly organized and
existing under the laws of the State of Iowa.
b. It has taken all appropriate corporate action to authorize the
exchange contemplated hereby.
c. It intends to maintain the separate corporate existence and active
business of Management, and represents that it will keep such existence
and active business for not less than three (3) years after the date of
the transaction.
6. LEASE. Transferee shall cause Management to lease to Transferor, under
commercially reasonable terms, the space currently occupied by Transferor
in the properties owned by Management, said lease to be for a term of
fifteen years, with options to renew and with options to increase the space
under lease if and when additional space is vacated by other tenants.
7. CONDITIONS PRECEDENT. The parties agree that the exchange transaction
described in this Agreement is fully subject to the satisfaction of the
following conditions:
(a) Approval of the Iowa Insurance Department to the extraordinary dividend
of the Management stock from Farm Bureau Life Insurance Company to
Transferor;
<PAGE>
(b) Receipt by Transferor of a shareholder fairness opinion from BT Alex.
Brown Incorporated;
(c) Receipt by Transferor of a tax opinion from Ernst & Young LLP
satisfactory to Transferor in its sole judgment.
8. BENEFIT. This Agreement shall be binding upon and shall inure to the benefit
of the parties, their successors and assigns.
<PAGE>
In witness whereof the parties have signed this Agreement.
"TRANSFEROR"
FBL FINANCIAL GROUP, INC.
------------------------------
Thomas R. Gibson, CEO
"TRANSFEREE"
IOWA FARM BUREAU FEDERATION
------------------------------
Edward M. Wiederstein, President
LEASE AGREEMENT
This Lease Agreement ("Lease"), made as of the 31st day of March, 1998,
between IFBF Property Management, Inc., an Iowa corporation, whose address is
5400 University Avenue, West Des Moines, Iowa 50266 ("Landlord"), and FBL
Financial Group, Inc., an Iowa corporation, and Farm Bureau Mutual Insurance
Company, the address of both of which is 5400 University Avenue, West Des
Moines, Iowa 50266 (separately, an "Individual Tenant" and together, "Tenant").
RELATIONSHIP OF TENANT. FBL Financial Group, Inc. and its subsidiaries,
on the one hand, and Farm Bureau Mutual Insurance Company and its subsidiaries
and affiliates, on the other hand, share much of the Leased Premises, and share
certain employees and officers under a management agreement. As between them,
each is separately liable for its allocated share of Rent, Additional Rent and
all other obligations, costs and expenses of Tenant hereunder. Each will
participate in appropriate allocations of the lease expenses between them.
However, as to Landlord, each Individual Tenant is jointly and severally liable
for payment of all Rent, Additional Rent and other Tenant costs and expenses and
all other obligations of Tenant. Neither Individual Tenant may take any action
under or pursuant to this Lease without the consent (which may not be withheld
unreasonably) of the other Individual Tenant if the other Individual Tenant is
not in default under this Lease. Any default by one Individual Tenant shall not
be considered a default under this Lease by the Tenant, if the nondefaulting
Individual Tenant cures the default within the time and in the manner provided
herein. If an Individual Tenant cures a default by the other Individual Tenant
the defaulting Individual Tenant shall reimburse the curing Individual Tenant
for all costs, including reasonable attorneys' fees incurred by the curing
Individual Tenant. Any action of Tenant under this Lease shall not be effective
unless both Individual Tenants concur in such action, unless one Individual
Tenant is in default under this Lease and the other is not, in which case the
nondefaulting Individual Tenant shall be entitled to take any Tenant action
required or authorized under the Lease or by law. If an Individual Tenant fails
to concur in any action requested by the other Individual Tenant, the issue
shall at the request of any party to this Lease be resolved by arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. In the event that either Individual Tenant pays any Rent,
Additional Rent or other payment required by this Lease as a result of the joint
liability imposed by this Lease or otherwise, and which exceeds its several
obligation under this Lease, or otherwise incurs loss or damage as a result of a
default by the other Individual Tenant, the defaulting Individual Tenant shall
immediately reimburse the party making such payment, together with interest at
the rate provided in Article XX herein and reasonable attorneys' fees, and the
nondefaulting Individual Tenant and the Landlord may take such other action,
including, but not limited to recovery of damages and/or termination of the
defaulting Individual Tenant's rights under this Lease, as may be available to
the nondefaulting Individual Tenant or the Landlord at law or in equity.
<PAGE>
ARTICLE I
PREMISES
SECTION 1.1 Buildings and Leased Premises. Landlord leases to Tenant and Tenant
leases from Landlord certain space (as hereinafter described) in the building
known as the Farm Bureau Building and the entirety of the building known as the
Claims Center Building, respectively located at 5400 University Avenue and 5340
University Avenue, West Des Moines, Iowa 50266 (the "Buildings"). The space in
the Farm Bureau Building is shown on EXHIBIT A (attached hereto and by this
reference made a part hereof), and initially contains approximately 299,278.81
square feet. The Claims Center Building contains approximately 5,660 square
feet. Together, the spaces are herein sometimes called the "Leased Premises".
Tenant and Landlord (including for this purpose its parent company, Iowa Farm
Bureau Federation) agree that their varying operational needs may require
flexibility from time to time in space usage, which may include short term usage
of certain common area spaces for office space by Tenant and short term use by
Landlord of certain areas within the Leased Premises not immediately needed by
Tenant. Any such short term changes will be reflected by adjustments to Rent and
Additional Rent not less than annually by the Allocations Committee described at
Section 3.5.
SECTION 1.2 Common Areas. The Leased Premises are leased together with the
appurtenances, including the right to use in common with others the lobbies,
public entrances, public stairways, public elevators, other public portions of
the Buildings, Conference Center, conference rooms, cafeteria, wellness center,
daycare, auditorium, stores and mail, human resources, purchasing, legal, and
all exterior parking areas, sidewalks, walkways, service areas and other
exterior areas of the contiguous property owned by Landlord upon which Buildings
are located (the "Common Areas").
SECTION 1.3 Tenant Acceptance. Tenant acknowledges that Tenant has inspected the
leased premises and hereby accepts same in "as is" condition, and Landlord has
made no warranties and/or representations regarding the condition of the Leased
Premises.
SECTION 1.4 Additional Leased Premises.
A. A portion of the Farm Bureau Building is currently leased to Sears Credit
Card Center, under a lease expiring October 15, 1999 (no extensions). Tenant and
Landlord agree that effective upon the expiration date of the Sears lease on
October 15, 1999, without any further agreement, the space subject to said lease
shall be added to this Lease and become subject to the provisions of this lease
in all respects.
B. Landlord (including for this purpose its parent company, Iowa Farm Bureau
Federation) occupies a portion of the Farm Bureau Building. If and when Landlord
should permanently reduce or remove its occupancy of such portion, Tenant shall
have the option to add any and all of such space to this lease, at the effective
date of which, said space shall become subject to the provisions of this lease
in all respects. Landlord
<PAGE>
shall notify Tenant not less than ninety (90) days in advance of the date of its
space reduction (the "effective date"), and Tenant shall notify Landlord not
less than sixty (60) days before the effective date whether or not it shall
exercise the option.
ARTICLE II
TERM
SECTION 2.1 Term. The term of this Lease shall be for fifteen (15) years
commencing on the first day of April, 1998 (the "Commencement Date"), and
terminating on the 31st day of March, 2013 (the "Termination Date").
SECTION 2.2 Optional Lease Extension. Tenant shall have the option to extend the
term of the lease for an additional five (5) years, by so notifying Landlord not
less than six (6) months prior to expiration of the initial term. Upon such
notice, Tenant and Landlord shall immediately meet to negotiate in good faith a
market rate rent for the extension period. Should the parties be unable to agree
upon a market rate rent, each will separately engage a qualified independent
appraiser to determine a market rate rent, and the rent shall be the average of
the two appraisals. Tenant shall not be required to lease the Leased Premises
beyond the Termination Date if the rent so established is not acceptable to
Tenant notwithstanding the exercise of the options, if Tenant gives notice of
unacceptability of the rent within thirty (30) days of the determination thereof
by the appraisers.
SECTION 2.2 Holding Over. Any holding over after the expiration of the term
hereof, or of any extension, shall be construed to be a tenancy from month to
month, at a monthly rental at one hundred twenty percent (120%) greater than the
monthly rental applicable to the rent due for the last month under this Lease.
SECTION 2.3 Surrender. At the termination of this Lease, whether through the
expiration of the term or otherwise, Tenant agrees at once to surrender the
Leased Premises (and all keys) to the Landlord in a condition comparable to the
condition on the Commencement Date, less reasonable wear and tear with proper
maintenance. If excessive wear and tear or other damage is present, Landlord
will notify the Tenant in writing and Tenant shall have seven (7) business days
to indicate in what manner it will repair the damage. If the Tenant has not
responded within the seven (7) day period, then Landlord will make the necessary
repairs and Tenant agrees to reimburse the Landlord for the cost of the repairs
and a fee of fifteen percent (15%) of the total cost to the Landlord. The
Individual Tenants shall share in the cost of repairs.
SECTION 2.4 Showing Premises. During the final four (4) months of the Lease
term, Landlord shall be permitted to show prospective tenants the Leased
Premises upon giving Tenant twenty-four (24) hours' notice. Any showings will be
done in a manner that will not unreasonably disturb Tenant's business.
<PAGE>
ARTICLE III
RENT
SECTION 3.1 Annual Rent. During the first five (5) years of this Lease, Tenant
shall pay to the Landlord a fixed annual rent of $11.50 per square foot of
Leased Premises ("Rent"). Tenant and Landlord agree that the Leased Premises at
inception of this Lease include 304,938.81 square feet, and that the total
amount of space subject to this lease may vary from time to time depending upon
the operational needs of both Landlord and Tenant. Rent based on the initial
square footage shall be payable in equal monthly installments of $292,233.03, in
advance on the first day of each month during this Lease term, at Landlord's
office or any other place designated by it. To the extent the parties agree from
time to time to vary the amount of total square footage subject to this lease,
appropriate adjustments in the monthly installments shall be made. Fixed annual
rent per square foot shall increase to $12.93 April 1, 2003, and to $14.36 April
1, 2008.
SECTION 3.2 Building Operating Costs. During the term of this Lease, Tenant
shall pay on a monthly basis, together with the payment of Rent as specified in
section 3.1, Tenant's share of the Building Operating Costs which is agreed to
be 75.68%, based on the ratio of the size of Tenant's space to all rentable
space in the Buildings. FBL Financial Group, Inc.'s initial share of the Rent
and operating costs shall be 46.12%, and Farm Bureau Mutual's initial share of
the Rent and operating costs shall be 53.88%, based on the initial square
footage allocated to each. Tenant's share and an Individual Tenant's share shall
be adjusted from time to time should the total amount of square footage subject
to this lease be increased or decreased, with changes during a lease year
prorated. Building Operating Costs shall mean all of Landlord's costs and
expenses relating to the use, ownership, operation, maintenance, repair and
insurance of the Buildings, including without limitation, those expenses set
forth in EXHIBIT B and expenses for Common Areas subject to adjustment in
accordance with Section 3.5 hereof. Building Operating Costs shall not include
income taxes, promotional or marketing expenses, tenant improvement costs,
depreciation of the Buildings, loan payments (if any), ground lease payments (if
any), real estate leasing commissions, costs covered by insurance, or costs
necessitated by the negligence of Landlord, or its agents or employees. Building
Operating Costs will be computed on a fiscal year basis beginning November 1 and
ending October 31.
SECTION 3.3 Building Operating Cost Adjustments; Books and Records. Building
Operating Costs for the fiscal period ending October 31, 1998 are estimated by
Landlord in good faith to be $9.45 per square foot, or, for Tenant, $240,139.31
per month. Tenant shall continue to make monthly payments of the estimated
Building Operating Costs until notified by Landlord of a change in the Building
Operating Costs. By November 30 of each year, Landlord shall deliver to Tenant a
statement showing (a) the Building Operating Costs for the Buildings for the
prior fiscal year and Tenant's allocable share of
<PAGE>
the Building Operating Costs, and (b) the estimated Building Operating Costs for
the then current fiscal year (based on the prior year's experience) and Tenant's
allocable share of the estimated Building Operating Costs for the then current
fiscal year. If the total of the monthly payments which Tenant has made for the
prior fiscal year is less than the Tenant's share of the actual Building
Operating Costs for that prior year, then Tenant shall pay Landlord the
difference in a lump sum within 30 days after receipt of the statement from
Landlord together with the difference between the monthly payments made in the
then current fiscal year and the amount of monthly payments which are calculated
by Landlord as Tenant's share of the estimated Building Operating Costs for the
then current fiscal year. Any over-payment by Tenant shall be credited towards
the monthly Building Operating Costs next coming due. Even though the Lease term
has ended and Tenant has vacated the Leased Premises, when the final
determination is made of Tenant's share of the Building Operating Costs for the
year in which this Lease terminated, Tenant shall immediately pay any increase
over the estimated Building Operating Costs previously paid and, conversely, any
overpayment made, shall be immediately rebated by Landlord to Tenant. Landlord
will deliver a copy of its audited financial statements to Tenant annually upon
receipt. Tenant upon written request may not more than annually review
Landlord's records of the actual Building Operating Costs for the prior year.
Failure of Landlord to submit statements as called for in this Lease shall not
be deemed to be a waiver of Tenant's requirement to pay sums as provided in this
section.
SECTION 3.4 Additional Rent. All costs, charges, and expenses that Tenant
assumes, agrees to, or is obligated to Landlord under this Lease shall be deemed
"Additional Rent." In the event of nonpayment, Landlord shall have the same
rights and remedies with respect to the Additional Rent as is provided for
herein in case of nonpayment of Rent. Tenant shall pay Landlord the Rent,
Additional Rent, and adjustments of rent provided for in this Lease, when due
and without notice or demand, at the time and in the manner specified herein.
SECTION 3.5 Allocations Committee. The Common Areas of the Buildings will be
used jointly by Iowa Farm Bureau Federation and Tenant, and certain other
tenants. An Allocations Committee consisting of the chief financial officers of
Iowa Farm Bureau Federation and Tenant, or their designees, will meet from time
to time, but not less than annually. The committee will determine an appropriate
allocation of the costs and expenses attributable to the Common Areas between
such parties. Any such adjustment will be set off from, or added to, the next
ensuing payment of Rent. Should the committee not be able to reach agreement on
the allocations, disputed items may be referred to binding arbitration under the
rules of the American Arbitration Association. The committee shall also
determine any questions of space allocation between Landlord and Tenant, as
their respective space needs vary from time to time.
ARTICLE IV
<PAGE>
USE OF PREMISES
SECTION 4.1 Use. The Tenant shall use the Leased Premises for office and related
uses and for no other purpose whatsoever. Tenant may allow occupancy of the
Buildings by any of its subsidiaries, affiliates or by any company managed by
Tenant; however, Landlord shall deal only with Tenant on all matters concerning
this Lease and Tenant shall be fully responsible for actions of any such parties
in regard to matters arising under this Lease.
SECTION 4.2 Compliance with Laws. Tenant shall comply with all present and
future laws or ordinances applicable to the Leased Premises and shall not commit
or suffer waste on the Leased Premises, or use or permit anything on the Leased
Premises which may be illegal, or constitute a private or public nuisance, or
conflict with or invalidate or increase the cost of any of Landlord's fire and
extended coverage insurance, or which may be dangerous to persons or the
property of the Landlord or other tenants of Landlord's Buildings, their agents,
servants, employees, and customers. Notwithstanding the foregoing, Tenant's
effecting an increase in the cost of any of Landlord's fire and extended
insurance is curable by Tenant's payment of such increase in cost.
SECTION 4.3 Liens. Tenant agrees not to permit any liens of any type (including
mechanic's, materialmen's, vendor's or supplier's liens) to be placed upon the
Leased Premises. Should a lien be filed, Tenant agrees to cause the lien to be
discharged or provide a bond to the Landlord for the benefit of the Landlord
within twenty (20) days of the filing of the lien in the full amount of the
lien. If Tenant fails to discharge the lien or provide the required bond,
Landlord may upon five (5) days' written notice discharge the lien and Tenant
agrees to immediately pay to Landlord the full cost of discharging the lien
together with Landlord's reasonable and actual legal fees and a fee of fifteen
percent (15%) of the total cost to Landlord.
ARTICLE V
REPAIRS, MAINTENANCE AND ALTERATIONS
SECTION 5.1 Repairs and Maintenance. The Landlord will repair and maintain the
structural portions of the Buildings, including the basic plumbing, sprinkler,
air conditioning, elevators, heating and electrical systems, and will make all
repairs and replacements including, but not limited to, all plumbing,
electrical, lighting (including bulbs and ballasts) facilities and equipment,
fixtures, interior walls, ceilings, floors, windows, doors and plate glass
located within the Buildings. All such costs and expenses are part of Building
Operating Costs. Costs of repairs and replacements caused by the misuse or
negligence of Tenant, its employees and invitees will be at the sole cost of
Tenant, and shall be allocated between the Individual Tenants based on the
relative amount of space occupied by the Individual Tenant.
<PAGE>
SECTION 5.2 Removal of Tenant's Property. Upon the expiration of or prior
termination of this Lease, the Tenant shall remove all property of the Tenant
from the premises, except plumbing and other fixtures and leasehold improvements
which may have been installed by the Tenant and except as otherwise provided in
this Lease, and surrender the Leased Premises to the Landlord "broom clean" in
as good order and condition as they were upon commencement of the Lease or later
installation, ordinary wear and tear with proper maintenance excepted. Any
property left on the Leased Premises after the expiration or other termination
of this Lease may be disposed of by Landlord in any manner and without any
liability to the Landlord.
SECTION 5.3 Alterations. The Tenant shall not make any changes, alterations,
additions, or improvements to the shared usage portions of the Leased Premises
(i.e., those parts known to the parties as "central services") without the
written consent of the Landlord, which shall not be unreasonably withheld. The
Tenant shall not make any changes, alterations, additions or improvements
involving floor to ceiling walls in the remainder of the Leased Premises,
without the written consent of the Landlord, which shall not be unreasonably
withheld.
ARTICLE VI
TAXES
SECTION 6.1 Tenant's Share of Real Estate Taxes. Real Estate Taxes are a
component of Building Operating Costs referenced in Sections 3.2, 3.3 and
Exhibit C. "Real Estate Taxes" for all purposes of this Lease shall be defined
as including the following items: (i) real estate taxes, (ii) assessments
levied, assessed, or imposed against such land and/or buildings or the rents or
profits therefrom to the extent that the same shall be in lieu of all or any
portion of any items hereinabove set forth, and (iii) all water and sewer rents,
charges, taxes, and frontage assessed or imposed. If due to a change in the
method of taxation, any franchise, income, profit, or other tax, however
designated, shall be levied against Landlord's interest in the property in whole
or in part for or in lieu of any tax which would otherwise constitute Real
Estate Taxes, such taxes shall be included in the term Real Estate Taxes for
purposes hereof. All such payments shall be approximately prorated for any
partial calendar years in which the term of this Lease shall commence or expire.
A copy of the tax bill shall be sufficient evidence of the amount of Real Estate
Taxes.
SECTION 6.2 Tax Reduction. Only Landlord shall be eligible to institute tax
reduction or other proceedings to reduce the assessed valuation of the land and
buildings. Should Landlord be successful in any such reduction proceedings and
obtain a rebate for periods during which Tenant has paid its share of increases,
and provided that Tenant is not in default in payment of rent or additional rent
due under this Lease, Landlord shall, after deducting its expenses, including,
without limitation, attorneys' fees and disbursements in
<PAGE>
connection therewith, promptly return Tenant's pro rata share of such rebate
after Landlord has received such proceeds.
ARTICLE VII
LAWS, ORDINANCES, REQUIREMENTS OF PUBLIC AUTHORITIES
SECTION 7.1 Tenant Compliance. Tenant shall, at its expense, comply with all
federal, state, county, and municipal laws, orders, ordinances and regulations
and with any lawful direction of any public officer or officers which shall,
with respect to the occupancy, use or manner of use of the Lease Premises or to
any abatement of nuisance caused by Tenant, impose any violation, order, or duty
upon Landlord or Tenant arising from Tenant's occupancy, use, or manner of use
of the Leased Premises or any installations made therein by or at Tenant's
request or required by reason of a breach of any of Tenant's covenants or
agreements hereunder.
SECTION 7.2 Notice of Violations. Tenant shall promptly notify Landlord if it
receives notice of any violation of law, ordinance, rule, order, or regulation
applicable to the Leased Premises. Landlord shall promptly notify Tenant if it
receives notices of any violation of any such law, order, ordinance, or
regulation applicable to the Leased Premises or services, access or other
appurtenances to the Leased Premises, especially, but not limited to, any
creating an obligation of Tenant under Section 7.1.
ARTICLE VIII
INSURANCE
SECTION 8.1 Common Insurance Policy. As related parties, Tenant and Landlord
will both be named insureds under existing comprehensive liability insurance
policies underwritten by Chubb. In the event that Tenant and Landlord at any
time during the existence of this Lease determine not to be jointly covered by
that or any replacement policy, Tenant agrees that it will acquire liability
policies commercially reasonable in amount, coverage and terms. "Commercially
reasonable" shall be defined by reference to the types and amounts of coverage
Tenant as a landlord or as a lender requires of its tenants and borrowers in
comparable leases.
ARTICLE IX
DAMAGE TO TENANT'S PROPERTY AND INDEMNIFICATION OF LANDLORD
SECTION 9.1 Landlord's Limitations on Liability. The Landlord and its agents
shall not be liable in damages, by abatement in rent or otherwise, for any
damage either to the person or the property of the Tenant, or for the loss of or
damage to any property of the
<PAGE>
Tenant by theft or from any other cause whatsoever, whether similar or
dissimilar to the foregoing. The Landlord or its agents shall not be liable for
any injury or damage to persons or property, or loss or interruption to business
resulting from fire, explosion, falling plaster, steam, gas, electricity, water,
rain, snow, or leaks from any part of the Buildings, or from the pipes,
appliances, or plumbing works, or from the roof, street, or subsurface, or from
any other place, or by dampness, or by any cause of whatsoever nature; nor shall
the Landlord or its agents be liable for any damage caused by other tenants or
persons in said Buildings, or caused by operations in construction of any
private or public or quasi-public work. None of the limitations of the liability
of Landlord or its agents provided for in this subsection shall apply if such
loss, injury, or damages are proximately caused by the negligence of the
Landlord, its agents or employees. The Landlord hereby indemnifies and agrees to
hold the Tenant harmless for loss, injury or damages proximately caused by the
negligence of the Landlord, its agents or employees, including expenses and
attorney's fees incurred in connection therewith.
SECTION 9.2 Tenant's Negligence. The Tenant shall be liable for any damage to
the Buildings or property therein which may be caused by its act or negligence,
or the acts of its agents, employees, or customers, and the Landlord may, at its
option, repair such damage, and the said Tenant shall thereupon reimburse and
compensate the Landlord as additional rent, within ten (10) days after rendition
of a statement by the Landlord, for the total cost of such repair and damage. An
Individual Tenant shall be liable to the other Individual Tenant for any damage
to the Building or property therein which may be caused by its act or
negligence, or the acts or negligence of its agents, employees or customers.
SECTION 9.3 Indemnification. Subject to Section 9.1, the Tenant hereby
indemnifies and agrees to hold the Landlord harmless and free from damages
sustained by person or property, and against all claims of third persons for
damages arising out of the Tenant's use of the Leased Premises, and for all
damages and monies paid out by Landlord in reasonable settlement of any claim or
judgments, as well as for all expenses and attorneys' fees incurred in
connection therewith, unless the damage was proximately caused by the negligence
of Landlord, its agents or employees. Nothing contained herein shall be
interpreted or construed to eliminate, reduce or relieve any insurer of its
contractual obligations under any policy of insurance to indemnify or defend any
claims covered thereunder.
ARTICLE X
DAMAGE OR DESTRUCTION OF PREMISES
If the Leased Premises or any part thereof are damaged by fire or other
casualty, the Tenant will give prompt written notice thereof to the Landlord. In
case over forty percent (40%) of the Buildings are damaged by fire or other
casualty to the extent that substantial alteration or reconstruction of the
Buildings are, in the Landlord's sole opinion, required
<PAGE>
(whether or not the Leased Premises have been damaged by such fire or other
casualty) or in the event any mortgagee under a mortgage or deed of trust
covering the Buildings should require that the insurance proceeds payable as a
result of said fire or other casualty be used to retire the mortgage debt, the
Landlord may, at its option, terminate this Lease by notifying the Tenant in
writing of such termination within sixty (60) days after the date the Landlord
receives notice of such damage, in which event the Rent and Additional Rent will
be abated as of the date of such damage. If the Landlord does not elect to
terminate this Lease, the Landlord will within sixty (60) days after the date
the Landlord receives notice of the damage commence to repair and restore the
Buildings. The Landlord will proceed with reasonable diligence to restore the
Leased Premises within one hundred eighty (180) days thereafter (except that the
Landlord is not responsible for delays outside its control) to substantially the
same condition in which the Leased Premises were immediately prior to the
happening of the casualty. If the Leased Premises are not restored within the
one hundred eighty (180) days, Tenant shall have the right to cancel this Lease.
Notwithstanding anything to the contrary contained herein, the Landlord is not
required to rebuild, repair or replace any part of Tenant's furniture or
furnishings or fixtures and equipment removable by the Tenant under the
provisions of this Lease. The restoration will not exceed the scope of the work
done in originally constructing the Buildings. The Landlord will not be liable
for any inconvenience or annoyance to the Tenant or injury to the business of
Tenant resulting in any way from such damage or the repair thereof, except that,
subject to the provisions of the next paragraph, the Landlord will allow the
Tenant a fair diminution of rent during the time and to the extent the Leased
Premises are unfit for occupancy. Any insurance which may be carried by the
Landlord or the Tenant against loss or damage to the Buildings or to the Leased
Premises is for the sole benefit of the party carrying such insurance and under
its sole control. The Tenant hereby agrees that the Lease will not automatically
terminate by law upon destruction of the Leased Premises.
The Tenant is not entitled to any compensation or damages from the Landlord
except as provided herein for loss of the use of the whole or any part of the
Leased Premises, the Tenant's personal property or any inconvenience or
annoyance occasioned by such damage, repair, reconstruction or restoration. If
such fire or other casualty results from acts, omissions or neglect of the
Tenant or its agents, employees, invitees or visitors, there will be no
abatement of rent as otherwise permitted herein.
ARTICLE XI
EMINENT DOMAIN
If the whole, or any part, of the Premises shall be taken by any public, or
quasi-public authority under the power of eminent domain, or conveyed to any
such public or quasi-public authority under threat of exercise of the power of
eminent domain, then the terms of this Lease shall cease on that part of the
Premises so taken or conveyed (hereinafter referred to as the "condemned
portion") from the day the possession of the condemned
<PAGE>
portion shall be taken by the condemning entity. Unless this Lease is canceled
as hereinafter provided, the rent provided for herein commencing with the date
possession is acquired by the condemning entity, shall be reduced in proportion
to the amount of the Premises taken. In the event of partial condemnation,
Tenant may cancel this entire Lease if the loss of the condemned portion will,
in Tenant's reasonable judgment based upon generally accepted standards
applicable to Tenant's business on the Premises, have a significantly impairing
effect on such business as to render the Premises unfit for its intended use.
Such right to cancel may be exercised by Tenant, only:
(a) If Tenant gives to Landlord at least ten (10) days prior written
notice of such cancellation;
(b) The effective date of such cancellation of the entire Lease is the
same as the date possession was obtained of the condemned portion by the
condemning entity; and
(c) Rent is paid in full to the effective date of such cancellation.
All damages awarded for any taking shall belong to and be the property of the
Landlord whether such damages shall be awarded as compensation for diminution in
value to the leasehold or the fee of the Premises herein leased; provided,
however, that the Landlord shall not be entitled to any portion of the award
made to Tenant for loss of business, depreciation to and cost of removal of
stock and trade fixtures.
ARTICLE XII
ASSIGNMENT AND SUBLETTING
SECTION 12.1 Landlord's Consent. Tenant shall not, by operation of law or
otherwise, assign, mortgage, or encumber this Lease, or sublet or permit the
Leased Premises or any part thereof to be used by others (except for entities
which are affiliates of Tenant), without Landlord's prior written consent, which
consent shall not be unreasonably withheld. Landlord's consent to any assignment
or subletting shall not in any manner be construed to relieve Tenant from
obtaining Landlord's express written consent to any other or further assignment
or subletting.
Landlord shall give Tenant notice as to giving or withholding such consent
within fifteen (15) days after Tenant furnishes Landlord, in writing, (1) the
terms and conditions of the proposed assignment or subletting, (2) the name of
the proposed assignee or sublessee, (3) the nature and character of the business
of the proposed assignee or sublessee, and (4) any other information reasonably
requested by Landlord.
SECTION 12.2 No Waiver of Consent. If this Lease is assigned, or all or a part
of the Leased Premises is sublet or occupied by any person or persons other than
Tenant and its affiliates, Landlord may, after default by Tenant, collect rent
from the assignee, subtenant
<PAGE>
or occupant and apply the net amount collected to the rent herein reserved.
However, no such assignment, subletting, occupancy or collection of rent shall
be deemed a waiver of the covenants in this Article, nor shall it be deemed
acceptance of the assignee, subtenant or occupant as a tenant, or a release of
Tenant from the full performance by Tenant of all the terms, conditions and
covenants of this Lease.
SECTION 12.3 Joint Liability. Each permitted assignee or transferee shall assume
and be deemed to have assumed this Lease and shall be and remain liable jointly
and severally, but only in proportion to the percentage of space assigned,
transferred or sublet, with Tenant for the payment of the rent, additional rent,
and adjustments of rent, and for the due performance of all of Tenant's terms,
covenants, conditions, and agreements for the term of this Lease. No assignment
shall be binding on Landlord unless the assignee or Tenant delivers to Landlord
a duplicate original of the instrument of assignment which contains a covenant
of assumption by the assignee of all of the above obligations and obtains from
Landlord the above written consent prior thereto.
SECTION 12.4 Assignment by Landlord. Tenant agrees that Landlord will have the
right to transfer and assign, in whole or in part, its ownership of the Property
and all of its rights and obligations under this Lease. Tenant agrees that
Landlord will have no further obligations to Tenant and Tenant will look solely
to such successor in interest of Landlord for the performance of the Landlord's
obligations under the Lease provided that the assignee assumes Landlord's
obligations under the lease in writing.
SECTION 12.5 Assignment Terminates Joint Use. If Landlord assigns this Lease or
transfers ownership of the Leased Premises, in whole or in part, to a person or
persons who are not affiliates of Landlord or Tenant, the provisions of this
Lease authorizing joint use of the Leased Premises, i.e., Section 3.5 and
references elsewhere to the Allocation Committee shall terminate unless Tenant
consents to their continuation.
ARTICLE XIII
TENANT ESTOPPEL AGREEMENTS
Tenant agrees that at any time and from time to time at reasonable intervals,
within ten (10) business days after written request by Landlord, Tenant will
execute, acknowledge, and deliver to Landlord, Landlord's mortgagee, or others
designated by Landlord, a certificate in such form as may from time to time be
provided, ratifying this Lease and certifying:
(a) That this Lease is in full force and effect, and has not been
assigned, modified, supplemented, or amended in any way (or if there has been
any assignment, modification, supplement, or amendment, identifying the same);
(b) That this Lease represents the entire agreement between Landlord
and
<PAGE>
Tenant as to the subject matter hereof (or if there has been any assignment,
modification, supplement, or amendment, identifying the same);
(c) The Commencement Date and the term of this Lease;
(d) That all conditions under this Lease to be performed by Landlord
have been satisfied (and if not, what conditions remain unperformed);
(e) That to the knowledge of the signer of such writing, no default
exists in the enforcement of this Lease by Landlord (or specifying each default,
defense, or offset of which the signer may have knowledge);
(f) That no rental has been paid in advance other than for the month in
which such certificate is signed by Tenant; and
(g) The date to which all rentals due hereunder have been paid under
this Lease.
ARTICLE XIV
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
SECTION 14.1 Subordination. This Lease is and shall be subject and subordinate
to any ground or underlying lease which may now or hereafter affect the
Buildings, the land, or both, and to any amendment, modification, renewal, or
extension of the ground or underlying lease. This Lease is also subject and
subordinate to all mortgages which may now or hereafter affect any lease of
ground or underlying lease or the land and/or Buildings and to all renewals,
modifications, amendments, consolidations, replacements, or extensions thereof.
This clause shall be self-operative and no further instrument of subordination
shall be required. In confirmation of such subordination, however, Tenant
without cost or charge to Landlord, shall execute promptly any certificate or
instrument of subordination requested by Landlord or Landlord's Mortgagee. If
Tenant fails upon reasonable request to execute the certificate or instrument,
Tenant hereby constitutes and appoints Landlord its attorney-in-fact to execute
all such certificates or instruments for and on behalf of Tenant.
SECTION 14.2 Non-Disturbance. Notwithstanding the provisions of Section 14.1,
the subordination of this Lease to any superior lease or superior mortgage or to
any later renewal, modification, replacement, or extension of any superior lease
or superior mortgage, or to any existing or future consolidation or spreader of
any superior mortgage, is subject to the express conditions that, so long as
this Lease is in full force and effect and Tenant is not in default of the terms
and provisions of this Lease beyond any applicable grace periods:
<PAGE>
(a) Tenant shall not be joined as a party defendant (1) in any action
or proceeding which may be instituted or taken by the lessor of the superior
lease for the purpose of terminating it by reason of any default thereunder, or
(2) in any foreclosure action or proceeding which may be instituted or taken by
the holder of the superior mortgage; and
(b) Tenant shall not be evicted from the Leased Premises, Tenant's
leasehold estate under this Lease shall not be terminated or disturbed, nor
shall any of Tenant's rights under this Lease be affected in any way, by reason
of any default under the superior leasehold or superior mortgage.
SECTION 14.3 Attornment. If the lessor of a superior lease or the holder of a
superior mortgage succeeds to Landlord's rights under this Lease, whether
through possession or foreclosure action or delivery of a new lease or deed,
then at the request of the successor party ("successor landlord") and upon such
successor landlord's written agreement to accept Tenant's attornment, Tenant
shall attorn to and recognize the successor landlord as Tenant's landlord under
this Lease, and shall promptly execute and deliver any instrument requested by
the successor landlord to evidence such attornment. If Tenant refuses or fails
promptly upon reasonable request to execute such instrument, Tenant hereby
irrevocably appoints Landlord or the successor landlord its attorney-in-fact to
execute and deliver the instrument on its behalf. Upon such attornment this
Lease shall continue in full force and effect as if it were a direct lease
between the successor landlord and Tenant upon all of the terms, conditions, and
covenants set forth in it and shall be applicable after such attornment.
However, the successor landlord shall not:
(a) Be obligated under Article X to repair, restore, replace, or
rebuild the Buildings or the Leased Premises, in case of total or substantially
total damage or destruction, beyond any repair, restoration, or rebuilding that
can reasonably be accomplished with the net proceeds of insurance actually
received by, or made available to, the successor landlord;
(b) Be liable for any of Landlord's previous acts or omissions under
this Lease;
(c) Be subject to any offset, not expressly provided for in this Lease,
which has previously accrued to Tenant against Landlord;
(d) Be bound by any previous modification of this Lease, or by any
previous prepayment of more than one month's rent, unless the modification or
prepayment has been expressly approved in writing by the lessor of the superior
lease or the holder of the superior mortgage through or by reason of which the
successor landlord has succeeded to Landlord's rights under this Lease.
<PAGE>
ARTICLE XV
DEFAULT
SECTION 15.1 Tenant Default. The occurrence of any one (1) or more of the
following events shall constitute a default under this Lease by the Tenant:
(1) The vacation or abandonment of the Leased Premises and discontinued
Rent and Additional Rent payments by the Tenant. Abandonment is defined to
include, but is not limited to, any absence by the Tenant from the Leased
Premises resulting in the Tenant not engaging in its usual customary business
for five (5) business days or longer without Rent being paid;
(2) The failure by the Tenant to make any payment of Rent, Additional
Rent or any other payment required to be made by the Tenant herein, as and when
due, where such failure continues for a period of ten (10) business days
following written notice of such failure;
(3) The Tenant's failure to observe or perform any of the covenants,
conditions or provisions of this Lease, other than as described in subparagraph
(2) above, where such failure continues for a period of thirty (30) days after
written notice thereof by the Landlord to the Tenant; provided, however, that if
the nature of the Tenant's default is such that more than thirty (30) days are
reasonably required for its cure, then the Tenant will not be deemed to be in
default if the Tenant commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion;
(4) The making by the Tenant of any general assignment or general
arrangement for the benefit of creditors; the appointment of a trustee or a
receiver to take possession of substantially all of the Tenant's assets or of
the Tenant's interest in this Lease and possession is not restored to the Tenant
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of the Tenant's assets located at the Leased Premises or of
the Tenant's interest in this Lease and such seizure is not discharged in thirty
(30) days; and
(5) The filing of any voluntary petition in bankruptcy by the Tenant or
the filing of any involuntary petition by the Tenant's creditors if the
involuntary petition remains undischarged for a period of thirty (30) days. In
the event that under applicable law the trustee in bankruptcy or the Tenant has
the right to affirm this Lease and perform the obligations of the Tenant
hereunder, the trustee or Tenant will, in the time period permitted by the
bankruptcy court having jurisdiction, cure all defaults of the Tenant
outstanding as of the date of the affirmance of this Lease and provide to the
Landlord such adequate assurances as may be necessary to ensure the Landlord of
the continued performance of the Tenant's obligations under this Lease.
"Adequate assurances" of cure or compensation will only be satisfied by the
establishment of an escrow fund for the amount at issue or by bonding. It is
warranted and agreed by the Landlord and Tenant
<PAGE>
that the foregoing provision was a material part of the consideration for this
Lease.
SECTION 15.2 Landlord's Remedies. In the event of any default or breach by the
Tenant, the Landlord may at any time thereafter, with notice and without
limiting the Landlord in the exercise of any right or remedy which the Landlord
may have by reason of such default:
(1) The Landlord may terminate this Lease and immediately repossess the
Leased Premises and recover as damages a sum of money equal to the excess of the
present value of the Rent required to be paid by the Tenant for the balance of
the Lease term plus any other sum of money and damages owed by the Tenant to the
Landlord less the present value of the fair market rental value of the Leased
Premises for said period. Should the fair market rental value exceed the value
of the Rent required to be paid by the Tenant for the balance of the Lease term,
the Landlord has no obligation to pay to the Tenant the excess of any part
thereof; and
(2) Terminate the Tenant's right to possession only, in which case the
Landlord may continue this Lease in full force and effect and the Lease will
continue in effect as long as the Landlord does not terminate the Lease and the
Landlord will have the right to collect Rent when due. During the period the
Tenant is in default, the Landlord may enter the Leased Premises and relet them,
or any part of them, to third parties for credit to the Tenant's account. The
Tenant will be liable immediately to the Landlord for all costs the Landlord
incurs in reletting the Leased Premises, including, without limitation, brokers'
commission, expenses of remodeling the Leased Premises required by the reletting
and all other like costs. Reletting may be for a period shorter or longer than
the remaining term of this Lease. The Tenant will pay to the Landlord the Rent
due under this Lease on the date the Rent is due less the Rent the Landlord
receives from any reletting. No act by the Landlord allowed by this paragraph
will terminate this Lease unless the Landlord notifies the Tenant that the
Landlord has elected to terminate this Lease.
(3) The foregoing remedies are not exclusive. The remedies are
cumulative in addition to any remedies now or later allowed by law, to any
equitable remedies the Landlord may have and to any remedies the Landlord may
have under bankruptcy laws or laws affecting creditors' rights generally.
SECTION 15.3 Landlord Default. The Landlord will not be deemed to be in default
in the performance of any obligation required to be performed by it unless and
until it has failed to perform such obligations within thirty (30) days after
written notice by the Tenant to the Landlord specifying what obligations the
Landlord has failed to perform; provided, however, that if the nature of the
Landlord's obligation is such that more than thirty (30) days are required for
its performance, then the Landlord will not be deemed to be in default if it
commences such performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
<PAGE>
ARTICLE XVI
LANDLORD'S RIGHT TO PERFORM TENANT OBLIGATIONS
If Tenant defaults in the observance or performance of any term or covenant
under this Lease, Landlord may upon ten (10) days written notice to Tenant,
without thereby waiving the default, remedy the default for Tenant's account and
at Tenant's expense. If in connection therewith Landlord makes any expenditures
or incurs any obligations for the payment of money or in instituting,
prosecuting, or defending any action or proceedings commenced before or during
the term of this Lease or after the expiration or termination of the term,
including but not limited to legal expenses and attorneys' fees, Tenant shall
pay to Landlord on demand the sums paid or obligations incurred, together with
interest at the rate provided in Article XX herein and costs. If not paid,
Landlord, in addition to any other remedy, may deem the due payments to be
Additional Rent.
ARTICLE XVII
QUIET ENJOYMENT
Landlord warrants and represents that it has full authority to execute this
Lease for the above term. Landlord covenants that upon Tenant's paying the Rent
and Additional Rent and performing its covenants, Tenant may peaceably and
quietly have, hold, and enjoy the Leased Premises, subject, nevertheless, to the
terms and conditions of this Lease.
ARTICLE XVIII
LEGAL PROCEEDINGS
SECTION 18.1 Waiver of Jury Trial. Landlord and Tenant hereby waive, to the
extent not prohibited by law, the right to a jury trial in any action, summary
proceeding, or legal proceeding between or among the parties or their successors
arising out of this Lease, Tenant's occupancy of the Leased Premises, or
Tenant's right to occupy the Leased Premises.
SECTION 18.2 No Counterclaims. Tenant hereby waives the right to interpose a
counterclaim in any summary proceeding instituted by Landlord against Tenant or
in any action instituted by Landlord for unpaid rent or additional rent under
this Lease.
SECTION 18.3 Tenant Remedies. If Tenant claims or asserts that Landlord has
violated or failed to perform a covenant not to unreasonably withhold or delay
Landlord's consent or approval, or whenever Landlord's reasonableness in
exercising its judgment is in issue, Tenant's sole remedy shall be an action for
specific performance, declaratory judgment, or injunction. Tenant shall not be
entitled to any money damages for a breach of such
<PAGE>
covenant or to claim or assert any claims in any money damages in any action or
by way of set off, defense, or counterclaim. Tenant hereby specifically waives
the right to any money damages or other remedies.
ARTICLE XIX
NOTICE
SECTION 19.1 Form of Notice. All notices to be given under this Lease shall be
in writing and shall either be served personally or sent by certified mail,
return receipt requested. All notices mailed as herein provided shall be deemed
received two (2) days after mailing. Notices to Landlord shall be sent to the
address set forth in the preamble hereof or such other address as the Landlord
may specify in written notice to Tenant. Notices to Tenant shall be sent to:
FBL Financial Group, Inc.
Attention: Chief Financial Officer
5400 University Avenue
West Des Moines IA 50266
and
Farm Bureau Mutual Insurance Company
Attention: Chief Financial Officer
5400 University Avenue
West Des Moines IA 50266
or such other addresses as the Tenant may specify in written notice to Landlord.
SECTION 19.2 Notice to Mortgagee. If there is any act or omission by Landlord
which would or may give Tenant the right to terminate this Lease or to claim a
partial or total eviction, Tenant will not exercise the right until:
(a) It has given written notice of any such act or omission to the
holder of any leasehold mortgage or of any fee mortgage and to the Landlord or
Landlords of any ground or underlying lease or leases whose names and addresses
previously have been furnished to Tenant by giving such notice, addressed to the
holders and the Landlord or Landlords at the last addresses so furnished; and
(b) A reasonable period of time (not less than 60 days) for remedying
such act or omission has elapsed following the giving of notice, during which
any of the parties to whom notice was given has not commenced with reasonable
diligence to remedy, or cause to be remedied, the act or omission.
<PAGE>
ARTICLE XX
INTEREST
Any amount due from Tenant to Landlord, or from Landlord to Tenant, under this
Lease which is not paid when due shall bear interest at the lesser of eighteen
percent (18%) or the highest legal rate allowed in the State of Iowa, from the
date due until paid; provided, however, the payment of such interest shall not
excuse or cure the default upon which such interest is accrued.
ARTICLE XXI
MISCELLANEOUS PROVISIONS
SECTION 21.1 Attorney's Fees. If either Landlord or Tenant should prevail in any
litigation by or against the other party related to this Lease, or if either
party should become a party to any litigation instituted by or against the other
with respect to any third party, then as between Landlord and Tenant, the losing
party shall indemnify and hold the prevailing party harmless from all costs and
reasonable attorneys' fees incurred by the prevailing party in connection with
such litigation.
SECTION 21.2 Inspection. Tenant will permit Landlord, its agents, employees, and
contractors to enter all parts of the Leased Premises upon reasonable verbal
notice to inspect the same and to enforce or carry out any provisions of this
Lease, so long as it is at a reasonable time and in a manner that minimizes
interference to Tenant's business. In an emergency, Landlord may enter without
notification.
SECTION 21.3 No Waiver. Landlord's or Tenant's failure to insist upon strict
performance of any covenant of this Lease or to exercise any option or right
herein contained shall not be a waiver or relinquishment for the future of such
covenant, right, or option, but the same shall remain in full force and effect.
SECTION 21.4 Entire Agreement. This Lease together with any Exhibits contains
the entire agreement between the parties. Any executory agreement hereafter made
between them shall be ineffective to change, modify, waive, release, discharge,
terminate, or effect an abandonment of this Lease, in whole or in part, unless
the executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, waiver, release, discharge,
termination, or effecting of the abandonment is sought.
SECTION 21.5 Severability. If any term or provision of this Lease is to any
extent invalid or unenforceable, the remainder of this Lease shall not be
affected thereby and the remaining terms and provisions shall be valid and
enforceable to the fullest extent either hereunder or as permitted by law.
<PAGE>
SECTION 21.6 Headings. The captions and headings herein are for convenience and
reference only and should not be used in interpreting any provision of this
Lease.
SECTION 21.7 Applicable Law. This Lease shall be governed by and construed under
the laws of the State of Iowa. If any provision of this Lease, or portion
thereof, or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease shall not be
affected thereby, and each provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
Time is of the essence in this Lease.
SECTION 21.8 Successors. This Lease and the covenants and conditions herein
contained shall inure to the benefit of and be binding upon Landlord, its
successors, and assigns; and shall be binding upon Tenant, its heirs, executors,
administrators, successors, and assigns; and shall inure to the benefit of
Tenant and only such assigns of Tenant to whom the assignment by Tenant has been
consented to by Landlord.
SECTION 21.9 Modification. Except as herein otherwise provided, no subsequent
alteration, amendment, change, or addition to this Lease shall be binding upon
Landlord and Tenant unless reduced to writing and signed by both parties.
SECTION 21.10 Authority. Tenant agrees that each individual executing this Lease
on behalf of Tenant covenants, warrants and represents: (a) that such individual
is duly authorized to execute and deliver this Lease on behalf of Tenant in
accordance with Tenant's organizational documents; (b) that this Lease is
binding upon Tenant; (c) that Tenant is duly organized and legally existing in
the state of Iowa; (d) that upon reasonable request, Tenant will provide
Landlord with true and correct copies of all organization documents and
amendments thereto; (e) that the execution and delivery of this Lease will not
result in any breach or constitute a default under any mortgage, deed of trust,
loan agreement, financing statement, credit agreement, loan, lease, partnership
agreement, contract or any other instrument to which Tenant is a party or by
which Tenant may be bound.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this instrument the
date and year first written above.
"LANDLORD"
IFBF PROPERTY MANAGEMENT, INC.
By: /s/ Edward M. Wiederstein
Edward M. Wiederstein, President
"TENANT"
FBL FINANCIAL GROUP, INC.
BY: /s/Thomas R. Gibson
Thomas R. Gibson, Chief Executive Officer
FARM BUREAU MUTUAL INSURANCE COMPANY
BY: /s/ Thomas R. Gibson
Thomas R. Gibson, Chief Executive Officer
IOWA FARM BUREAU FEDERATION
(signing only for the purpose of indicating agreement to Sections 1.4.B and 3.5)
BY: /s/Edward M. Wiederstein
Edward M. Wiederstein, President
<PAGE>
EXHIBIT A
FLOOR PLANS OF FARM BUREAU BUILDING
INDICATING LEASED PREMISES
<PAGE>
EXHIBIT B
BUILDING OPERATING COSTS
(1) Real Estate Taxes and any increases in Real Estate Taxes as defined
and set forth in Article VI of this Lease.
(2) All insurance premiums and costs relating to the Buildings,
including but not limited to the premiums and costs of fire, casualty and
liability coverage, rental abatement, earthquake insurance, and any other
insurance that Landlord reasonably deems necessary for the Buildings, except
loss of rents coverage.
(3) All utility costs (net of rebates from utility companies),
including without limitation, water, electricity, gas, heating, lighting, sewer,
waste disposal, security, air conditioning and ventilating costs and all other
charges and expenses relating to services for the Buildings, unless those costs
and expenses are separately metered or charged to the Leased Premises, in which
event Tenant shall pay those costs and expenses.
(4) Maintenance costs incurred by Landlord under section 5.1, including
without limitation, all supplies, material, labor and equipment, and all
maintenance and janitorial service agreements.
(5) All maintenance, repair and other costs relating to the Common
Areas, including without limitation, sidewalks, landscaping, service areas,
driveways, parking areas, walkways, building exteriors, including painting,
signs and directories, including for example costs of resurfacing and
re-striping parking areas.
(6) Amortization, together with reasonable financing charges, of
capital improvements made to the Buildings which may be required by any
governmental authority or which will improve the operating efficiency of the
Buildings (provided, however, that the amount of the amortization for
improvements not mandated by governmental authorities shall not exceed in any
year the amount of costs reasonably determined by Landlord that have been saved
by the expenditure either through the reduction or minimization of increases
which would otherwise have occurred).
(7) Any parking charges, utilities, surcharges, or other costs levied,
assessed or imposed by, or at the direction of, resulting from statutes or
regulations, or interpretations thereof, promulgated by any governmental
authority in connection with the use or occupancy of the Leased Premises or the
parking facilities serving the Leased Premises.
(8) The cost of professional fees including, but not limited to, legal
and accounting fees and an annual audit, if any, of the Property.
(9) The deductible amount of any insurance claim.
<PAGE>
(10) All of Landlord's other costs in managing, maintaining, repairing,
operating and insuring the Buildings.
BUILDING MANAGEMENT CONSULTING SERVICES AGREEMENT
THIS AGREEMENT is effective as of April 1, 1998, by and between IFBF
Property Management, Inc. (Company), an Iowa corporation, (hereinafter referred
to as "Company"), and FBL Financial Group, Inc., an Iowa corporation,
(hereinafter referred to as "FBL").
WHEREAS, Company is the owner of real estate in West Des Moines, Iowa,
known as 5400 and 5340 University Avenue, in which FBL and certain of its
subsidiaries and affiliates, among others, are tenants; and
WHEREAS, Company desires to establish an arrangement with a reputable
management firm which will provide real estate management consulting services in
an efficient manner; and
WHEREAS, FBL has the ability to provide real estate management
consulting services; and
WHEREAS, the parties both desire that Company operate on a financially
sound basis;
NOW, THEREFORE, in consideration of the mutual promises stated in this
Agreement and intending to be legally bound, the parties agree as follows:
1. PERSONNEL SERVICES PROVIDED BY FBL
1.1 FBL shall provide personnel competent to provide the
management consulting services to Company as provided in this
Agreement. FBL personnel shall at all times perform their duties in
accordance with the Bylaws of Company and subject to the overall policy
direction of Company's Board of Directors. FBL shall be responsible for
the proper performance of management consulting duties by the personnel
and shall be responsible for compensating all personnel assigned to
perform services for Company.
1.2 Personnel necessary for the operation and maintenance of
Company's real estate, up to the level of Building Manager, shall be
employees of the Company. Company shall recruit, hire, train, promote,
assign, set the compensation for and shall be solely responsible for
discharging all personnel. FBL will provide consultation, advice, and
assistance to Company, as needed, for all personnel matters.
2. MANAGEMENT CONSULTING SERVICES PERFORMED BY FBL
2.1 Services as Requested. FBL shall perform those
functions reasonably required to oversee management
of the real estate of the Company in accordance with
sound management techniques, including, but not
limited to, executive management and consulting, and
such other services on behalf of Company as requested
by Company.
2.2 Contractual Undertakings. FBL shall perform its
responsibilities on behalf of Company under this
Agreement in a manner consistent with all contracts
to
<PAGE>
which Company is a party and which are in force as of
the date of this Agreement.
2.3 Recommendations. FBL shall review and make
recommendations to Company concerning proposed major
capital improvements to Company's property.
2.4 Confidentiality of Records. FBL shall use all
reasonable efforts to protect the confidentiality of
the records of Company and shall comply with all
applicable federal, state and local laws and
regulations relating to the records of Company.
3. COMPANY'S RIGHTS AND OBLIGATIONS.
3.1 Control. Company, acting through its Board of Directors,
shall at all times exercise ultimate control over the assets and
operation of Company. FBL shall perform the services and functions
described in this Agreement in accordance with policies, directives,
resolutions and Bylaws adopted by Company. Company retains the final
authority and responsibility regarding the powers, duties and
responsibilities vested in Company by law and regulation. In
particular, without limiting the foregoing, Company shall continue to
exercise final approval authority over the following:
(a) selection of all members of Company's Board of
Directors and Officers;
(b) selection of auditors of Company's accounts;
(c) to the extent required under procedures and
parameters established by Company's Board of
Directors, the terms of all Company contracts.
It is understood and agreed that approval of the actions and
recommendations of FBL hereunder shall not be unreasonably withheld by
the Board.
3.2 Obligations Relating to FBL Personnel. Company shall
cooperate with the management consulting personnel provided by FBL
pursuant to Article 1 of this Agreement by providing them with the
resources and facilities necessary for performance of their duties.
3.3 Excluded Costs. Notwithstanding anything in this Agreement
to the contrary, FBL shall have no financial responsibility for any
cost or expense relating to the operation of Company.
3.4 Maintenance of Sound Operations.
3.4.1 Company shall conduct its affairs in accordance
with state and federal law. Company shall honor all legitimate
debts and obligations to its creditors.
3.4.2 Company shall cooperate with and assist FBL, to
the extent of any available resources, in meeting goals and
objectives under this Agreement.
<PAGE>
4. COMPENSATION
Company shall reimburse FBL for 100% of all expenses incurred
by FBL in providing services for Company pursuant to this Agreement. In
addition, Company shall pay FBL a fee equal to one-half of one percent
of all such expenses. With respect to contributions to non-qualified
deferred compensation plans on behalf of FBL employees, only those
amounts actually paid to participants of those non-qualified deferred
compensation plans will be considered expenses. Fees and reimbursements
required by this Agreement shall be paid by Company on the 15th day and
the last day of each month.
5. DEVELOPMENT OF OTHER LINES OF BUSINESS.
FBL may form or acquire other business entities for the
conduct of business which is complementary to and consistent with the
business purpose or policies of Company.
6. MISCELLANEOUS.
6.1 Effective Date. Subject to any necessary regulatory
approval, the effective date of this Agreement shall be April 1, 1998.
6.2 Term. The term of this Agreement shall be for a period of
ten (10) years, which may be extended for additional ten (10) year
terms by written agreement of the parties.
6.3 Termination.
6.3.1 This Agreement may be terminated by either
party upon one hundred eighty (180) days' prior written notice
to the other party.
6.3.2 Either party may terminate this Agreement at
any time upon delivery of written notice (i) if the other
party applies for or consents to the appointment of a
receiver, trustee or liquidator of all or a substantial part
of its assets, files a voluntary petition in bankruptcy,
admits in writing its inability to pay its debts as they
become due, makes a general assignment for the benefit of
creditors, files a petition or an answer seeking
reorganization or arrangement with creditors or taking
advantage of any insolvency law; or (ii) if an order, judgment
or decree is entered by a court of competent jurisdiction
adjudicating the other party bankrupt or insolvent, approving
a petition seeking reorganization, or appointing a receiver,
trustee or liquidator of all or a substantial part of its
assets.
6.3.3 In the event of termination by either party for
any reasons, FBL shall proceed to transfer all of its
responsibilities under this Agreement to Company, or any
management company designated by Company, in an orderly
fashion subject to full and complete accounting.
6.3.4 Upon termination of this Agreement at the
expiration of the stated term, or upon earlier termination as
provided above, Company shall pay FBL a
<PAGE>
termination fee. The termination fee will be equal to the
amount necessary to fund all employee related expenses accrued
as of the date of termination, assuming for the purpose of
this calculation that the employment of each employee of FBL
ends on the date the Agreement terminates.
6.4 Assignment and Delegation.
6.4.1 This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and assigns. Either party may assign its rights and
responsibilities under this Agreement to any entity which
controls or is controlled by such party. For the purpose of
this paragraph, "control" means the ability to direct or cause
the direction of another.
6.4.2 Except as provided in subsection 6.4.1 above,
neither party shall in any manner inconsistent with this
Agreement assign, subcontract or otherwise delegate its duties
under this Agreement unless the other party approves by prior
written consent.
6.5 Interpretation. The validity, enforceability and
interpretation of any of the clauses of this Agreement shall be
determined and governed by the laws of Iowa. The invalidity or
unenforceability of any term or provision of this Agreement shall not,
unless otherwise specified herein, affect the validity or
enforceability of any other term or provisions.
6.6 Independent Contractors. Nothing in this Agreement shall
affect the separate identities of Company and FBL The parties to this
Agreement do not intend to create a partnership or agency relationship
other than as provided in this Agreement. Except as specifically agreed
herein, neither party to this Agreement intends to be the partner or
agent of the other. Neither party intends to limit the other party in
any manner in the conduct of its businesses, ventures or activities not
specifically provided for in this Agreement.
6.7 Complete Agreement. This Agreement, including its
attachments, includes all the terms and conditions agreed upon by the
parties, and supersedes all other agreements, oral or written between
the parties.
6.8 Amendments. This Agreement may be amended at any time by
mutual agreement of the parties, provided that any amendment shall be
in writing and signed by both parties before it becomes effective.
6.9 Notices. Any notice required to be given by this Agreement
shall be in writing and shall be sent by certified mail, return receipt
requested, postage prepaid, to FBL at:
5400 University Avenue
West Des Moines, Iowa 50266
Attn: Chief Financial Officer
<PAGE>
or to Company at:
5400 University Avenue
West Des Moines, Iowa 50266
Attn: Director of Finance
6.10 Headings. The headings in this Agreement are for
convenience of reference only and are not intended to define, limit or
describe the scope or intent of any provision of this Agreement.
6.11 Waiver. The waiver by either party of any of the terms or
provisions of this Agreement shall not constitute a waiver of any of
its other terms or provisions. No waiver of any provision of this
Agreement shall constitute a continuing waiver, unless otherwise
expressly mutually agreed between the parties as provided in Section
6.8.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 13th day of May, 1998.
COMPANY:
IFBF PROPERTY MANAGEMENT, INC.
By:___________________________
James Christenson
Director of Finance
FBL FINANCIAL GROUP, INC.
By:___________________________
James W. Noyce
Chief Financial Officer
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 11th day of
March, 1998 by and between FBL Financial Group, Inc., an Iowa corporation (the
"Seller") and Farm Bureau Mutual Insurance Company, an Iowa corporation (the
"Buyer").
WITNESSETH:
WHEREAS, the Seller is the owner, beneficially and of record, of all the issued
and outstanding shares of the capital stock of Utah Farm Bureau Insurance
Company, a Utah domiciled insurance company (the "Company"); and
WHEREAS, the Seller desires to sell, and the Buyer desires to purchase, all of
such capital stock, all in accordance with the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1: DEFINITIONS
Unless otherwise defined herein or unless the context otherwise requires,
capitalized terms used in this Agreement shall have the meanings ascribed to
them in Annex A attached hereto and by this reference incorporated herein.
ARTICLE 2: SALE AND PURCHASE OF STOCK
2.1 SALE AND PURCHASE.
Upon the terms and subject to the conditions of this Agreement, at the Closing
the Seller will sell, assign and transfer to the Buyer, and the Buyer will
repurchase from the Seller, the Stock.
2.2 PURCHASE PRICE.
In consideration for the Stock and the other performances contemplated hereby,
the Buyer shall pay to the Seller the sum of Twenty-Five Million Dollars
($25,000,000) cash plus a 5-year earnout based on a 50% sharing of the amount by
which the incurred losses achieved on the Utah direct business are better than
those assumed by the independent appraiser (Tillinghast-Towers Perrin) in its
appraisal (with a maximum of $2 million per year with respect to any annual
earnout payment). The assumed incurred losses are based on a loss ratio of
68.7%, 69.53%, 68.87%, 67.49% and 65.69% in 1998 through 2002, respectively. The
earnout will be calculated in the manner set forth on the Earnout Calculations
attached hereto as Exhibits A, B and C. The loss ratios shall be determined
before any intracompany pooling and net of outside reinsurance. Loss reserves
for the Company's business during the earnout period shall be set by mutual
agreement of the parties, and if either party requests, by an independent
analyst selected by the parties.
<PAGE>
2.3 THE CLOSING.
(a) Unless this Agreement shall have been terminated pursuant to Article 9,
a closing (the "Closing") will be held on March 31, 1998, if all
conditions precedent to Closing of both parties set forth in Article 7
and Article 8 have then been satisfied or waived by that date (the
"Scheduled Closing Date"). The Closing may be postponed if any of the
conditions provided for in Article 7 and Article 8 hereof shall not
have been satisfied or waived by that date by the party whose
condition(s) so remains unsatisfied by written notice to the other
party. In such event, the Closing shall occur on such date as the
postponing party shall specify, or if there shall be no such
specification or both parties shall have exercised a right to postpone,
then five Business Days following the date all such conditions shall
have been satisfied or waived (the date the Closing actually occurs the
"Closing Date"), but in no event shall the Closing occur later than
December 31, 1998, unless the parties hereto shall agree in writing to
an extension thereof (such date as it may be extended in accordance
herewith the "Termination Date"). The Closing shall be held at such
time and place as the parties may agree.
(b) At the Closing, the Buyer shall transfer to the Seller $25,000,000 and
the Seller shall deliver to the Buyer certificates for the Stock,
together with (i) stock powers for the same duly executed in Blank by
the Seller and (ii) such other instruments and agreements as Buyer
shall reasonably require. The parties shall further deliver such other
agreements, certificates, legal opinions and other documents required
under this Agreement and such other documents as the parties may
mutually agree to evidence the fulfillment or waiver of the conditions
contained in Article 7 and Article 8 hereof or otherwise deemed
necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF THE SELLER
Except as disclosed by the Seller to the Buyer in a schedule attached to this
Agreement, the Seller represents and warrants to the Buyer as follows:
3.1 ORGANIZATION.
(a) The Seller is a corporation duly organized, validly existing and in
good standing under the laws of Iowa with all requisite corporate power
and authority to own and to sell the Stock and to execute, deliver and
perform this Agreement and each other agreement, instrument and
document required to be executed and delivered by the Seller in
connection herewith.
(b) The Company is a corporation and domestic insurer duly organized,
validly existing and in good standing under the laws of Utah with all
requisite corporate power and authority
<PAGE>
to own, lease and operate its properties and other assets and to
conduct its business as now owned or conducted by it.
<PAGE>
3.2 AUTHORIZATION.
The execution and delivery by the Seller of this Agreement and each other
agreement, instrument and document to be executed and delivered by the Seller in
connection herewith are duly and validly authorized and no other corporate
action on the part of the Seller will be required in connection therewith. This
Agreement has been, and each other agreement, instrument and document to be
executed and delivered by the Seller in connection herewith will be, duly
executed and delivered by the Seller. This Agreement constitutes, and each such
other agreement, instrument and document will constitute (assuming due
authorization, execution and delivery by each other party thereto) legal, valid
and binding obligations of the Seller enforceable against it in accordance with
their respective terms, except as many be affected by bankruptcy, insolvency,
moratorium or similar laws relating to or affecting creditors' rights generally
or by equitable principles.
3.3 APPROVALS.
The execution, delivery and performance of this Agreement by Seller and Buyer
will not require any consent, waiver, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority, except
for the filings and approvals by the insurance regulatory authority of Utah and
Iowa, the Hart-Scott-Rodino filing ("H-S-R Filing"), and any pre-acquisition
notifications as required under state law (the "Approvals").
3.4 ABSENCE OF CONFLICTS.
Neither the execution and delivery of this Agreement or any other agreement,
instrument and document to be executed and delivered by the Seller in connection
therewith nor the consummation by the Seller of the transactions contemplated
hereby or thereby will violate or conflict with so as to have Material Adverse
Effect on the Company (i) the Articles of Incorporation or Bylaws of the
Company, (ii) the Articles of Incorporation or Bylaws of the Seller, (iii) any
applicable statute, rule, regulation, order, decree, judgment or other law or
requirement of any court, tribunal, government agency or other authority,
federal, state or local (sometimes hereinafter referred to collectively as
"Laws"), or (iv) any contract, agreement, note, bond, mortgage, indenture, deed,
license or other instrument (any thereof a "Contract") to which the Seller or
the Company is a party or by which the Seller or the Company or any shares of
the Stock is bound.
3.5 TITLE TO STOCK.
<PAGE>
The Seller (i) has good title, beneficially and of record, to the Stock, free
and clear of all claims and encumbrances, (ii) is in rightful possession of duly
and validly authorized and issued certificates evidencing their ownership of
record of the Stock, and (iii) has full right, power and authority to sell,
transfer, convey and deliver to the Buyer good title to the Stock, free and
clear of all claims or encumbrances.
<PAGE>
3.6 CAPITALIZATION OF THE COMPANY.
As of the date hereof, the authorized capital stock of the Company consists of
Two Million (2,000,000) shares of Common Stock, par value $1.00, of which Nine
Hundred Thousand (900,000) shares are issued and outstanding and owned
beneficially and of record by the Seller, and Two Hundred Thousand (200,000)
shares of Preferred Stock, par value $100.00, of which none are issued and
outstanding. Each outstanding share of the Stock has been duly authorized, is
validly issued, fully paid and nonassessable and was not issued in violation of
any preemptive rights of any shareholder. There are no Contracts obligating the
Company or the Seller (i) to issue, sell, pledge, dispose of or encumber any
shares of, or any options, warrants or rights of any kind to acquire, or any
securities that are convertible into or exchangeable for, any shares of, any
class of capital stock of the Company or (ii) to redeem, purchase or acquire, or
offer to acquire, any shares of, or any outstanding option, warrant or right to
acquire, or any securities that are convertible into or exchangeable for, any
shares of, any class of capital stock of the Company.
3.7 ASSETS.
As of 12/31/97, the assets of the Company are as reflected in the Company's
Annual Statement, and since that time there have been no changes, damages,
destruction or losses in the assets of the Company which individually or the
aggregate have had a Material Adverse Effect on the Company.
3.8 INTELLECTUAL PROPERTY.
The Company has not and is not infringing upon or otherwise violating the rights
of any third party with respect to any intellectual property used in the conduct
of its business. The Company owns no intellectual property rights.
3.9 COMPLIANCE WITH LAW.
The Company is in compliance with all applicable Laws the failure to comply with
which might have a Material Adverse Effect upon it.
3.10 TAXES.
<PAGE>
(a) All tax returns and estimates, of any kind, required to be filed by or
with respect to the Company ("Tax Returns") have been timely filed with
the appropriate governmental agencies and authorities for each period
for which any such Tax Returns were due. All information provided in
such returns, reports and estimates was true, complete and accurate in
all Material respects. All taxes and other charges shown by each Tax
Returns to be payable have been paid, including all tax assessments
and/or levies imposed upon the Company or its property. No waiver of
any statute of limitations executed by or relating to the Company with
respect to any tax is in effect for any period. No audit of any tax
Return of the company is in process nor has an appointment for or
notice of any such audit been requested or given by any taxing
authority. No issue or issues currently pending or unsettled, singly or
collectively, with any taxing authority in connection with any returns
and reports referred to in this Section 3.10 which are likely to, if
determined adversely to the Company, have a Material Adverse effect on
it. To the extent applicable, proper and accurate amounts have been
withheld by the Company and paid over to the appropriate governmental
authorities for all periods in full and complete compliance with the
tax withholding provisions of applicable Law; to the extent applicable,
proper and accurate returns have been filed by the Company for all
periods for which returns were due with respect to income tax
withholding, social security, unemployment and other trust fund or
employer taxes, and the amounts shown on such returns to be due and
payable have been paid in full or adequate provision therefor has been
made.
3.11 INSURANCE HOLDING COMPANY SYSTEM REGISTRATION.
The Company is an insurer which is registered with all necessary state insurance
regulatory authorities as a member of an insurance holding company system and
the Company has timely filed all required amendments to the registration
statement by which such registration was effected.
3.12 TRANSACTIONS WITH AFFILIATES.
All transactions, including without limitation dividends and distributions,
between the Company and the Seller or its Affiliates have complied in all
Material respects with the standards set forth in, and the approval provisions
of, applicable state insurance Law.
3.13 STATUTORY REPORTS.
(a) The Company has timely filed with the appropriate insurance regulatory
authorities in each jurisdiction in which it is licensed to do business
or is otherwise required to so file all annual statements, reports and
amendments thereto required under the laws of such jurisdictions and
has received renewal Certificates of Authority from all such insurance
regulatory authorities issuing the same.
<PAGE>
(b) All of the registration statements and amendments referenced in Section
3.11 above, and all of the annual statements, reports and amendments
referenced in subsection (a) of this Section 3.13 (the "Insurance
Statements") were in compliance in all Material respects with
applicable laws when filed and, as of their respective dates, did not
contain any Materially false statements of fact or omit to state any
Material fact necessary to make the statements made therein not
misleading in light of the circumstances under which such statements
were made. No Material deficiencies in any such Insurance Statements
have been asserted in writing by any insurance regulatory authority.
3.14 INSURANCE.
The Company is insured with respect to its property and the conduct of its
business. The Company has not been denied any insurance or indemnity bond and no
insurance carrier has canceled or reduced any insurance coverage of the Company.
3.15 POWERS OF ATTORNEY.
The Company has not granted any powers of attorney to any Person.
3.16 DISCLOSURE.
No representation or warranty by the Seller in this Agreement nor any schedule,
exhibit or certificate furnished or to be furnished by the Seller pursuant
hereto contains or will contain any untrue statement of a Material fact or omits
or will omit any Material fact necessary in order to make the statements
contained therein not misleading.
3.17 STOCK BOOKS.
The stock books and stock records for the Company are true and correct in all
material respects and reflect all of the issuances and transfers of shares of
the capital stock of the Company.
3.18 SELLER'S CLAIMS.
The Seller does not have any claims against the Company.
3.19 FINANCIAL STATEMENTS. The financial statements of the Company for the
year-ended December 31, 1997 (the "Financial Statements"), copies of which have
been delivered by Seller to Buyer, have been prepared in accordance with
generally accepted accounting principles consistently applied and present fairly
the financial condition and results of operations of the Company as of the dates
and for the periods indicated and are accurate in all Material respects. There
are no liabilities of the Company, whether absolute, accrued, fixed, contingent,
unknown,
<PAGE>
unforeseen or otherwise, which individually or in the aggregate would have a
Material Adverse Effect on the Company and are not reflected on the balance
sheet included in the Financial Statements.
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer hereby represents and warrants to the Seller as follows:
4.1 ORGANIZATION.
The Buyer is a corporation duly organized, validly existing and in good standing
under the laws of Iowa with all requisite corporate power and authority to
execute, deliver and perform this Agreement and each other agreement, instrument
or document to be executed and delivered by the Buyer in connection herewith.
4.2 AUTHORIZATION.
The execution and delivery by the Buyer of this Agreement and each other
agreement, instrument or document to be executed and delivered by the Buyer in
connection herewith have been duly and validly authorized by the Buyer's Board
of Directors or Executive Committee thereof, and no other corporate action on
the part of the Buyer will be required in connection therewith. This Agreement
has been, and each other agreement, instrument and document to be executed and
delivered by the Buyer in connection herewith will be, duly executed and
delivered by the Buyer, and this Agreement constitutes, and each such other
agreement, instrument and document will constitute (assuming due authorization,
execution and delivery by each other party thereto) legal, valid and binding
obligations of the Buyer enforceable against it in accordance with their
respective terms, except as may be affected by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally or by equitable principles.
4.3 APPROVALS.
Except for the Approvals, no filing or registration with, and no consent,
approval, authorization, permit, certificate or order of any court, tribunal or
governmental agency or authority (federal, state or local) is required by any
applicable Law or by any applicable judgment, order or decree or any applicable
rule or regulation of any court, tribunal or governmental agency or authority
(federal, state or local) to permit the Buyer to execute, deliver or perform
this Agreement or any other agreement, instrument and document to be executed
and delivered by the Buyer in connection herewith.
4.4 ABSENCE OF CONFLICTS.
<PAGE>
Neither the execution and delivery of this Agreement or any other agreement,
instrument and document to be executed and delivered by the Buyer in connection
therewith nor the consummation by the Buyer of the transactions contemplated
hereby or thereby will violate or conflict with so as to have a Material Adverse
Effect on the Buyer with respect to (i) the Buyer's Articles of Incorporation or
By-laws, (ii) any applicable Law, or (iii) any contract, agreement, note, bond,
mortgage, indenture, deed, license or other instrument or obligation to which
the Buyer is a party or by which the Buyer or any of its properties or assets
are bound.
4.5 INVESTMENT.
The Buyer is purchasing the Stock pursuant to this Agreement for investment for
its own account and not with a view to the distribution of all or any part
thereof as such term is used in Section 2(11) of the Securities Act of 1933, as
amended.
4.6 DISCLOSURE.
No representation or warranty made by the Buyer in this Agreement nor any
schedule, exhibit or certificate furnished or to be furnished to the Seller by
the Buyer pursuant hereto contains or will contain any untrue statement of a
Material fact or omits or will omit any Material fact necessary in order to make
the statements contained therein not misleading.
ARTICLE 5: COVENANTS OF THE SELLER
5.1 ACCESS.
Upon reasonable notice, the Seller shall cause the Company to afford the Buyer's
officers, employees, counsel, accountants and other authorized representatives
access, during normal business hours throughout the period prior to the Closing
Date, to all of books, accounts, records and other data (including without
limitation all corporate, personnel, litigation and other legal, accounting and
tax documents and records, all contracts and commitments, all policy forms and
administrative forms and records, and all regulatory reports, filings and data)
of the Company in order that Buyer may have full opportunity to make such
investigations as it shall desire to make of the affairs of the Company and,
during such period, the Seller shall cause the Company to furnish promptly to
the Buyer all such information as the Buyer may reasonably request.
5.2 CONDUCT.
The Seller covenants and agrees that, prior to the Closing Date, and except (i)
for actions relating to obtaining any Consents necessary or desirable to the
consummation of the transactions contemplated hereby, (ii) for such other
matters, if any, which the Buyer shall approve in writing, which approval shall
not be unreasonably withheld and (iii) as otherwise may be expressly permitted
by this Agreement, the Company shall be operated only in the ordinary course
<PAGE>
consistent with prior practice, and without limiting the foregoing the Company
shall not (i) amend its charter or bylaws; (ii) issue, sell, pledge or dispose
of any shares of, or any options, warrants or rights of any kind to acquire, or
any securities that are convertible into or exchangeable for, any shares of, the
capital stock of any class of the Company; (iii) split, combine or reclassify
any of its outstanding capital stock or declare, set aside or pay any dividend
payable in cash, stock, property or otherwise with respect to the outstanding
capital stock of the Company; or (iv) redeem, purchase or otherwise acquire any
of the outstanding capital stock of the Company.
5.3 LICENSES.
The Seller shall maintain in effect between the date hereof and Closing all
licenses of the Company currently in existence.
5.4 FURTHER ASSURANCES.
The Seller shall, from and after the closing, execute, acknowledge and deliver
such documents and perform such acts as may be reasonably necessary or
appropriate more fully to vest in the Buyer full right, title and interest in
and to the Stock and generally to cause the satisfactory completion and
consummation of the transactions contemplated by this Agreement, without further
consideration or cost or expense to the Buyer.
ARTICLE 6: MUTUAL COVENANTS
6.1 AGREEMENT TO MAKE REASONABLE EFFORTS.
Subject to the terms and conditions herein provided, each of the parties hereto
agrees to use all reasonable efforts to take, or to cause to be taken, all
actions and to do, or to cause to be done, all things necessary, proper or
advisable to consummate and to make effective as promptly as practicable the
transactions contemplated by this Agreement, including without limitation using
their joint, cooperative efforts to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, including
filings which may be required under all applicable state insurance Laws and
submissions of information required by governmental agencies and authorities;
provided, however, that (i) nothing in this Section or elsewhere in this
Agreement shall require either party hereto incur expenses in connection with
the transactions contemplated hereby which are not reasonable under the
circumstances in relation to the size of the transactions contemplated hereby or
to require the Buyer, the Seller or the Company to make any divestiture of a
significant asset, to make or commit to any undertaking which would involve a
Material change in its operations or to commit to future restrictions on its
rights or opportunities to alter the structure or operations of itself or of an
Affiliate (other than as contemplated by this Agreement) in order to obtain any
such waiver, consent or approval, and (ii) the Seller shall be responsible for
obtaining all Consents from the state domicile of the Company, and (iii) the
Buyer shall be responsible for Consents with respect to the State of Iowa.
<PAGE>
6.2 EXPENSES, FEES AND COMMISSIONS.
All costs and expenses incurred by the Seller and/or the Company in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the Seller and all such expenses incurred by the Buyer shall be paid by the
Buyer. Subject to the foregoing (i) the parties hereto agree that no third
person claiming a fee or commission has in any way brought the parties together
or been instrumental in the making of this Agreement and (ii) each party agrees
to indemnify the other against any claim by any other third person for any
commission, brokerage or finder's fee or other payment with respect to this
Agreement or the transactions contemplated hereby based on any alleged agreement
or understanding between such party and such third person, whether expressed or
implied from the actions of such party.
6.3 TAX MATTERS.
(a) The Buyer shall cause to be prepared and timely filed all required tax
returns for taxable periods beginning on or after the Closing Date.
(b) The Seller shall be liable for and shall indemnify and hold harmless
the Buyer and the Company from and against any unpaid tax liability,
including deficiencies, interest and penalties, relating to the Company
arising or accruing, or with respect to any taxable period of the
Company ending, on or before the Closing Date.
ARTICLE 7: CONDITIONS
7.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.
The respective obligations of each party hereto to consummate the transactions
contemplated hereby shall be subject, at the option of each such party, to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) there shall have been obtained the Approvals and any applicable waiting
periods shall have expired or terminated without objection or
imposition of any condition by any governmental authority; and
(b) no Law shall have been enacted, no suit, action or proceeding initiated
or threatened and no judgment or order shall have been issued and shall
remain in effect in any action or proceeding before any court, tribunal
or governmental agency or authority, federal, state or local, that
would prevent, restrict, impose conditions on, delay or make illegal
the consummation of the transactions contemplated hereby.
7.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SELLER.
<PAGE>
The obligation of the Seller to consummate the transactions contemplated hereby
shall be subject at the option of the Seller, to the fulfillment at or prior to
the Closing Date of the following condition:
(a) the representations and warranties of the Buyer contained in Article 4
herein shall be accurate as of the Closing Date as if such
representations and warranties had been made at and as of that time,
and all the terms, covenants and conditions of this Agreement to be
complied with and performed by the Buyer on or before the Closing Date
shall have been duly complied with and performed in all Materials
respects.
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF BUYER.
The obligation of the Buyer to consummate the transactions contemplated hereby
shall be subject at the option of the Buyer, to the fulfillment at or prior to
the Closing Date of the following conditions:
(a) the representations and warranties of the Seller contained in Article 3
shall be accurate as of the Closing Date as if such representations and
warranties had been made at and as of that time, and all the terms,
covenants and conditions of this Agreement to be complied with and
performed by the Seller on or before the Closing Date shall have been
duly complied with and performed in all Material respects; and
(b) since December 31, 1997, there shall have been no Material Adverse
Change in the Company.
ARTICLE 8: CLOSING
8.1 ACTIONS TAKEN AT CLOSING BY SELLER.
At the Closing, Seller shall deliver to Buyer, the delivery of which shall
constitute a condition precedent to Buyer's obligations to close hereunder, the
following:
(a) Stock certificates representing all of the Stock duly endorsed in
blank, or accompanied by stock powers duly endorsed in blank;
(b) A closing certificate dated as of the Closing Date and certifying as
to:
(1) the truth and accuracy in all Material respects of the
representations and warranties made by Seller as of that date;
<PAGE>
(2) the fulfillment of the conditions to exist or to be complied
with or performed by Seller as conditions to the obligations
of Buyer; and
(3) the fact that no litigation, proceeding, investigation or
inquiry is pending or threatened that might result in action
to enjoin or prevent the consummation of the transactions
contemplated by this Agreement or involving any of the
Company's assets, properties, business or operations that
might result in any Material adverse change in its respective
assets, properties, business, financial condition, operations
or prospects.
(c) For the Company, a copy of the Articles of Incorporation, together with
all amendments thereto.
(d) Copies of all policies of insurance to which the Company is a party or
under which the Company, or any officer or director of the Company, is
or has been covered at any time within the five years preceding the
Closing Date;
(e) Copies of any contract or arrangement, other than a policy of
insurance, for the transfer of sharing of any risk by the Company;
(f) Originals or copies of all historical books and records of the company
dating back at least to the date of the last final exam report of the
Company issued by the state department of insurance then responsible
for such examination.
8.2. ACTIONS TAKEN AT CLOSING BY BUYER.
At the Closing, Buyer shall deliver to Seller, delivery of which shall
constitute a condition precedent to Seller's obligations to close hereunder, the
following:
(a) The payment of $25,000,000 as described in Section 2.2;
(b) A closing certificate dated as of the Closing Date and certifying as
to:
(1) the truth and accuracy in all Material respects of the
representations and warranties made by Buyer as of that date;
(2) the fulfillment of the conditions to exist or to be complied
with or performed by Buyer as conditions to the obligations of
Seller; and
(3) the fact that no litigation, proceeding, investigation or
inquiry is pending or threatened that might result in action
to enjoin or prevent the consummation of the transactions
contemplated by this Agreement or involving any of the
Company's assets, properties, business or operations that
might result in any Material adverse
<PAGE>
change in its respective assets, properties, business,
financial condition, operations or prospects.
(c) Evidence of the due adoption by the Board of Directors or the Executive
Committee of Buyer of corporate resolutions attached to such
certificate authorizing the execution and delivery of this Agreement
and the taking of all actions contemplated hereby and thereby.
ARTICLE 9: TERMINATION
9.1 TERMINATION.
This Agreement may be terminated and the transactions contemplated hereby may be
abandoned at any time prior to the Closing Date:
(a) by mutual consent of Seller and the Buyer;
(b) by any party hereto if the transactions contemplated hereby shall not
have been consummated on or before the Termination Date;
(c) by the Seller if a condition to its obligation to close set forth in
this Agreement is not met on the Scheduled Closing Date or any date to
which Seller has postponed the Closing Date and the Seller does not
postpone Closing or waive such condition in writing in accordance
herewith; and
(d) by the Buyer if a condition to it obligation to close set forth in this
Agreement is not met on the Scheduled Closing Date or any date to which
Buyer has postponed the Closing Date and the Buyer does not postpone
Closing or waive such condition in writing in accordance herewith.
ARTICLE 10: SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
10.1 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Except for claims by the IRS, claims arising under ERISA, or claims arising
under CERCLA, RCRA or any other state or federal environmental law or
regulation, any of which arise out of any acts or omissions of Seller or the
Company occurring prior to the Closing Date, which claims shall survive the
Closing Date indefinitely; the representations and warranties of Seller and the
representations and warranties of Buyer contained in this Agreement shall
survive the Closing Date for a period ending March 31, 2003. Said
representations, warranties, obligations, covenants, indemnities and agreements
shall not be affected by, and shall remain in full force and
<PAGE>
effect notwithstanding any investigation at any time made by or on behalf of any
party hereto or any information any party may have with respect thereof.
10.2 INDEMNIFICATION BY THE SELLER.
Subject to Section 10.1, without otherwise limiting or diminishing the
warranties, representations or covenants contained in this Agreement, or the
rights or remedies available to Buyer for the breach of this Agreement or other
indemnities provided for herein, Seller hereby agrees to indemnify and hold
Buyer and its successors, assigns, shareholders, directors, officers, agents and
employees harmless from and against:
(a) Any and all liabilities of the Company, whether absolute, accrued,
fixed, contingent, unknown, unforeseen or otherwise, existing at the
Closing Date or arising out of any acts, omissions or state of facts
occurring or existing prior to the Closing Date except liabilities
reflected in the Financial Statements and except liabilities which
individually or in the aggregate do not have a Material Adverse Effect
on the Company; and
(b) Any and all liabilities, losses, damages, deficiencies, claims or
expenses, including reasonable attorneys' fees, arising in connection
with or resulting from any misrepresentation, breach of warranty or
nonfulfillment of any agreement on the part of Seller under this
Agreement or any agreement or instrument delivered pursuant to this
Agreement; and
(c) Any and all actions, suits, proceedings, claims, demands, assessments,
judgments, costs and expenses, including reasonable attorneys' fees,
incident to any of the foregoing.
Seller shall have no obligation under this Section 10.2 to indemnify Buyer or
its successors, assigns, shareholders, directors, agents or employees from any
liability arising out of any acts, omissions or state of facts occurring after
the Closing Date.
10.3 INDEMNIFICATION BY THE BUYER.
The Buyer will defend, indemnify and hold harmless the Seller from, against and
in respect of any and all liabilities, losses, damages, deficiencies or expenses
resulting from the misrepresentation or breach of warranty of the Buyer or from
the breach of any covenant or agreement by the Buyer contained herein.
10.4 INDEMNIFIABLE CLAIMS; DAMAGES.
Any claim or claims properly asserted under Section 10.2 or 10.3 above are
referred to hereinafter as an "Indemnifiable Claim(s)." The amount of any such
Indemnifiable Claim(s) is referred to hereinafter as "Damages."
<PAGE>
10.5 PROCEDURE FOR INDEMNIFICATION.
(a) The party against which an Indemnifiable Claim is asserted (the
"Indemnifying Party") shall have the right in the case of a Third-Party
Claim to elect to conduct, at its own expense, the defense against such
claim, with counsel reasonably satisfactory to the party seeking
indemnification (the "Indemnified Party") upon written notice to the
Indemnified Party (the "Defense Notice"). Except with the written
consent of the Indemnified Party, the Indemnifying Party shall not, in
the defense of an Indemnifiable Claim asserted by any Person not a
party hereto against any party hereto (a "Third Party Claim"), consent
to the entry of any judgment (other, than a judgment of dismissal on
the merits without costs), or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
the plaintiff to the Indemnified Party a release from all liability in
respect of such claim or litigation, or which is not consented to by
the Indemnified Party, which consent, however, may not be unreasonably
withheld or delayed.
(b) In any event the Indemnified Party and the Indemnifying Party will
cooperate with and make available to each other such assistance and
materials as may reasonably be requested by the other, all at the
expense of the Indemnifying Party, except as otherwise provided herein;
and the Indemnified Party shall have the right, at its own expense, to
participate in the defense, with counsel reasonably satisfactory to the
Indemnifying Party.
ARTICLE 11: MISCELLANEOUS
11.1 WAIVER AND AMENDMENT.
Any provision of this Agreement may be waived in writing at any time by the
party that is entitled to the benefits of such provision. This Agreement may not
be amended, modified or supplemented at any time, except by an instrument in
writing signed on behalf of each party hereto.
11.2 PUBLIC STATEMENTS.
Each party hereto agrees to consult with and obtain the prior consent of, the
other prior to issuing any press release or otherwise making any public
statement with respect to the transactions contemplated hereby and shall not
issue any press release or make any such public statement prior to such
consultation and consent, except as may be required by applicable Law or
applicable stock exchange policy.
11.3 BENEFIT AND ASSIGNMENT.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto;
provided, however, that this Agreement
<PAGE>
shall not be assignable by either party hereto except by operation of law or
with the prior express written consent of the other. Nothing in this Agreement,
express or implied, is intended to confer upon any party, other than the parties
hereto, and their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
11.4 NOTICES.
All notices, request, claims, demands and other communications hereunder shall
be in writing and shall be given by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, to the respective
parties as follows:
If to the Seller: FBL Financial Group, Inc.
5400 University Avenue
West Des Moines, Iowa 50266
Attn:
If to the Buyer: Farm Bureau Mutual Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Attn:
or to such other address as any such person shall have furnished to the other in
writing in accordance herewith. Any notice which is delivered personally or by
telephonic facsimile transmission in the manner provided herein will be deemed
to have been duly given to the person to whom it is directed upon actual receipt
by such person. Any notice which is addressed and mailed in the manner herein
provided will be conclusively presumed to have been duly given to the party to
which it is addressed at the close of business, local time of the recipient, on
the third day after the day it is so placed in the mail.
11.5 GOVERNING LAW; VENUE.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Iowa, without giving effect to the principles of conflicts of law
that might otherwise apply, as to all matters, including, without limitation,
matters of validity, construction, effect, performance and remedies.
11.6 SEVERABILITY.
If any term, provision, covenant or restriction in this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants
<PAGE>
and restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated.
11.7 COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be deemed an
original but all of which taken together shall constitute but one and the same
agreement.
11.8 HEADINGS.
This section headings herein are for convenience only and shall not effect the
construction hereof.
11.9 ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement of the parties and supersedes
all other prior agreements and understandings, both oral and written, between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the date first above written.
BUYER SELLER
FARM BUREAU MUTUAL FBL FINANCIAL GROUP, INC.
INSURANCE COMPANY
BY /s/EDWARD M. WIEDERSTEIN BY /s/THOMAS R. GIBSON
ITS PRESIDENT ITS CHIEF EXECUTIVE OFFICER
<PAGE>
ANNEX A
SCHEDULE OF CERTAIN DEFINED TERMS
In addition to the other terms defined herein, the following terms when used in
the Agreement shall have the meanings set forth below:
"Affiliate" (except as immediately provided below) shall mean with respect to
any Person, any other person directly or indirectly controlling, controlled by
or under common control with, such Person. For the purposes of this definition,
"control" (including with correlative meanings the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean the Stock Purchase Agreement herewith between the Seller
and the Buyer.
"Closing Date" shall have the meaning set forth in Section 2.3(a) of the
Agreement.
"Consent" shall mean any consent, approval, authorization, permit, certificate
or order of any person, court, tribunal or governmental agency or authority
(federal, state or local).
"Contract" shall have the meaning set forth in Section 3.4 of the Agreement.
"Damages" shall have the meaning set forth in Section 10.4 of the Agreement.
"Defense Notice" shall have the meaning set forth in Section 10.5(a) of the
Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Indemnifiable Claim" or "Indemnifiable Claims" shall have the mean set forth in
Section 10.4 of the Agreement.
"Indemnified Party" shall have the meaning set forth in Section 10.5(a) of the
Agreement.
"Indemnifying Party" shall have the meaning set forth in Section 10.5(a) of the
Agreement.
"Insurance Statements" shall have the meaning accorded to such term in Section
3.13(b) of the Agreement.
"Laws" shall have the meaning set forth in Section 3.4 of the Agreement.
<PAGE>
"Material", as applied to any subject matter, means an event, condition or item
of such magnitude that a reasonable and prudent Person in similar circumstances
to that of Buyer or Seller, as the case may be, would have legitimate concern
for the consequences and might, among other things, choose to forego
consummation of this transaction, negotiate the purchase price further, seek
additional indemnities, obtain insurance "cover", require remedial action or
otherwise be responsive thereto. In circumstances where this is readily
quantifiable the threshold will be $25,000 in consequence or other result,
measurable individually or in the aggregate with respect to a series of
circumstances.
"Material Adverse Change/Effect" means any event which is Material and adverse
to the business, financial condition or earnings of the Person designated.
"Person" shall mean an individual, partnership, corporation, joint stock
company, trust, joint venture, association or unincorporated organization, or
any other form of business or professional entity.
"Purchase Price" shall have the mean set forth in Section 2.2.
"Stock" shall mean all the issued and outstanding shares of the capital stock of
the Company.
"Tax Returns" shall have the meaning set forth in Section 3.10(a) of the
Agreement.
"Third Party Claims" shall have the meaning set forth in Section 10.5(a) of the
Agreement.
<PAGE>
Exhibit "A"
UTAH FARM BUREAU INSURANCE COMPANY SALE
EARNOUT CALCULATION
USING ACTUAL 1997 UTAH RESULTS
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Expected Loss & LAE Ratio 79.48% 80.43% 79.68% 78.07% 76.00%
Loss Ratio/Loss & LAE Ratio 0.8644 0.8644 0.8644 0.8644 0.8644
----------------------------------------------------
Expected Loss Ratio 68.70% 69.53% 68.87% 67.49% 65.69%
Actual Loss Ratio -- Note 1 62.20% 62.20% 62.20% 62.20% 62.20%
----------------------------------------------------
Ratio Difference 6.50% 7.33% 6.67% 5.29% 3.49%
Earned Premium (000s) -- Note 2 29,744 31,787 35,328 39,501 44,327
----------------------------------------------------
Dollar Difference (000s) 1,935 2,329 2,357 2,088 1,549
----------------------------------------------------
50% of Dollar Difference (000s) 967 1,165 1,179 1,044 774
====================================================
</TABLE>
Note 1 -- For purposes of this example, the 1997 loss ratio is used.
For the calculation, the actual Utah direct loss ratio for that year
would be used.
Note 2 -- The earned premium shown is the assumed premiums from the Tillinghast
report.
Actual Utah direct earned premiums would be used in the actual
calculation.
<PAGE>
Exhibit "B"
UTAH FARM BUREAU INSURANCE COMPANY SALE
EARNOUT CALCULATION
EXAMPLE OF MAXIMUM CALCULATION
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Expected Loss & LAE Ratio 79.48% 80.43% 79.68% 78.07% 76.00%
Loss Ratio/Loss & LAE Ratio 0.8644 0.8644 0.8644 0.8644 0.8644
--------------------------------------------------------------------------
Expected Loss Ratio 68.70% 69.53% 68.87% 67.49% 65.69%
Actual Loss Ratio -- Note 1 62.20% 62.20% 55.00% 62.20% 56.00%
--------------------------------------------------------------------------
Ratio Difference 6.50% 7.33% 13.87% 5.29% 9.69%
Earned Premium (000s) -- Note 2 29,744 31,787 35,328 39,501 44,327
--------------------------------------------------------------------------
Dollar Difference (000s) 1,935 2,329 4,901 2,088 4,297
--------------------------------------------------------------------------
50% of Dollar Difference (000s) 967 1,165 2,450 1,044 2,148
==========================================================================
--------------------------------------------------------------------------
Maximum amount paid 967 1,165 2,000 1,044 2,000
==========================================================================
</TABLE>
Note 1 -- For purposes of this example, loss ratio selected to show effect
of $2 million maximum.
For the calculation, the actual Utah direct loss ratio for that year
would be used.
Note 2 -- The earned premium shown is the assumed premiums from the
Tillinghast report.
Actual Utah direct earned premiums would be used in the actual
calculation.
<PAGE>
Exhibit "C"
UTAH FARM BUREAU INSURANCE COMPANY SALE
EARNOUT CALCULATION
EXAMPLE OF NEGATIVE YEAR
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Expected Loss & LAE Ratio 79.48% 80.43% 79.68% 78.07% 76.00%
Loss Ratio/Loss & LAE Ratio 0.8644 0.8644 0.8644 0.8644 0.8644
-----------------------------------------------------------------------------
Expected Loss Ratio 68.70% 69.53% 68.87% 67.49% 65.69%
Actual Loss Ratio -- Note 1 62.20% 62.20% 70.00% 62.20% 71.00%
-----------------------------------------------------------------------------
Ratio Difference 6.50% 7.33% -1.13% 5.29% -5.31%
Earned Premium (000s) -- Note 2 29,744 31,787 35,328 39,501 44,327
-----------------------------------------------------------------------------
Dollar Difference (000s) 1,935 2,329 (398) 2,088 (2,352)
-----------------------------------------------------------------------------
50% of Dollar Difference (000s) 967 1,165 (199) 1,044 (1,176)
=============================================================================
-----------------------------------------------------------------------------
Actual amount paid 967 1,165 -- 1,044 --
=============================================================================
</TABLE>
Note 1 -- For purposes of this example, loss ratio selected to show effect
of negative years.
For the calculation, the actual Utah direct loss ratio for that year
would be used.
Note 2 -- The earned premium shown is the assumed premiums from the
Tillinghast report.
Actual Utah direct earned premiums would be used in the actual
calculation.
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 1,785,165
<DEBT-CARRYING-VALUE> 619,626
<DEBT-MARKET-VALUE> 641,844
<EQUITIES> 53,727
<MORTGAGE> 317,768
<REAL-ESTATE> 40,915
<TOTAL-INVEST> 2,990,708
<CASH> 5,363
<RECOVER-REINSURE> 7,003
<DEFERRED-ACQUISITION> 187,708
<TOTAL-ASSETS> 3,552,126
<POLICY-LOSSES> 2,299,729
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 33,537
<POLICY-HOLDER-FUNDS> 240,605
<NOTES-PAYABLE> 24,575
0
3,000
<COMMON> 48,537
<OTHER-SE> 522,591
<TOTAL-LIABILITY-AND-EQUITY> 3,552,126
35,496
<INVESTMENT-INCOME> 56,070
<INVESTMENT-GAINS> 1,312
<OTHER-INCOME> 7,677
<BENEFITS> 50,366
<UNDERWRITING-AMORTIZATION> 1,695
<UNDERWRITING-OTHER> 13,875
<INCOME-PRETAX> 21,700
<INCOME-TAX> 7,025
<INCOME-CONTINUING> 13,076
<DISCONTINUED> 466
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,542
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
